Southwest states notch notable revenue gains in fiscal 2022

Fiscal 2022 brought robust revenue growth for Texas and other Southwest states, leading to record budget balances and calls for tax cuts.

State coffers across the United States benefited as increased prices for goods and services boosted sales tax collections, while rising wages and employment lifted income tax revenue.

Preliminary data from 45 states showed total tax revenue increased 8.1% in fiscal 2022, which ended June 30 for 46 states, compared to fiscal 2021, according to Lucy Dadayan, senior research associate at the Urban Institute. 

But she warned in a recent report that states could face difficult times ahead given still-high inflation, which is pressuring spending and wages. 

"In addition, legislatures in a number of states have enacted tax cuts or introduced temporary tax holidays, which may lead to tough choices in the coming months if growth in real revenues continues to weaken indicating that much of this past year's growth was due to temporary reasons," Dadayan said, noting state tax revenue growth was just 0.3% in June versus the same month in 2021.

In Texas, which ended fiscal 2022 on Aug. 31, state Comptroller Glenn Hegar reported general fund revenue of $76.47 billion, which was 26.4% more than in fiscal 2021, and all-funds tax collections that were up 25.6% and $841 million higher than forecast.

"To put it into perspective, only five times since 1988 has the rate of growth in Texas' all funds tax collections exceeded the prior fiscal year by double digits — and those increases ranged from 10% to 13%," Hegar said in a statement. "This year's rate of growth was almost double the previous high in that time."

High inflation and economic growth boosted sales taxes, the state's biggest tax revenue source, which totaled nearly $43 billion, up 19.3% from fiscal 2021.

Hegar released a revised revenue estimate in July that more than doubled the projected budget balance at the end of fiscal 2023 to nearly $27 billion from $12 billion. General revenue-related funds for the fiscal 2022-23 biennium were increased 10.2% over a November estimate to about $149 billion. The state's rainy day fund is projected to have a $13.66 billion balance at biennium end after accounting for appropriations and investment and interest earnings.

With the state swimming in cash, Republican Gov. Greg Abbott, who is campaigning for reelection, called for the largest property tax cut in Texas history. His campaign tweeted Aug. 31 that at least half of Texas's $27 billion record budget surplus should be returned to property taxpayers. 

Rising home values have spurred the Texas Legislature to examine ways to ease the property tax burden when it returns to session in January. 

The conservative Texas Public Policy Foundation cheered Abbott's plan.

"Naysayers will, of course, fret over the size of the tax cut, worrying that money won't be there in the future to continue it on," the foundation said on its website. "But these concerns ignore the state's massive rainy day fund, which is reported to reach $13.6 billion by the end of fiscal year 2023, and also Texas' durable economy which, despite disastrous national headwinds, continues to perform well under pressure."

Progressive public policy group Every Texan, on the other hand, has said state funding for public schools, health care, and other services is lagging particularly in today's high-inflation environment.

Texas collected a record $6.36 billion in oil production taxes and $4.47 billion in natural gas production taxes in fiscal 2022 amid high demand and high prices for fossil fuels. Hegar said he will be making a $3.64 billion deposit each in the state's economic stabilization and highway funds.

The fossil fuel industry was also good to Oklahoma, which reported record oil and gas gross production tax collections of $1.53 billion in fiscal 2022, which ended June 30. Overall gross tax collections were $16.46 billion, 15% higher than fiscal 2021.

"Inflationary forces are a significant concern for consumers, but Oklahoma's macro economy is benefitting from current energy prices and low unemployment," State Treasurer Randy McDaniel said in a statement.

The good revenue news continued in fiscal 2023 for Oklahoma, which reported its biggest-ever August tax revenue of $1.37 billion, including an all-month record $205.6 million in gross production tax revenue.

In a special legislative session this summer, Gov. Kevin Stitt's proposals to eliminate the state sales tax on groceries and reduce the personal income tax passed the House, but were not taken up by the Senate. 

Arkansas Gov. Asa Hutchinson cited a $1.6 billion net surplus at the end of fiscal 2022 when he called a special legislative session in August on tax relief. 

"This represents the largest surplus in Arkansas history and demonstrates the state is collecting too much in tax revenue," the Republican governor said in a statement.

Lawmakers agreed, passing $400 million in tax cuts.

Arkansas ended fiscal 2022 with $7.477 billion in net general revenue, up 9.2% from fiscal 2021 and $154.7 million above forecast.

Kansas' fiscal year ended on June 30 with a record-high rainy day fund balance of $969 million after lawmakers approved $750 million in deposits and higher-than-estimated revenue led to an additional $219 million deposit. 

Fiscal 2022 marked the first time in 23 years that the Kansas State Finance Council did not have to vote to take out a short-term loan to cover the state's day-to-day expenses, according to a statement from Gov. Laura Kelly.

The state's total tax revenue of nearly $9.8 billion exceeded estimates by $438 million and was 9.5% higher than in the prior fiscal year.

Arizona's $16.68 billion of general fund revenue was 17% higher than in fiscal 2021 and $257 million above forecast. 

"The preliminary ending balance of $4.66 billion far exceeds the state's previous record cash balance, which was $957 million at the end of FY 2019," a Joint Legislative Budget Committee report said.

Colorado reported $17.8 billion in general fund net tax revenue for  fiscal 2022, which was 1.7% over estimates and 12.8% higher than in fiscal 2021.

The latest data from Utah showed general and education funds revenue for the first 11 months of fiscal 2022 totaled over $10.7 billion, which is 16% higher than the same period in fiscal 2021.