State income drops in May

SPRINGFIELD — There was the "April Surprise," and now there's the "May Disappointment."

While income tax revenue to the state of Illinois soared by more than $1 billion in April, it dropped by more than $180 million in May.

The downward shift was expected, according to the Legislature's Commission on Government Forecasting and Accountability.

Most of the so-called April Surprise was tied to "taxpayer's efforts to minimize the tax consequences of the higher 2013 federal tax rates," said COGFA's revenue manager Jim Muschinske. "As a result, a comparatively weaker May for income taxes is not alarming. Neither is a considerable dropoff in federal sources that took place this month as those revenues were also down."

COGFA reported last month that the April surge in tax revenue was the result of taxpayers shifting "revenues they would have routinely booked in 2013 and later, into the end of tax year 2012, thereby reducing the higher tax rates effect. Nationally, it's been reported that many wealthy individuals sold investments, even businesses and homes, to avoid higher taxes."

Further, corporations "made sure bonus payments were done in 2012 rather than in 2013," and "a number of companies were said to have accelerated income and dividends into 2012," COGFA reported.

The net result of the tax-paying surge is that total April tax revenue to the state grew by $1.521 billion, compared with April 2012. But overall May revenue dropped by $336 million compared with May 2012.

Perhaps of greater significance is that COGFA projects that revenue to the state for the fiscal year ending June 30 will be $35.72 billion, but it will drop to $35.44 billion for the year beginning July 1.

"Overall, revenues are expected to fall $270 million next year as a result of the one-time 'April Surprise' experienced in FY 2013 that will not be repeated," said COGFA.

Illinois' fragile economy is part of the reason, according to an analysis performed for the state earlier this year.

"Slower healing in housing and government will cause the state to trail the region and nation by an even larger margin in 2013," said Moody's Analytics. "A weak housing market and poor state finances are largely to blame."

The rapidly shifting revenue collections mean that lawmakers and Gov. Pat Quinn need to be vigilant, said state Sen. Mike Frerichs, D-Champaign, who is co-chair of COGFA.

"One month does not a trend make and this one month should not scare us," Frerichs said, "but if you continue to have a couple of months of decreases, then we'll have to take a closer look at our expenditures for next year."

Quinn, said Frerichs, "has some discretion in what he spends and if it looks like revenues are going to come in far less than was anticipated or projected, he probably needs to make some changes."

The governor has not signed any of next year's budget bills, which House Republicans say call for $35.44 billion in spending.

Although income tax revenue to the state is much higher this year than last (8.1 percent more for personal income taxes and 26.5 percent more for corporate income taxes), most other major revenue sources have seen modest gains.

The state sales tax — the state's No. 2 source of revenue — has grown by 1.5 percent through the first 11 months of the fiscal year. Utility tax revenue is up 2.6 percent, liquor taxes are up less than 1 percent and cigarette tax revenue is flat.

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