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State revenue sets February record

by Michael R. Wickline | March 3, 2018 at 4:30 a.m.
Graphs showing Arkansas sources of general revenue.

Arkansas' general-revenue tax collections in February increased by nearly 6 percent over the same month a year ago to $457.9 million, setting a record for the month.

The year-to-year increase was $25.5 million, but collections fell about $800,000 short of the state's forecast, the Department of Finance and Administration said Friday in a monthly report.

Individual income and sales and use tax revenue both grew last month compared with a year ago. However, while individual income tax revenue for the month exceeded the forecast, sales and use tax collections fell short. They are the two largest sources of general revenue.

The previous record for February was $432.4 million in 2017, said Whitney McLaughlin, a tax analyst for the finance department.

The report shows strength in Arkansas' economy, "but some irregularities in the consumer [spending] patterns," said chief economic forecaster John Shelnutt.

"I'm very pleased with the revenue report," Gov. Asa Hutchinson said in a written statement released Friday afternoon. "Our revenue numbers are strong. The report shows continued strength in our budget. It reflects the fact that Arkansans are working in record numbers and that their incomes are going up. We will continue to manage the budget conservatively, but this puts us in a strong position as we enter the last quarter of the fiscal year."

Fiscal 2018 ends June 30.

Through the first eight months of fiscal 2018, total general revenue increased by $151 million, or 3.7 percent, over the same period in fiscal 2017 to $4.23 billion. Collections also exceeded the forecast by $34.8 million, or 0.8 percent.

So far in fiscal 2018, individual income tax collections have represented the lion's share of year-to-year increases. The growth in that category is $105.6 million, or 5.4 percent, over the same period in fiscal 2017 to $2.07 billion. The totals also exceed the forecast by $43.9 million, or 2.2 percent.

Tax refunds and some special government expenditures, such as court-mandated school desegregation payments, come off the top of total general revenue, leaving a net amount that state agencies are allowed to spend.

The total net revenue for the first eight months of the fiscal year was $3.59 billion, which exceeds projections by $79.6 million. It's also $158.5 million, or 4.6 percent, more than the total from the same period a year ago.

The net revenue in February alone was a $36.7 million increase, or 13.3 percent, over a year ago, to $313.4 million. It exceeded the forecast by $14.2 million, or 4.7 percent.

Another boost for the bottom line came from the state paying $12.1 million less than it expected for individual and corporate income tax refunds.

In May 2017 -- while still in fiscal 2017 -- Hutchinson cut this year's general-revenue budget by $43 million.

Finance department Director Larry Walther said he's not second-guessing the decision made in May, even though the state has exceeded its net revenue forecast two-thirds of the way through the fiscal year. Hutchinson also reduced the fiscal 2017 budget by $70 million but restored much of that cut after collections rebounded.

"The way we are required to make sure that we only spend what we take in and not spend over, we have to be cautious," said Walther.

Richard Wilson, assistant director of research for the Bureau of Legislative Research, said that while net general revenue has exceeded the forecast so far by nearly $80 million, "about $22 million of that figure is due to expected individual refunds that did not flow during January and February.

"Those refunds will likely be paid, along with additional expected refunds, during March and April," he said.

Across the nation, states' total tax revenue appears to be relatively strong so far in fiscal 2018, the National Conference of State Legislatures said in a report.

"This is in contrast to last year when many states had to revise their forecasts downward and make do with less revenue than expected," the conference said in a report last month.

"Personal income tax collections are performing relatively well through the first half of the fiscal year, with 29 states reporting collections are either on target or exceeding estimates," the report said. Arkansas is one of 15 states that have reported individual income tax collections are exceeding their forecasts. These 15 states include two of Arkansas' surrounding states, Mississippi and Oklahoma.

"Similarly, 27 states report general sales tax revenues are on target or above estimate," the National Conference of State Legislatures' report said.

Arkansas is one of 14 states -- including Missouri and Mississippi -- that reported sales-tax collections fell short of their forecasts, and is one 11 states -- including Mississippi -- that reported corporate income tax collections are lagging behind their forecasts during the first six months of fiscal 2018, the report said.

"Overall state budgets appear stable and legislative fiscal officers are cautiously optimistic," the report said.

Hutchinson has proposed a $5.62 billion budget for fiscal 2019. That's an increase of $172.8 million over this fiscal year. Most of the increase would go to the state Department of Human Services, particularly the Medicaid program.

The governor also wants to set aside $63.9 million as surplus funds and earmark $47.9 million for a "restricted reserve fund" that could be used with the Legislature's approval for extraordinary needs in an economic downturn and to help finance future tax cuts. He proposes using the $15.9 million to help match federal highway funds.

The governor's proposed budget factors in a projected $25 million reduction in general revenue resulting from the 2017 Legislature enacting his plan to cut individual income tax rates for Arkansans with less than $21,000 in taxable income, effective Jan. 1, 2019. The plan is projected to reduce general revenue by $50 million a year, starting in fiscal 2020.

Legislative leaders and the governor started negotiations this week over the proposed Revenue Stabilization Act that will distribute general revenue to agencies in fiscal 2019.

The budget negotiations are "pretty much" wrapped up, said Sen. Larry Teague, D-Nashville, who is a co-chairman of the Legislature's Joint Budget Committee.

Teague said he hopes to have copies of the proposal on the desks of lawmakers on Monday. Legislative leaders aim to wrap up the fiscal session by the end of next week.

Metro on 03/03/2018

Print Headline: State revenue sets February record


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