In case you missed it the General Assembly’s top economist released updated state revenue numbers on Friday. Through the end of November general fund revenues came in $520 million, or 6.1% behind projections. Recall that through the end of October revenues were behind by 5% so the downward trend is accelerating. Keep in mind that the risky season of the revenue forecast is the spring when we will learn about the final payments of the non-withholdings portion of the income tax and the final payments for the tax on corporate profits. Anyone want to predict that investment income or corporate profits will be anything less than abysmal? Didn’t think so. This recent announcement makes it more likely that the worst-case-scenario of a $1.6 billion revenue shortfall for the current year is the likely scenario. With the governor’s mid-year cuts expected to save roughly $1.2 billion this means that deeper cuts and/or tapping the rainy day fund will be necessary to balance this year’s budget.
Since state spending is roughly equal to what it was in 2000 – per person or as a share of our total income – balancing the budget for this year and the next few years through spending cuts alone will not be pretty. This is certainly the time to look for efficiencies, eliminate ineffective programs, etc. but that alone is not going to do the trick. At some point state leaders will need to have a more meaningful discussion of priorities, in particular whether or not now is the time to bring the 75 year-old tax system into the 21st century.
What do you get when you mix a deep recession with a volatile and outdated tax system? Our state is about to find out.