Report shows Idaho treasury back on course

BOISE — Strong May tax collections, coupled with fewer individual income tax refund claims than in past months, erased Idaho’s bulging cash deficit and put the treasury back on course to meet the revenue projection on which Gov. Dirk Kempthorne based his budget-balancing plan.

Preliminary figures released on Wednesday by the Division of Financial Management showed individual income tax receipts coming back dramatically just as administrative chief economist Michael Ferguson had predicted.

The revenue report confirmed Ferguson’s assessment that taxpayers sought refunds earlier than usual this year so that the cash deficit created in February, March and April by those accelerated claims would disappear in May and June when refunds would fall far short of expectations.

May collections came in over $21 million higher than predicted, largely due to fewer refund claims but also because paycheck withholding, a key indicator of the economy’s underlying job strength, was 9 percent higher than a year ago.

Sales and corporate tax payments were also higher than anticipated, turning a one-time cash deficit of nearly $26 million into a cash surplus of $2.7 million.

Those figures could change slightly when the revenue report is finalized later in the month, but past adjustments have generally been minimal.

Revenue from the sales tax, which reflects consumer confidence, was nearly 6 percent higher than expected.

Should tax collections run as expected in June, the final month of the government’s fiscal year, the state would finish with a surplus of over $70 million — the threshold Kempthorne set for getting the state through the 2005-2006 budget year after the temporary penny increase in the sales tax expires in 13 months.

But even under that blueprint, the state faces significant budget cuts in key areas because escalating costs will be greater than the 1 percent increase in state spending the plan contemplates.

Legislative analysts advised some lawmakers last week that the outlook is positive, but they will have to tap nearly all the state’s recently replenished reserves to reach a budget agreement that does not rely on extension of the temporary penny sales tax. The reserves were drained over the past three years to cope with the economic downturn and, still, the tax hike was required.

Kempthorne has acknowledged the likelihood that spending will be constrained in the next budget, but he has argued that the economic recovery will be stronger than his plan anticipates and ease the financial crunch.