State revenue outlook trimmed; lawmakers debate treating unclaimed property as ongoing money

Derek Johnson, with the Bureau of Finance and Management, told the Joint Appropriations Committee that revised state revenue estimates for the current year reflect slower taxable-sales growth and continuing pressure from high interest rates, sticky inflation and weak farm income.

The projection from BFM calls for fiscal 2025 taxable-sales collections to finish down about 0.6 percent from the prior year and — depending on whether the governor’s proposed change to the sales tax collection allowance passes — sales-tax growth in fiscal 2026 of about 3.6 percent (4.1 percent including a proposed policy change). “Our state gross product is projected to be average in 2025 and above average in 2026,” Johnson said while outlining the agency’s assumptions about employment, inflation and personal income.

The committee also heard an independent assessment from Jeff Melhoff, chief fiscal analyst for the Legislative Research Council, who described LRC’s forecast as “cautiously optimistic.” LRC’s revised forecast has sales-tax receipts down roughly 0.3 percent in fiscal 2025 with a recovery to about 4.3 percent growth in fiscal 2026. “I think we are seeing the bottom of this cycle and will start recovering over the next 6 to 12 months,” Melhoff said.

Why it matters: sales and use tax is the single largest ongoing general‑fund revenue source. Small percentage differences between competing forecasts translate to millions of dollars in budget capacity and affect agency allocations and appropriations decisions.

Unclaimed property: receipts, claims and the trust-fund debate

Both analysts flagged large, atypical unclaimed‑property remittances that have reshaped the one‑time revenue picture. Johnson said about $306 million had already been remitted to the state treasurer’s office this year and that total remittances could reach roughly $310 million; he and Melhoff both warned that remittances are hard to predict. Johnson said the state expects to pay about $60 million in claims this fiscal year and recommended treating roughly $62.3 million as an ongoing level in 2026, consistent with the governor’s approach.

Melhoff described a different operational approach: LRC uses historical averages of claims-to-receipts to pick a conservative ongoing baseline. “I looked at the last 10 years… the 10‑year average claims ratio is about 27 percent,” Melhoff said. Using that ratio, LRC estimates about $60 million could be treated as ongoing each year, with any excess treated as one‑time funding.

Committee members pressed both analysts on the risks of treating high recent unclaimed‑property receipts as ongoing revenue. Lawmakers raised two recurring concerns: (1) remittances driven by pandemic-era timing or one-off events could decline and leave the state with a structural gap, and (2) better data matching (including new vendor tools) could increase the share of receipts returned as claims, lowering net proceeds available to the general fund.

Other notable revenue details

- BFM flagged farm income declines and reported taxable farm machinery sales down roughly 23 percent through the first seven months of the fiscal year. Johnson said farm income is an important driver of broader personal-income trends that feed sales tax. - BFM and LRC provided separate but comparable estimates for other revenue streams: lottery and insurance‑company tax were shown to be modestly up in 2025 and 2026; contractors’ excise tax and certain license fees remain below prior-year levels. - Both agencies noted that their forecasts assume no additional legislative tax changes unless lawmakers enact them; BFM explicitly showed both the governor’s recommended adjustments and the apples‑to‑apples figures without proposed policy changes.

What the committee directed

Lawmakers asked staff to prepare an apples‑to‑apples comparison worksheet of BFM and LRC estimates (the committee’s standard revenue worksheet) to support upcoming subcommittee budget deliberations. No formal revenue adoption vote occurred at this meeting.

Ending: The revenue presentations set the baseline for the committee’s appropriation work. Members signaled continued caution about relying on volatile sources — unclaimed property and a potential one‑time boost — when deciding on recurring commitments.