In the face of uncertainty over income tax withholdings, the Legislature’s Joint Economic Outlook and Revenue Assessment Committee voted Thursday to lowball Gov. Brad Little’s revenue projection for the upcoming budget year.
The committee recommended that the Legislature and the Joint Finance-Appropriations Committee build the 2020 state budget around a projection of 5.7 percent revenue growth.
Earlier this week, Little forecast revenue growth at 8.2 percent, building his budget recommendations around that figure.
In terms of dollars, there is about a $93 million difference between the two forecasts.
The committee’s recommendation is significant for a couple of reasons.
First, the recommendation is one of several pieces of information JFAC will consider before it begins setting the state budget next month.
Secondly, the committee’s revenue projection shows that several lawmakers are still feeling cautious and uncertain when it comes to revenues and budgeting.
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“I think we need to be a little more cautious,” said Rep. Steven Harris, R-Meridian, who led the push for the lower projection.
The committee also recommended the Legislature exercise caution in approving any funding over its revenue recommendation.
Senate Education Committee Chairman Dean Mortimer, R-Idaho Falls, said he backed the lower projection because of revenue uncertainty and signs of “recessionary pressure” that he is seeing in the economy.
“So it behooves us to be, again, a little more moderate in our 2020 forecast,” said Mortimer, a homebuilder and developer by trade.
It’s too early to tell the implications for education funding. However, because education is Idaho’s top expense — with K-12 public schools accounting for more than 48 percent of general fund spending — any pressure on revenues or the budget could affect the size of the funding pie available for schools.
Legislators and policy wonks have known individual income tax returns were coming in behind projections for months. On Wednesday, the news got a little worse as the state reported that December revenue projections fell short of projections by $40.2 million. Once again, the problem was individual income tax receipts that fell below projections.
There is also a secondary issue with end-of-year estimated tax payments.
Idaho Tax Commission Chairman Ken Roberts told the committee Thursday he believes the revenue projections are a cashflow issue that will be corrected after Tax Day, April 15.
The problem, he said, is that Idahoans are not withholding enough money from their paychecks.
He predicted the state will pay out about $100 million less in refunds than a year ago, and Idahoans will, collectively, owe $100 million more on Tax Day, which should bring tax collections back in line with projections.
While that would “correct” the problem from a revenue perspective, Roberts described the situation as a “dramatic consequence late in the fiscal year for individual taxpayers who are under-withheld.”
Overall, Roberts said the state is in an unusual revenue position. But he stressed that the state’s economy is very healthy and he is optimistic because of the population growth in Idaho.
“Again, keep calm and carry on,” Roberts advised the committee.
On Friday morning, JFAC members voted unanimously to accept the committee’s revenue report without yet setting an official revenue target around which to build the budget. JFAC will approve an official revenue target in the coming weeks.