The Fiscal Research Division and the Office of State Budget and Management have reached a consensus on a revision to the FY 2012-13 revenue forecast. The consensus revenue forecast for FY 2012-13 was revised upward by $21.0 million and projects $232.5 million in over-collections for the current fiscal year.
There are two key reasons for the small adjustment to next fiscal year’s forecast despite the increase in the revenue projected for this fiscal year. For one, there was only a moderate upgrade to the overall collection base, and secondly, the economic forecast for the rest of 2012 and into 2013 was downgraded from the original biennium forecast of last year.
The revenue surplus projected for FY 2011-12, is the direct result of better than expected growth in personal income tax withholding collections . Other key revenue sources including the Sales Tax, Corporate Income Tax, and Franchise Tax are expected to be at or slightly below their original revenue projections. Additionally, there was no “April surprise” again this year from personal income non-withholding (capital gains, business income, etc.). This means that the overall tax base only grew a moderate amount over the original biennium budget projections.
The second reason for little change in the FY 2012-13 forecast despite a slightly larger tax base is the downgraded economic forecast for the nation and the State’s economy compared with what was originally envisioned for the upcoming fiscal year. The net change in FY 2012-13 baseline revenues (removing tax law changes) was a reduction from 4.6% year-over-year growth, as forecast in April 2011, to 4.2% growth.
As a final note, the end-of-year revenue estimates produced after April collections usually fall within a range of plus or minus $10 to $20 million of the projected amount. A little more volatility will be in play this year given the newly enacted $50,000 business income exemption, which started with the 2012 tax year. The business exemption has added another layer of uncertainty for this year’s estimates because of how taxpayers with business income may, or may not, adjust their June 2012 estimated payments.
Source: NC Fiscal Research Division, Email from Legislative Economist Barry Boardman to legislators and staff members