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Arkansas' budget gets a boost at fiscal year's end; revenue tops previous projection

by Michael R. Wickline | July 1, 2020 at 7:32 a.m.
The Arkansas flag is shown in this file photo.

Thanks to better-than-expected tax revenue, Gov. Asa Hutchinson's administration increased its general revenue forecast enough to boost the state government's fiscal 2020 budget by $240 million, to $5.62 billion, on Tuesday -- the last day of the fiscal year.

The state Department of Finance and Administration raises the forecast more than three months after the department -- out of concern over the economic effects of the coronavirus pandemic -- cut the general revenue budget by $353.1 million, to $5.38 billion.

"It is good news that we will end the fiscal year in Arkansas $360 million ahead of where we thought we were going to be," Hutchinson said, referring to how much greater revenue was than the reduced projection.

"We revised our revenue forecast down [on March 23]. We have gained in terms of our economy in Arkansas [and] did not take the dip we expected to," the Republican governor announced at his near-daily covid-19 news conference.

The March 23 budget cut was the largest in state government since at least 1988, according to finance department records.

The cut resulted from projections that the state would take in less general revenue than forecast in fiscal 2020 because of job cuts and business slowdowns during the pandemic, and from the state extending its April 15 filing and payment deadline for individual income taxes to July 15.

That tax deadline -- which mirrors the individual income tax changes made by the federal government -- will land in the state's fiscal 2021, which starts today. The federal fiscal year starts Oct. 1.

Larry Walther, finance and administration secretary, said in an interview that the state received about $100 million in individual income taxes in fiscal 2020 that it expected to receive in fiscal 2021.

The state also took in more in corporate income and sales taxes than projected in fiscal 2020, and it paid out fewer individual income tax refunds than projected for the fiscal year, he said.

Hutchinson said the increased general revenue forecast for fiscal 2020 means the public school fund will have $121 million in general revenue restored.

Public colleges and universities will have $42.4 million in general revenue restored, and they will be fully funded, including productivity funding, in fiscal 2020, the governor said.

Joe Steinmetz, chancellor at the University of Arkansas, Fayetteville, said Tuesday night that "we are thrilled that the revenue forecast is positive as that is good news for the State of Arkansas."

"And, the restoration of FY2020 funds is welcome in these challenging financial times, which is good for higher education in the state," he said in a written statement.

Chuck Welch, president of the Arkansas State University System, said Tuesday that "the forecast revision and restoration is welcome news for higher education in light of the past three very difficult months of uncertainty."

"We are grateful to Governor Hutchinson and the General Assembly for their conservative and proactive budgeting actions," he said in a written statement. "We will remain very cautious with our budgeting and spending, understanding that uncertainty will continue in the coming fiscal year and unanticipated budget impacts may still occur."

Cam Patterson, chancellor at the University of Arkansas for Medical Sciences, said Tuesday that Hutchinson has demonstrated good fiscal discipline and that the increased forecast for fiscal 2020 is good news.

"I am hopeful that as the pandemic continues and more funding is needed that resources will be made available to UAMS, the state's only academic medical center, and other hospitals to support us in the fight against COVID-19," he said in a written statement.

At his news conference, Hutchinson said the increased general revenue forecast for fiscal 2020 also "means that we will be able to restore $72.2 million to the Medicaid Trust Fund."

"This trust fund had been reduced during the course of the year because of needs and because of costs, and this restoration of the $72.2 million will bring the balance of the trust back to where we started at the beginning of the fiscal year.

"As we go into the new [fiscal] year, we'll carry a balance of about $255 million in the Medicaid Trust Fund. This is good news for us," Hutchinson said.

At the end of the fiscal year, the state will also have about $225 million in unallocated reserves that will remain in place until the General Assembly meets and decides what to do with the funds, the governor said.

The unallocated reserve funds include $128 million in unspent funds from the covid-19 rainy-day fund that was created in a special session this year and an estimated $97 million in new revenue, state finance department officials estimate.

Hutchinson noted that the state has a balance of about $152 million in its long-term reserve fund.

He said he is authorizing state agencies to use 2.2% of their current payroll costs for merit pay raises for employees in executive branch agencies at the start of fiscal 2021.

"This is a recognition that they work very hard, particularly during this pandemic in delivering state services in the Department of Health, to Workforce Services, department of finance, and really in every agency of state government," the governor said. "I appreciate their patience, and I think this will be well received."

The total cost of the merit raises for about 24,500 executive branch employees will be about $19.6 million, said Alex Johnston, a spokeswoman for the state Department of Transformation and Shared Services. That will include both state revenue and federal revenue, Walther said.

In the April fiscal session, the General Assembly approved a $5.89 billion general revenue budget for fiscal 2021. The state's April forecast for fiscal 2021 would provide $5.68 billion for that budget and leave $212.2 million of the budget unfunded.

The Department of Finance and Administration cut the fiscal 2021 forecast for net general revenue available to state agencies by $205.9 million in April, again citing an expected recession from the coronavirus pandemic.

Asked if he has ruled out changing the forecast for fiscal 2021, Hutchinson said Tuesday, "You never know what the entire year will play out.

"But there is no anticipation of revising the forecast for next year," he said. "I expect that July could be a down month, just because it looks like individuals paid their taxes more on time [instead of waiting until the July 15 deadline.] ... So that could be down," he said.

"We don't intend to revise the forecast because with the way our economy is moving, I am hopeful that we'll be able to stick with that throughout the year," Hutchinson said.

By comparison, the state's general revenue budget totaled $5.62 billion in fiscal 2019.

Print Headline: Arkansas' budget gets a boost at fiscal year's end

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