Another $2.6 billion added to state revenue forecast, bolstered by strong retail sales.

Today’s quarterly revenue forecast increased projected collections by $2.6 billion.

The graph below shows the upward trajectory of actual and projected collections.

The Associated Press reports,

Updated numbers by the the Economic and Revenue Forecast Council show that projected revenue collections for the 2021-2023 budget cycle are nearly $1.8 billion above what had been originally forecasted in March. And projections for the current budget cycle that ends in a few weeks are now $838 million higher than expected.

Steve Lerch, the chief economist and executive director of the council, noted that since the last update there has been a continued drop in COVID cases, hospitalizations and deaths, increases in employment — both at the national and state level — and a strong residential real estate market.

Nearly a billion of the increase in revenue projection for 2021-2023 came from the sales tax, and Lerch pointed to a jump in people buying recreational goods — like bikes and exercise equipment— cars and other large big-ticket household items.

A lot of pent-up demand has been unloosed on a reopening economy. The ERFC breaks down the changes.

  • The Education Legacy Trust Account (ELTA) forecast for the 2019-21 biennium was increased by $2 million. Forecasted ELTA revenue in future biennia has been greatly increased by the newly passed tax on certain capital gains of $250,000 or more. The tax will be first collected in FY 2023, based on calendar year 2022 taxable gains. The first $500 million of the tax gets transferred to ELTA, with the minimum transfer increasing each year with inflation. The ELTA share of the tax is forecasted at $500 million for the 2021- 23 biennium and $1.028 billion for the 2023-25 biennium. The total forecast increase for the 2021-23 biennium is $506 million and the forecast increase for the 2023-25 biennium is $1.022 billion. Forecasted ELTA revenue is now $1.630 billion for the 2019-21 biennium and $1.793 billion for the 2021-23 biennium. Forecasted ELTA revenue for the 2023-25 biennium is now $2.094 billion.

  • Forecasted revenue dedicated to the Opportunity Pathways Account (OPA) was increased by $16 million in the 2019-21 biennium, $18 million in the 2021-23 biennium and $16 million in the 2023-25 biennium. Forecasted OPA revenue is now $336 million for the 2019-21 biennium, $349 million for the 2021-23 biennium and $351 million for the 2023-25 biennium.

  • Forecasted revenue dedicated to the Workforce Education Investment Account (WEIA) was increased by $12 million in the 2019-21 biennium, $35 million in the 2021-23 biennium and $7 million in the 2023-25 biennium. Forecasted WEIA revenue is now $358 million for the 2019-21 biennium, $661 million for the 2021-23 biennium and $728 million for the 2023-25 biennium.

  • Summing the changes to the GF-S, ELTA, OPA and WEIA forecasts, total state revenue subject to the budget outlook process is forecasted to increase by $838 million in the 2019-21 biennium, $1.798 billion in the 2021-23 biennium and $2.246 billion in the 2023-25 biennium.

An upward adjustment has been expected, as revenue collections to date were consistently besting predictions. But, we’ll confess, the size of this adjustment caught us by surprise. The ERFC writes,

  • Since the March 2021 forecast, taxable economic activity in the state has been much higher than forecasted, especially in terms of retail sales. Because of this, revenue collections have greatly exceeded our expectations. Cumulative major General Fund-State (GF-S) collections from March 11 through June 10, 2021 came in $645 million above the November forecast.

  • Most of the collections in excess of the forecast were from Revenue Act taxes (the main category of GF-S taxes including retail sales and use, business and occupation, public utility and non-cigarette tobacco products). Cumulative Revenue Act collections came in $481 million higher than forecasted. As there is only one more month of collections in the 2019-21 biennium, the total biennial forecast increase for Revenue Act taxes is $586 million. The forecast of higher state income and employment has also increased forecasted Revenue Act receipts by $995 million for the 2021-23 biennium and $1.03 billion for the 2023-25 biennium.

The chart below tells the story.

Another positive sign of a strong economic recovery.