Biennial Revenue Estimate 2006-2007

Revenue Overview

The 79th Legislature will have $64.7 billion available for general revenue-related appropriations for the 2006-07 biennium. This revenue will come from three sources: tax collections; non-tax receipts such as fees, lottery proceeds, and interest; and the 2004-05 biennium ending balance. (See Figure 1.)

Figure 1: the flow of revenue

Aside from certain fund balances, only four funds affect the discretionary spending detailed in the General Appropriations Act. These funds, which are referred to as "general revenue-related funds," are the General Revenue Fund, the Available School Fund, the State Textbook Fund, and the Foundation School Fund Account. The remaining funds depend upon federal receipts or revenues that are dedicated by the constitution or by statute. A prime example is the constitutionally dedicated Permanent University Fund.

The state's tax system is the main source of general revenue-related funding. Taxes are expected to yield $54.6 billion during the upcoming biennium, contributing 86.3 percent of total net revenues. Compared with the $52.2 billion collected in 2004-05, total general revenue-related tax collections in 2006-07 are expected to register a 4.5 percent increase.

As has been the case since 1988, state sales tax revenues will continue to account for more than half of all state general revenue-related tax collections. The slowdown in collections that started in 1999 culminated in actual collection declines in fiscal 2002 and again in 2003, due in large part to the national recession. The trend finally reversed in 2004-05, which is now expected to register a 9.2 percent biennial growth rate over 2002-03. Collections in 2006-07 are expected moderate slightly, rising 8.2 percent above those in the current biennium

Other major state taxes are expected to display mixed results. In 2005, motor vehicle sales tax revenues are expected to continue the disappointing performance of recent years. Collections for this tax are expected to gain strength in 2006 and recover full momentum in 2007, yielding a 5.4 percent biennial increase. Motor fuels tax revenues are expected to grow by 4.7 percent during the upcoming biennium.

Franchise tax collections reached a cyclical low in 2002-03, reflecting the general weakness of the national economy and, especially, corporate profits. Relatively flat collections are expected in 2004-05, followed by a 3.9 percent gain in 2006-07. Net franchise tax revenue growth will be checked by the use of tax credits earned since 2001 and by the continued shift toward business organizations not subject to the tax.

Oil and natural gas prices should peak in fiscal 2005, followed by a general slide toward their long-term trajectory. Oil production and regulation taxes are expected to fall by 16.1 percent in 2006-07, primarily because of lower prices, compounded by production declines. Most producers in the state are working old fields; and no significant discoveries have been made to reverse the downward trend. Likewise, natural gas taxes are estimated to drop 19.0 percent in the upcoming biennium, again because of falling prices.

While tax collections provide the largest source of general revenue-related funds, non-tax revenues are still important. Total general revenue-related non-tax receipts are estimated at $8.7 billion in 2006-07. Of this amount, lottery proceeds are expected to contribute $2.1 billion, followed by license, fee, fine, and penalty revenues, at $1.6 billion.

Earnings on state investments provide another significant source of non-tax revenue; as with many other non-tax revenues, this source is expected to show a decline. The Permanent School Fund (PSF) distributes the largest component of this revenue source.

Beyond general revenue-related funds, the state is expected to generate $67.3 billion in revenues dedicated for specific purposes and thereby unavailable for general spending. Federal receipts--many of which are driven by state appropriations--should provide on the order of $47.0 billion and account for the majority of this revenue. Dedicated federal revenues are earmarked for such expenditures as Medicaid, highways and transportation, and education, among many other purposes.

Taking all state revenue sources into account, the state is expected to collect $130.5 billion in revenue for all state funds during the 2006-07 biennium.