Projected state revenue a guesstimate at best
As Gov. Tom Corbett's staff readies the state budget for his legislative address on Tuesday, it's weighing spending decisions against one big educated guess.
The state revenue estimate is the Department of Revenue's annual attempt to predict how much Pennsylvania will collect in taxes during the next year. In the past two budget years, as the recession drove down economic activity, the department overestimated revenue by more than $4.4 billion.
"Perfect accuracy -- or even near accuracy -- is very difficult," said Sarah Emmans, a researcher with the Pew Center on the States. Her Washington-based think tank released a report Tuesday detailing revenue estimate mistakes that helped states rack up some of their largest-ever budget deficits.
As of the end of February, the state collected $243.2 million more than estimated in the fiscal year that started July 1, according to figures released yesterday.
The Revenue Department referred questions to Corbett's office. Asked whether Corbett is guarding against another overestimate, spokesman Eric Shirk replied: "The governor's official revenue estimate will be provided on March 8."
The Pew report found that in recent recessions, states got worse at estimating revenue. In the 2001 recession, half the states had serious forecasting errors, defined by Pew as overestimating revenue by 5 percent or more. In 2008-09, that number rose to 70 percent.
Emmans said that was linked to the causes of the recessions.
In 2001, the tech bubble burst, driving down the value of stock portfolios. Capital gains taxes brought in less than expected, which drove down income tax revenue.
This recession was different. In addition to the stock market's tumble, joblessness rose, people cut back on spending, and corporate income fell. The three taxes states most depend on -- corporate, personal income and sales taxes -- plummeted.
"It wasn't like the early 2000s, when everybody was out buying new electronics," said Mark Robyn, economist at the Tax Foundation, a Washington policy institute that released its annual comparison of state tax rates yesterday.
Making matters worse for Pennsylvania was the state's patchwork of more than 50 sales tax exemptions, which cover a range of items such as food, clothing, coal, helicopters, horses and trout. The goal of the biggest exemptions -- for food and clothing -- is to protect the poor from paying taxes on necessities.
But when the economy sours and everyone pares budgets, necessities are the only things most people buy, Robyn said.
"Having a broad tax base means taxing everything, but it avoids being subject to some of the larger swings in the economy," he said. "If all you tax are electronics and everybody cuts back on their iPod purchases, then you're not getting that revenue."
Pennsylvania's tax rate stayed "pretty consistent over the last five years or so," Robyn said.
Pennsylvania ranks 22nd in the amount of tax money collected per capita -- $2,389 in 2009, the latest data available -- putting it between Kansas and Iowa, according to the foundation.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Pennsylvania Department of Health will note fracking complaints
- Departing prosecutor in Pennsylvania Turnpike pay-to-play case does not blame lack of resources
- Suspect in Philadelphia real estate agent’s carjacking to ask forgiveness
- Construction of $500M power plant in South Huntingdon stalled
- Food fundraisers have to be healthy — it’s the law
- Pennsylvania’s public school staffing at 10-year low
- Education Department ordered to release 644 pages of emails on abuse at Penn State
- Penn State trustees vote to stay course on Sandusky sanctions