FRANKFORT, Ky. (June 28, 2018) — State General Fund revenues are up for June, exceeding the state’s revenue estimate by $114.4 million, state lawmakers were told Thursday.
Office of State Budget Director Deputy Director Greg Harkenrider told the Interim Joint Committee on Appropriations and Revenue that the state estimated receiving $959.6 million in revenues in June but said that goal was met last Tuesday. Today, he said, his office predicts June General Fund revenues will exceed $1 billion by the end of this month, reaching $1,074 million.
Harkenrider said the surplus funds will help meet the state’s Necessary Government Expenditures, or NGEs, which are expenses not included as line items in the state budget but rather paid for with surplus funds or from the state Budget Reserve Trust Fund.
“To put that in perspective — the NGEs were estimated to be around $85 (million),” he told the committee. Now the NGEs are expected to be around $82 million, he said, giving the state “at least enough to cover the current year NGEs” from the General Fund surplus account.
“There will be a little bit of money left over if this estimate comes true,” said Harkenrider.
The fiscal boost in June comes from a number of sources including the Kentucky Lottery, which Harkenrider said is paying the state $35.5 million in dividends this month –$10 million more than the state anticipated. Growth in individual income and sales tax revenue will also buoy receipts, he said.
A delay in processing $20 million in General Fund receipts due to updates to state’s electronic financial system called eMARS (Enhanced Management Administrative Reporting System) creates a “caveat” but, Harkenrider explained, will cause no long-term harm since those receipts will be accounted for next month.
“If you net out the lottery and the eMARS, that’s $9.5 (million) to the bad. But economic growth and so forth is going to overcome the $9.5 million to the bad,” he told lawmakers.
Next fiscal year’s revenues also look promising, Harkenrider said, largely due to tax changes made by the 2018 General Assembly. His office is estimating a $208.2 million increase in sales tax dollars and $130 million increase in tobacco tax dollars as a result of reforms, with corporate and individual income tax revenues expected to fall.
“We’re just chomping at the bit to see how accurate these estimates might be,” said Harkenrider.
More state revenue is also expected as a result of the recent SCOTUS ruling in South Dakota v. Wayfair, Inc. That ruling held that states can tax purchases made from out-of-state sellers that do not have a physical presence in those states, including many Internet vendors. Harkenrider said the ruling will impact sellers with over $100,000 in receipts or 200 transactions in Kentucky, a member of the national Streamlined Sales and Use Tax Agreement which is designed to “substantially reduce the burden of tax compliance,” according to the Streamlined Sales Tax Governing Board.
Rep. Ken Fleming, R-Louisville, questioned Harkenrider about the Wayfair decision and how it will impact Kentucky.
“I understand it’s going to be sort of a soft approach and given the financial situation we’re in, dealing with pensions and other things we’re faced with, I’d like your comments on that,” Fleming asked Harkenrider, who said first that Kentucky would not seek back taxes but would take a “prospective” approach by encouraging retailers to register as a retailer in Kentucky.
He said the state hopes to get as many vendors as possible signed up early next fiscal year, which begins on July 1. He also said lawmakers need to be measured about how quickly they expect results from the Wayfair ruling in terms of revenue.
“I would just encourage you (all) to not get the big eyes and think too much for fiscal 2019 because it’s going to be a growing process,” he said. “But, this is also going to be a high priority.”
Sen. Robin Webb, D-Grayson, asked how approaching tax changes will impact government agencies and their staff. “Are we going to be stressed in either infrastructure or agency for implementation, processing and enforcement at some point with the agencies that are tasked with this?” she asked.
As far as the Wayfair decision is concerned, Harkenrider said vendors can be automatically registered in Kentucky because of its participation in the Streamlined Sales and Use Tax Agreement. “They can just register through Streamline,” he said. As far as state agencies are concerned, he said there is some extra work right now.
“The sales tax people (in the Department of Revenue) are working some overtime right now,” he said.
Also addressed was the state Road Fund, which Harkenrider has had little growth in motor fuels tax revenue in June. “Not much growth in the Road Fund estimate,” he said, adding that a “flat June” only yielded $3.2 million more than anticipated.