Reading the tea leaves: gross versus net

Governor Chet Culver's budget office reads the state tax receipt records from July and concludes gross receipts are up 1.2 percent compared to July, 2008.  The Legislative Services Agency reads the state tax receipt records from July and concludes net receipts are down 6.1 percentcompared to July, 2008.  Dick Oshlo, the governor's budget director, says they're counting gross receipts and that includes transfers, while the Legislative Services Agency does not count transfers.  A transfer, for example, would be made by the Iowa Lottery as it deposits the state's take from lottery sales into the state treasury.

The two sides do agree on two basic numbers, Personal income tax payments to the state were down 6.1 percent, while sales and use tax payments to the state were up 40.8 percent.  Oshlo says the sales tax numbers indicate there was "pent up demand" for goods.  He also notes there's on-going construction in disaster areas which is spurring sales tax receipts when people buy goods to refurnish their homes.

Oshlo also defends the practice of considering gross rather than net receipts: "We don't believe, in terms of good accounting practices, you can net out certain numbers right now because this takes us into that whole debate about whether it's cash accounting or accrual accounting."

The non-partisan Legislative Services Agency's monthly report on General Fund receipts, however, considers net receipts.  Jeff Robinson, a senior analyst for the Legislative Services Agency, explains it this way:  "Net receipts are what the state has available to spend. Gross receipts have to be offset, in our opinion, by the refunds that are issued."

Robinson also warns that 40.8 percent increase in sales taxes is a one-month fluke caused by a bookkeeping change.  "The gross sales tax was boosted considerably in the month of July because of a change in how the SILO — the school infrastructure money — was transferred out of the General Fund. Last year it was transferred directly out of gross receipts and this year it was transferred through a refund —  and that moved about $40 million from gross (receipts) to refunds."

If you read the reports, sales and use tax collections were up $40.4 million.  That means if you subtract the $42 million in SILO Robinson mentioned, sales and use tax collections really were roughly equal when you compare July, 2008 with July 2009.

Read the news release from the governor's office below:

IOWA REVENUE FOR FIRST MONTH OF FISCAL YEAR IS 1.2 PERCENT ABOVE LAST YEAR

Focus Continues on Strengthening Economy, Creating Jobs

DES MOINES – With the first month of Fiscal Year 2010 now complete, state tax receipts in Iowa for the month of July are 1.2 percent above the same time last year and are ahead of projections made by the Revenue Estimating Conference (REC), which estimated an annual growth rate of -0.1 percent.

Gross general fund revenue receipts for July totaled $412.1 million, or $4.7 million above the same period of time last year.

“While our state and nation continue to face the challenge of a recession, these figures suggest we may be seeing the early signs of improvement in the economy,” said Governor Chet Culver. “These latest figures, however, do not mean we can let down in our efforts to maintain Iowa’s balanced budget and help Iowans work our way out of this recession. We must continue, through I-JOBS and the federal recovery, to strengthen the economy and put people back to work in order to increase income for people and businesses. And, we must be prepared to make additional budget cuts if they become necessary.”

In addition, Governor Culver announced today that he will meet with his Council of Economic Advisors next week. The Council meets regularly to provide the Governor with an assessment of economic conditions in Iowa.

The meeting will be on Monday, August 10 at 1:00 pm in the Kennedy Conference Room at the State Capitol.

UPDATE:  Culver press secretary Troy Price emails this after seeing this Radio Iowa story which includes Republican reaction to the gross versus net debate.

"This negative and baseless attack is just one more sign that some in the Republican Party like the recession they created so much they don’t want it to end," Price said in an emailed statement. "The fact is, gross revenues for the State of Iowa have improved, and anyone who has spent two minutes in the public or private sector understands that is a step forward. The net revenue figure is a little more than guesswork at this point in time. Governor Culver knows there is a lot of work left to get out of this Republican-caused recession, but today is one more sign that Iowa is making progress."

Price did not comment on the Legislative Services Agency argument.

UPDATE II:  Price now emails this, in response to Legislative Services Agency and gross versus net.

"Quite simply, they are wrong," Price replied. "All we were announcing today is the one figure we know for sure, which is gross revenues for the month of July.  Everything else, including what LSA was saying today, is speculative, and not based in fact.

"The state uses an accrual counting system that takes everything into account when determining their final numbers, which is one of the reasons why we have not speculated on a final number yet for FY09.  

"It’s all very confusing, but at the end of the day, the Department of Management are the ones that close the books and, therefore, the ones that matter, not LSA or anyone else."