Finance committee accepts economic outlook; staff warns sales-tax diversions shrink general‑fund share

The Joint Finance-Appropriations Committee on Thursday accepted a report from the Economic Outlook and Revenue Assessment Committee that recommended conservative general-fund revenue targets of $5,990,000,000 for fiscal year 2025 and $6,400,000,000 for fiscal year 2026.

The committee accepted the report by unanimous consent after a motion to accept the EROC report and a second. Senator Kevin Cook, co-chair of the EROC committee, presented the panelrecommendation and urged caution. "We recommend cautious in making appropriations above the committee's revenue recommendation," Cook said during his presentation.

Why it matters: The revenue baseline the legislature adopts at the start of session constrains appropriation decisions across state agencies. Budget staff told JFAC the current structure of sales-tax distributions and recent statutory earmarks have reduced the portion of sales-tax receipts flowing to the general fund, increasing the risk that disruptions in income-tax receipts during an economic downturn would force deeper spending reductions.

Budget staff briefing and program maintenance overview Budget Policy Analysis Division manager Keith Bybee briefed committee members on the structure the staff will use to present the program maintenance appropriations next week: 10 functional maintenance bills that group agencies to make statewide decisions comparable across agencies. Bybee said the maintenance bills will incorporate the CEC adjustments (employee compensation) and the usual maintenance components: benefit-cost adjustments, contract inflation, statewide cost allocation, and other ongoing items.

Bybee described the distinction between program maintenance and enhancement bills. He said program maintenance will include the baseline building-block adjustments (personnel and benefits, contract inflation, statewide cost allocation and CEC) while enhancements will include replacement items (including a separate decision unit for IT replacements), new requests, and population-forecast adjustments such as changes in school support units or Medicaid caseloads.

On revenue and sales tax distributions, Bybee reviewed a new table in the legislative budget book that traces gross sales-tax collections through the statutory distribution formulas and earmarks. He said gross sales tax collections have grown but the general fundshare of sales-tax receipts has declined over time because of revenue sharing, the tax-relief fund, Techum allocations, school modernization, and other statutory distributions. "It's not the bad years that get you," Bybee said. "It's what you do during the good years that get you," warning that more dollars routed out of the general fund now reduce legislative flexibility in a downturn.

Numbers cited in the meeting - EROC recommended general-fund totals available for appropriation: $5,990,000,000 (FY2025) and $6,400,000,000 (FY2026). - Staff previewed a hypothetical program-maintenance total (if following the governor's package) of about $12,859,224,200 for the 10 appropriations bills used as an illustration. - Sales-tax gross collections were presented as: about $3.1 billion (2024), projected near $3.37 billion (2025), and around $3.5 billion (2026), with net amounts reduced by refunds and statutory transfers to the tax-relief fund and other earmarks.

Discussion and next steps Committee members discussed timing and logistics for Wednesday and Friday hearings next week that will present the detailed program-maintenance packets, with decision-making scheduled for Friday the 17th. Bybee said maintenance hearings will be followed by the enhancement bills, where population-forecast adjustments, replacement items and other growth requests will be considered.

Action taken The committee accepted the EROC report by unanimous consent after a motion to accept the report; Senator Woodward seconded the motion and the chair announced no objections.

A staff-drafted general-fund daily update and the legislative budget-book materials cited in the briefing will be circulated electronically to members; staff said they will update the materials before next week's hearings.