UPDATE: March tax revenue for Indiana misses projections by 6%

Revenue for the state of Indiana came in $70 million lower than expected in March, with a decrease in sales taxes accounting for the largest portion of the discrepancy.

The March revenue report, released Friday afternoon, showed sales tax revenue was $25.2 million lower than projections, missing the mark by about 4%. Sales tax revenue makes up roughly 50% of state tax collections.

Other revenue sources also were lower than expected in March. Corporate taxes were down $17.9 million below the monthly estimate; individual income taxes were $9.2 million below projections; gambling taxes missed by $13.5 million; and other taxes were $4.2 million below the monthly estimate.

Overall, tax revenue was 6% lower than predicted. But the budget is still slightly ahead of estimates for the year. Year-to-date, the state expected to have collected $11.37 billion by now, and it has collected $11.4 billion.

All of the estimates are based on the budget forecast from December. The state typically conducts two budget forecasts every year—one in December and one in April.

State budget officials are preparing for the April monthly revenue report to be worse than March’s report, though, as most of the economic impact from the coronavirus likely won’t show up until then because of a delay in when taxes are remitted to the state.

In April, the state was projected to collect nearly $2.2 billion in taxes.

“Going into the April-to-June period, significant monthly fluctuations are expected, and deviations from monthly estimates are likely as the rapidly changing economic outlook will most likely impact monthly collections starting in April,” the monthly revenue report says. “Additional uncertainty will be introduced, particularly with individual income tax and corporate taxes, with the alignment of Indiana’s tax filing and payment due date with the federal deferral to July 15.”

Federal aid from the Coronavirus Aid, Relief, and Economic Security Act is expected to help the state’s finances though.

Office of Management and Budget Director Cris Johnston said state officials are estimating Indiana will receive $2.4 billion from the $150 billion allocated in the CARES Act for state and local governments to use for expenses related to coronavirus response efforts.

That’s slightly less than the estimate from the National Conference of State Legislature, which predicts that Indiana will get $2.6 billion from that pool of money.

The major economic changes have prompted questions over whether the state will need a new budget forecast to have a better idea of what to expect in the months ahead, but state officials have not taken that step yet.

Johnson said Friday that he thinks a new revenue forecast will be important, and his department is working with legislative leaders to determine when to do it. He said it would likely be completed by the middle of summer.

“We know the descent will be steep and rapid,” Johnston said. “What we don’t know is how fast the recovery will be.”

Johnston said the state also received $10.6 million from the first federal relief package that became law on March 6, but that funding has mostly been used for acquiring personal protective equipment.

Johnston said the CARES Act is expected to result in $250 million for existing state programs like child care support and unemployment insurance and $500 million for education.

To help administer the federal funding, the state has created a new Economic Relief and Recovery Team that will be led by Johnston and Secretary of Commerce Jim Schellinger.

The team includes five members who will advise Johnston and Schellinger: former Lt. Gov. Becky Skillman, former state Sen. Luke Kenley, former OMB Director Ryan Kitchell, Indiana Economic Development Corp. board member Kristin Marcuccilli and Indianapolis businessman Al Hubbard, who served as director of the National Economic Council under President George W. Bush.

“All five are great Americans, great Hoosiers, who have a great deal of business experience but also public service experience,” Schellinger said.

But the state is still awaiting guidance from the U.S. Department of Treasury and U.S. Department of Education for how the federal funding may be spent and exactly how much the state will receive.

Johnston said they will also work with legislative leaders to determine spending priorities.

“While it is a sizable amount of money, we also cannot build expectations beyond this funding that we cannot fulfill,” Johnston said. “And so, we will be developing programs and spending programs to monitor and comply with that.”