State revenue falls $4M, still tops forecast in July

Graphs showing Arkansas sources of general revenue.
Graphs showing Arkansas sources of general revenue.

State general revenue in July dipped by $4 million from a year ago to $466.8 million but exceeded the state's forecast by $4.5 million.

Individual income tax collections slipped by $12.4 million last month from July 2014, while the sales- and use-tax collections increased by $7.6 million in the same period, the state Department of Finance and Administration said Tuesday in its monthly revenue report.

Gov. Asa Hutchinson said Tuesday that "the sales tax revenue continues to demonstrate an expanding economy in Arkansas and growing consumer confidence.

"This is the most encouraging news. Beyond that, we need to continue to budget conservatively," the Republican governor said in a written statement.

The state's record tax collection for the month of July remains the $470.8 million collected in 2014, said department tax analyst Whitney McLaughlin.

The decline in individual income tax collections resulted from $55 million a year in income tax cuts -- enacted by the Arkansas Legislature in 2013 and becoming effective Jan. 1.

As a result, the state and private employers have revised their withholding rate tables, decreasing the amount that businesses deduct, said John Shelnutt, the state's chief economic forecaster.

Hutchinson's additional $102 million a year cut in income-tax rates -- enacted by the Legislature earlier this year -- becomes effective Jan. 1, Shelnutt said.

Shelnutt attributed the increase in the state's sales- and use-tax collections in July to three factors: the state's economic growth, lower gas prices and falling income-tax rates.

It's the fourth consecutive month that sales- and use-tax collections have increased over last year's figures, said Larry Walther, director of the finance department.

"People are spending money, which is good for the economy and good for our sales tax [collections]," he said.

Individual income taxes and sales and use taxes are the primary sources of state general revenue.

Tax refunds and several other government expenditures come off the top of total general revenue, leaving "net" general revenue that agencies are allowed to spend.

The net in July decreased by $3.9 million (1 percent) to $399.2 million, but also exceeded the state's forecast by $6.8 million (1.7 percent).

July is the first month of fiscal 2016, which ends June 30.

"We had a good month overall," said Walther.

Earlier this year, the Republican-dominated Legislature enacted a $5.18 billion general budget for fiscal 2016 -- a $127 million increase from fiscal 2015 -- said state budget administrator Duncan Baird.

The state ended fiscal 2015 with a $191.6 million general-revenue surplus and $38.6 million of that surplus was unobligated.

According to the finance department, July's general revenue included:

• A $12.4 million (5.8 percent) drop in individual income taxes from a year ago to $200.9 million, which is $0.8 million (0.4 percent) above the state's forecast.

Individual income tax withholdings are the largest category of individual income tax collections.

The withholdings declined by $14.1 million over a year ago to $185.6 million, falling $1.4 million short of the forecast.

Shelnutt said the withholdings' decline last month is not tied to fewer employees working or working fewer hours, but it's primarily because of state income tax cuts and the resulting update of the withholdings table.

The state's unemployment rate dipped to 5.7 percent in June, down from a revised 5.8 percent in May, the U.S. Bureau of Labor Statistics reported last month.

The national unemployment rate was 5.3 percent in June, down from 5.5 percent in May.

• A $7.6 million (4.1 percent) increase in sales- and use-tax collections to $193.1 million, exceeding the state's forecast by $3.9 million (2.1 percent). The collections were bolstered by a 10 percent jump in sales-tax collections from motor vehicle sales compared with July 2014, said Shelnutt.

• A $2 million (10.9 percent) increase in corporate income taxes over a year ago to $20.4 million, which fell $6.3 million (23.7 percent) below the state's forecast.State officials have said corporate income tax collections are typically volatile, often fluctuating based on corporations' federal income tax strategies.

• A $0.1 million decrease in tobacco taxes over a year ago to $20.9 million, exceeding the state's forecast by $2.4 million (13.2 percent).

Richard Wilson, assistant director of research for the Bureau of Legislative Research, said it's good to see growth in the state's sales- and use-ax collections, "since the consumer sector is such a large component of our economy.

"Since the recession, this sector has been slow to recover. People have changed buying habit [with] not as much credit card debt," he said. "Some months we see growth and some months we don't."

Metro on 08/05/2015

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