State revenue forecast in '15 up, but '16 cut

Rise over earlier projection at $79.3M for this fiscal year

Gov. Asa Hutchinson's administration Wednesday increased the state's general-revenue forecast for fiscal 2015 by $79.3 million to $6.39 billion, but reduced the forecast for fiscal 2016 by $175.6 million to $6.33 billion.

In November when Democrat Mike Beebe was governor, the state Department of Finance and Administration had issued a less bullish revenue forecast for fiscal 2015, which ends June 30. But the department revised its estimates after general revenue exceeded that forecast by $130.2 million during the first 10 months of fiscal 2015.

The cut in the forecast for fiscal 2016 partly reflects the effect of tax cuts enacted by the Arkansas Legislature.

"The governor's forecast is a conservative forecast," finance department Director Larry Walther told the Legislature's Joint Committee on Economic and Tax Policy.

"It is based on continued moderate growth. It provides critical funding for the budget needs and the tax cuts that have been made in the last two [regular] sessions," he said.

Walther said the department projected a surplus of $92.4 million for fiscal 2015 before "what we'll call an April surprise." The state received about $47 million more than expected in individual income tax collections from payments on tax returns and extensions last month.

"We are analyzing those payments and the other factors that determine how it will impact surplus at the end of the fiscal year and how it will impact future tax years, but we don't know the answer to that at this point in time," he said. He said he doesn't know whether the $92.4 million surplus projection will be increased.

In its revised forecast for fiscal 2015, the finance department projects that $11.9 million in state general revenue will be available to the Department of Education for increased enrollment in the public schools under the Revenue Stabilization Act, said state budget administrator Brandon Sharp.

The $92.4 million surplus and $11.9 million in increased aid for the public schools are included in the finance department's projected $104.3 million increase to $5.18 billion in its fiscal 2015 forecast for net 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.

"Even considering ... the minuscule tax cuts that we've implemented we are still looking like we are fiscally sound and we are going to have excess revenues," said committee Co-Chairman Sen. Bart Hester, R-Cave Springs.

Kevin Anderson, assistant director for fiscal services in the Bureau of Legislative Research, said the state should have about $56 million in rainy-day funds for fiscal 2016 and fiscal 2017 -- up from the existing pot of about $2 million. The first $50 million of the surplus would go to rainy-day funds.

For fiscal 2016, the finance department cut its net general-revenue forecast from November by $20.7 million to $5.18 billion, which is a $34.9 million increase over fiscal 2015.

The state general-revenue budget is now projected to increase from about $5.05 billion in fiscal 2015 to about $5.18 billion in 2016 -- a $127.2 million increase -- said Sharp.

The revised forecast would fund $5.8 million out of the total $10 million allocated for improving school buildings and school transportation costs in Category C of the Revenue Stabilization Act in fiscal 2016. The Revenue Stabilization Act prioritizes the distribution of state general revenue in Categories "A," "B," "B1" and "C" for fiscal 2016.

After the committee meeting, Sharp noted that this year's Legislature also authorized the use of $40 million of surplus funds for improving school buildings.

Walther told lawmakers that the revised general-revenue forecast reflects "broader consumer and household consumption recovery and additional job growth.

"The indicators for consumer-led growth remain encouraging, but there is a mixed concern on the business investment," he said.

Walther said the department is projecting economic growth of 3.5 percent in fiscal 2016 and 4 percent in fiscal 2017 in Arkansas.

But state Rep. Joe Jett, D-Success, said he worries that the finance department's economic projections don't factor in the state's agricultural industry enough.

"Right now, the prices are so depressed for agricultural [commodities] ... and I am concerned that these numbers are skewed," said Jett, who is chairman of the House Revenue and Taxation Committee.

John Shelnutt, the state's chief economic forecast, replied that he understands Jett's concern.

"I'm not saying that it is absent [from] the forecast. But it is not as well represented as some of the other sectors such as manufacturing," he said.

The finance department cut its November projection for total general revenue for fiscal 2017 by $316.6 million to $6.5 billion -- which would be a $163.6 million increase over fiscal 2016 -- and its projections for net general revenue by $158.5 million to $5.29 billion -- which would be a $103.8 million increase over fiscal 2016.

The forecast factors in $100.7 million in tax cuts enacted by this year's Legislature, the department said.

Metro on 05/07/2015

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