Consensus Revenue Forecast

May 2026 Revised Consensus General Fund Revenue Forecast

Upward Revision from March 2026 Consensus Revenue Forecast

The Consensus Forecasting Group (CFG), comprised of economists at OSBM and the General Assembly’s Fiscal Research Division, has issued a revised consensus revenue forecast for General Fund revenues.

May 2026 Consensus General Fund Forecast (in millions)

Source: OSBM-FRD consensus revenue forecast as of May 15th, 2026

Higher Expected FY 2025-26 Overcollections 

The revised forecast anticipates overcollections of $979M in FY 2025-26, which is $609M higher than in the March 2026 consensus forecast. The upward revision is due to strong tax collections across multiple major revenue sources in March and April.

Individual income tax collections in March and April exceeded expectations due primarily to final and withholding payments, driven by elevated capital gains realizations during tax year 2025 and substantial corporate bonuses to paid to employees from strong 2025 profits. 

Gross sales tax collections in April were well above expectations due in part to a substantial increase in federal income tax refunds resulting from recent federal tax changes. 

Corporate income tax extension and final payments came in well above target in both March and April, reflecting continued strong growth in corporate profits among large corporations in 2025. 

Insurance premium tax collections also exceeded expectations due to increases in property and casualty insurance premiums and continued growth in Medicaid managed care expenditures.

Higher Revenues Expected for FY 2026–27

General Fund revenues for FY 2026-27 are revised up by $713M (2.1%) from the March 2026 consensus, which is $1.66B (4.9%) higher than certified revenues. This reflects a higher baseline from stronger current-year collections and a modestly improved economic outlook for the upcoming fiscal year, bringing year-over-year growth to 3.3% in FY 2025-26 and -0.7% in FY 2026-27.

A stronger outlook for individual income tax collections, which the CFG now expects to come in $463M (2.8%) higher than in the March 2026 consensus, accounts for two-thirds of the increase. The revision reflects a higher starting point for FY 2025-26 and continued growth in wages, business income, and capital gains. 

Higher anticipated corporate income and franchise tax collections account for $148M (7.0%) of the FY 2026-27 upward revision, reflecting a stronger baseline for business profits and corporate net worth than the March 2026 consensus. The CFG also raised expectations for insurance premium tax collections by $91M (5.7%) for FY 2026-27.

Sales tax revenues see a modest upward revision, reflecting slightly higher inflation, though rising prices and a waning boost from this year’s higher federal refunds may limit consumer spending later in the year.

Anticipated collections in both years remain above the trigger thresholds for consecutive individual income tax rate reductions under S.L. 2023-134. The individual income tax rate is projected to fall from 3.99% in 2026 to 3.49% in 2027 and 2.99% in 2028.

Economic Tailwinds Supporting the Revised Forecast

Several factors continue to support revenue growth:

AI-related investment: A sustained boom in artificial intelligence investment has been an important tailwind for the US economy since early 2025, boosting employment, wages, and corporate profits. Research from the Federal Reserve Bank of St. Louis estimates that AI-related investment contributed nearly a full percentage point to real GDP growth in the first three quarters of 2025, surpassing the contribution of comparable technology investment during the dot-com boom in the late 1990s. 

Strong stock market performance: Three consecutive years of double-digit equity market gains through 2025 have generated a meaningful wealth effect on consumer spending and boosted income tax collections from elevated capital gains realizations and continued growth in investment income. 

Robust corporate profits: Large publicly traded firms continue to show strong earnings, supporting corporate income and franchise tax revenues above the March consensus.

Economic Headwinds and Risks

Higher energy and commodity prices: Elevated energy and commodity prices from the ongoing Middle East conflict are the dominant near-term headwind to the economic and revenue outlook. Higher energy prices have pushed inflation to the highest level since early 2023, with gasoline prices up by more than 50% since February. Financial markets now expect the Federal Reserve to hold on further short-term interest rate cuts to combat inflation, and long-run interest rates have also moved higher. These conditions raise costs for businesses and consumers, potentially slowing spending and investment.

Financial market risk: The dramatic rise in the stock market in recent years, driven by optimism in AI-driven earnings growth, is the primary driver of state revenues exceeding expectations. As in the late 1990s and mid-2000s, however, a rising dependence on stock market gains raises the risk of a more significant drop in individual and corporate income tax revenues if stock prices were to fall persistently below recent highs.

Rising interest rates: Higher long-term Treasury yields increase borrowing costs, which can slow business investment, housing activity, and consumer demand.

Minor Upward Revision to Transportation Revenue Forecast

Transportation revenues tied to General Fund sales tax transfers are revised slightly upward to reflect increased General Fund sales tax collections in the revised consensus. All other sources remain the same from the March consensus.

May 2026 Revised Consensus Highway and Highway Trust Fund Forecast (in millions)

Source: OSBM-FRD consensus revenue forecast as of May 15th, 2026