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JFAC briefed on sales-tax distributions, growth of tax relief fund and implications for general fund flexibility
Summary
Budget staff reviewed how sales tax collections are distributed (including revenue sharing and the tax relief fund), projected sales tax totals through FY2026, and the possible effect of proposals to earmark additional sales-tax dollars for a Techum bond program.
Budget staff walked JFAC through the mechanics of sales tax distributions, recent growth in earmarked funds and how that reduces the portion of sales tax left to the general fund.
Key points and numbers: Keith Bybee told the committee gross sales tax collections were about $3.1 billion in 2024, projected to $3.37 billion in 2025 and $3.5 billion in 2026. After refunds and statutory transfers (including the transfer that funds the tax relief fund), net collections are reduced before the statutory distribution formula applies. Revenue sharing to local units equals 11.5% of net collections, and statute currently provides a 4.5% allocation of net revenues to the program discussed in the meeting as "Techum," with $80 million of that identified for bonding. Bybee said, "Tecum receives 4.5% of net revenues..." and noted that $80 million is currently earmarked for bonds.
Tax relief fund and other earmarks: Bybee described the tax relief fund (revenues from online sales tax collections) and said the fund earmarks roughly $236 million for the general fund under current distribution rules (with other shares routed to public school facilities and the public defense fund). He showed a chart indicating that the share of sales tax flowing to the general fund has fallen from about 85-86% before the Great Recession to roughly 65% by the 2025 projection; the increased number of statutory earmarks and distributions (including school modernization and Techum-related allocations) reduces the sales tax portion available for general appropriation.
Discussion of a proposed Techum increase: Committee members asked about a governor-related proposal they had heard described. Bybee said he had not seen a bill but understood the proposal (as described to him) would earmark an additional $50 million for Techum-related bonding. He noted that whether that $50 million comes within the existing 4.5% calculation or in addition to it would change the effect on the general fund: if treated within the existing formula it would require a smaller net change; if added on top of the existing 4.5% it would reduce general-fund availability by roughly the full amount.
Why this matters: Bybee cautioned that sales tax is the state's most stable revenue source during downturns, and the growing number of earmarks reduces the flexible general-fund share available to the legislature when revenue declines. Committee members noted the policy trade-offs between providing local and programmatic earmarks and preserving general-fund flexibility for future downturns.
Administrative notes: Bybee also pointed out minor errors in the printed budget book's chart and said he would correct page 34 and circulate the corrected file.
