Release of the state’s report on July general revenue fund receipts was a good news-bad news story for state agencies and Oklahoma taxpayers.
The good news — and it was extremely good news — was that total general revenue fund collections for the first month of the new fiscal year exceeded July collections from a year ago by 14.9 percent.
The $471 million in July general revenue fund collections was 17.3 percent above the official estimate. If the trend continues, state agency budgets will be fully funded this fiscal year and revenue increases will be on track to trigger a cut in the state’s top personal income tax rate from 5.25 percent to 5 percent in 2016.
The bad news is state finance officials are expecting a drop in August collections.
“In August, we may see some of that wiped out the other way,” said John Estus, spokesman for the state Office of Management and Enterprise Services. “There are a lot of amended personal tax returns and amended corporate returns sitting at the Tax Commission that we are aware of that will perhaps cause the collections to go the opposite direction in August. By the time September comes around, it could be a wash.”
Just how badly state prognosticators sometimes miss the target with their monthly revenue projections was clearly illustrated by the July report.
Individual income tax collections of $206.8 million were 56.9 percent above the estimate — a windfall that boosted state coffers by $75 million over the amount expected.
The forecasters missed their marks by large amounts in the opposite direction on corporate income tax and gross production tax collections.
The state collected $8.3 million in corporate income taxes in July. That was about $1.1 million more than the amount collected last July, but 49.4 percent short of the state estimate.
July gross production tax collections of $11.4 million were $336,000 less than last July and $5.5 million, or 32.6 percent, below projections.
How can the predictions of state finance officials be so far off?
“I don’t know in particular what happened, but I can tell you that if you have a small handful of very wealthy individuals who amend their returns and a small handful of very large businesses that amend their returns, your monthly numbers can be skewed by double digits very easily,” Estus said.
“One of these amended corporate returns that didn’t hit this month, but may hit next month, could on its own cause a double-digit skewing of the numbers,” he said. “When the big fish make a change, it can cause waves throughout the whole ocean.”
In a forecasting report submitted to the state Board of Equalization in June, Oklahoma Tax Commission officials said $35 million in revenue recently was shifted from one fiscal year to the next just because of the timing of one corporate taxpayer’s payments.
Sometimes it all evens out over the course of a year.
But sometimes it doesn’t.
Such was the case last fiscal year when corporate income tax collections repeatedly came in below expectations.
Ultimately, corporate income tax collections ended up dropping $145.1 million last fiscal year and finished the year $175.3 million, or 36.4 percent, below the official estimate. That large decline was largely responsible for the state nearly experiencing a revenue shortfall that would have required budget cuts at the end of the fiscal year.
Estus attributed some of last year’s corporate income tax decline to delayed reactions to the federal fiscal cliff crisis.
A financial smorgasbord of tax credits granted to businesses by the Oklahoma Legislature also contributed to the decline.
Since corporate income tax revenues fell short of the estimate again in July, that trend may not be over.
Historically, Oklahoma’s annual revenue forecasts have been good, compared to other states. A national Pew Center study said Oklahoma’s median error rate in forecasting personal income taxes, corporate income taxes and sales taxes from 1987 to 2009 was 0.49 percent. That was the sixth-lowest error rate in the nation for that time period.
Still, employees of the Oklahoma Tax Commission, Office of Management and Enterprise Services and Oklahoma State University are working to improve the forecasting model, officials said.
Monthly forecasts, prepared by the Office of Management and Enterprise Services, are particularly vulnerable to hard-to-predict fluctuations Estus said.
“You can’t read too much into one month’s numbers,” he said. “We’ll just have to keep a close eye on it.”