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Budget staff briefs committee on sales tax distributions, tax relief fund and risks to general fund
Summary
Legislative budget staff explained how sales tax collections are distributed under statute (including revenue sharing and the Tax Relief Fund), described recent growth in corporate and sales tax receipts, and cautioned that statutory earmarks have reduced the share of sales tax available to the general fund, increasing vulnerability in downturns.
Legislative fiscal staff provided JFAC a detailed briefing on sales tax distributions, the Tax Relief Fund and broader drivers of general fund revenue, warning that statutory earmarks have reduced the portion of sales tax flowing to the general fund and could make budget balancing harder in an economic downturn.
Keith Bybee reviewed tables in the legislative budget book showing total sales tax collections and statutory distributions. He noted gross sales tax collections were projected to grow to about $3.37 billion in 2025 and $3.50 billion in 2026, but that statutory transfers reduce amounts available to the general fund. Bybee described revenue sharing (11.5% of net collections) sent to local governments, the Techum distribution (4.5% of net collections, with $80 million identified for bonding), transfers to the Tax Relief Fund (which stems from online retail sales tax collections) and other earmarks such as the school modernization fund.
Bybee told the committee that the committee's revenue projections differ from the governor's on the bottom line and said, "that the general fund received 85, almost 86% of sales tax collections" during the Great Recession era but now receives about 65% because of added distributions and earmarks. He cautioned that sales tax historically is less volatile than income tax, but "if the next revenue recession happens," reductions in other revenue lines would make deeper cuts necessary because so much sales tax is now pre-allocated by statute.
Committee members asked clarifying questions about the Techum (transportation) funding: Techum receives 4.5% of net revenues with $80 million earmarked for bond payments; staff said a governor proposal discussed would earmark an additional $50 million for Techum projects, but that the details and statutory drafting would determine whether the additional money would reduce the general fund or come from existing statutory shares. Members also discussed the circuit breaker and other property-tax relief programs, and staff noted some product tax revenues that formerly funded programs (for example, cigarette tax distributions tied to bond levy equalization) will no longer flow the same way as those programs have changed.
Bybee closed by sharing a cautionary chart showing the drop in the share of sales tax available for general fund purposes over time and urging the committee to consider the implications of statutory earmarks when planning appropriations and reserves.
