Tax windfall could help state coffers

• April reports show individual and corporate income tax collections brought %24141 million more into the state coffers than was projected for the month.
• Combined with smaller higher-than-expected growth in prior months%2C overall state revenue now sits at %24228 million over projections.
• Budget analysts and state leaders say it%27s far too early to start celebrating%2C much less spending.

Arizona may not have to dig into savings to keep this year's budget in the black after all.

April reports show individual and corporate income tax collections brought $141 million more into the state coffers than was projected for the month. Combined with higher-than-expected growth in prior months, overall state revenue now sits at $228 million above projections.

"If sustained for the entire year, the forecast overage will offset the $132 million fiscal year 2015 shortfall — which would otherwise be covered by the Rainy Day Fund," according to a report the Joint Legislative Budget Committee released this week.

But budget analysts and state leaders say it's too early to start celebrating, much less spending.

"We've got one month of really positive and good news," said Senate President Andy Biggs. "But I think we're still cautious. We've gotten some weird anomalies before ... We need to let the dust shake down a little bit."

The budget Gov. Doug Ducey and the Legislature passed was expected to leave the state with $12 million at the end of this fiscal year. With the help of rainy day funds, fiscal 2016 was projected to end $3 million in the black before slipping into the red for the two years after that.

The tax revenue surge reflects a nationwide trend, which the report speculated could be partly due to a one-time spike in taxes owed on capital gains and dividend payments. The report also indicated fewer than normal refunds had been filed by the end of April, which could mean more refunds will be sought in the coming months, driving revenue back down.

"I think we had a former federal reserve chairman that called this type of one-month report irrational exuberance," Biggs said. "We don't even know if this is something that's going to be repeated."

Ducey's staff saw it in a more optimistic light.

"It's clearly an early sign that we are moving in a positive direction," said Ducey spokesman Daniel Scarpinato. "Coupled with the upgrade today of Arizona's credit rating, this is just further validation that the actions that the governor and Legislature took to balance the budget and make sure we weren't spending more than we had is putting our state on a more stable path moving forward."

The report made it clear the revenue spike is not due to large growth in employment or real estate sales. It shows much more modest increases in more stable revenue areas, including sales taxes.

Ducey and Republican leadership have been criticized for pushing the fiscal 2016 budget through quickly and with little outside input. Some, including former Republican Sen. Carolyn Allen, speculated they wanted it done before higher revenue numbers were released, possibly making it easier to push through the cuts they wanted.

"I think they believed JLBC was going to come back with higher numbers and I think this (budget) was a rush to judgment," Allen said. "I don't think going home early ... is what people sent them down there for."

Biggs dismissed the allegations.

"That's from people looking backwards. I'm looking forward," he said. "The reality is, there's nothing that changes the overall budget forecast from what we had. If you got a bonus on your paycheck, you wouldn't base a whole year on that one-time bonus money."

Scarpinato said the speed of the budget process was appropriate. "The governor inherited a fiscal crisis and it was important to bring stability to state finances and address that in a timely manner," he said.

Biggs said it's not yet time to start talking about how to spend any extra revenue.

"The last time we had something like this, people went in and spent it all and the very next year we had the massive recession hit," he said. "Before you start counting your chickens, maybe you should let them hatch."

Allen said Ducey and Republican leadership should make education funding a priority, and predicted budget cuts surrounding education will come back to haunt them.

"I think this new governor is a little naive. I think they misjudged how the public feels about public education and funding," she said.

The overage approaches the amount the Maricopa County Superior Court ordered the state to pay to reset the K-12 per student funding formula. The court order totaled about $336 million for next fiscal year, to make up for inflation not covered during the Great Recession. The budget put $74 million in extra funding into the budget next year, leaving the balance at $262 million for next fiscal year.

The state is challenging the funding lawsuit. The two sides are currently in mediation that has now gone on for more than three months.

Dana Wolfe Naimark, president and CEO of the advocacy group Children's Action Alliance, agrees it's too early to know whether this spike in revenue is more permanent. But she said even if it is, there could still be little available to boost education funding.

After passing the budget, Ducey and the Legislature approved additional tax cuts, and corporate tax cuts from prior years continue to be phased in.

"It's clear the governor and the majority have already cemented their fiscal priorities, and those are tax cuts, at the expense of education and kids," Wolfe Naimark said. "We've already put into law more tax cuts that will cost more money, with no replacement revenue or discussion on how to pay for it."

By the numbers

April 2014 individual income tax revenue: $394 million

April 2015 individual income tax revenue: $517 million

April 2014 corporate income tax revenue: $88 million

April 2015 corporate income tax revenue: $126 million