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Revenue dips 1.6% in February

General collections off from ’20, but top April forecast by Michael R. Wickline | March 3, 2021 at 4:43 a.m.
(Democrat-Gazette photo illustration)

Arkansas' general revenue collections in February slipped by $7.9 million, or 1.6%, from the same month a year ago to $493.6 million.

But the month's collections exceeded the state's April 2, 2020, forecast by $31.7 million, or 6.9%.

The state's sales and use tax collections surged last month compared with February a year ago, while individual income tax collections dipped compared with a year ago, the state Department of Finance and Administration said in its monthly revenue report released Tuesday morning.

The highest general revenue collections for the month of February is the $501.5 million collected in 2020, said Whitney McLaughlin, a tax analyst for the finance department.

Tax refunds and some special government expenditures are taken off the top of total general revenue, leaving a net amount that state agencies are allowed to spend.

In February, the net increased by $94.3 million, or 27.5%, over the same month a year ago to $437.4 million. The February net collection exceeded the state's April 2, 2020, forecast by $107.2 million, or 32.5%, largely because of the state's individual income tax refunds lagging the forecast by $76.2 million, which added to net revenue.

Gov. Asa Hutchinson said Tuesday the state continues to meet and exceed its general revenue forecast.

"The February report of $107 million above forecast is the result of a timing issue on tax refunds, and we expect this to normalize next month," the Republican governor said in a written statement.

"Regardless, the revenue report shows the continued strength of our economic recovery and reflects that more people are working and having confidence in the state's future."

February is the eighth month of fiscal 2021, which ends June 30.

During the first eight months of fiscal 2021, the state's net general revenue increased by $393 million, or 10.1%, over the same period in fiscal 2020 to $4.2 billion and exceeded the state's April 2, 2020, forecast by $529 million, or 14%.

McLaughlin said the $529 million figure exceeding the forecast is higher than any other amount topping the forecast in that same eight-month period since at least fiscal 1991.

The state's fiscal 2021 results include net collection increases from the state shifting its individual income tax filing and payment deadline from April 15, 2020, in fiscal 2020 to July 15, 2020, in fiscal 2021 to coincide with the federal government shifting its deadline in response to the economic turmoil of the coronavirus pandemic.

John Shelnutt, the state's chief economic forecaster, said he doesn't expect the state to continue to have net revenue of $529 million above forecast for the rest of fiscal 2021.

"You had $77 million [in individual tax refunds] in the forecast for February, that didn't happen," he said. "You have another $111 million in the forecast for March, so those will stack. ... In April itself, we have another $113 million in refunds."

On April 2, 2020, the finance department cut its net general revenue forecast for fiscal 2021 by $205.9 million, to $5.68 billion, citing a projected recession triggered by the pandemic.

In its fiscal session in April 2020 , the Arkansas General Assembly enacted a $5.89 billion general revenue budget for fiscal 2021. The April 2, 2020, forecast will provide $5.68 billion in general revenue for that budget, leaving $212.2 million of that budget unfunded.

The state's top individual income tax rate dropped from 6.6% to 5.9% on Jan. 1, after dipping from 6.9% to 6.6% on Jan. 1, 2020, under Act 182 of 2019. State officials originally projected Act 182 would reduce general revenue by $25.6 million in fiscal 2020; $48.5 million more in fiscal 2021; and $22.9 million more in fiscal 2022.

TAX CUTS

With net revenue exceeding the state's forecast by $529.1 million so far in fiscal 2021, Senate President Pro Tempore Jimmy Hickey, R-Texarkana, said Tuesday "there was probably a little bit of churn out there in the economy with all this extraordinary money that just fell out of the sky, for the lack of a better word, from the federal government.

"People went out with that money and spent it and generated income, but that's not continuing income for us," he said. "That's just one-time stuff, so we really are trying to think that through.

"We got that other legislation out there where we may to try park stuff in [the restricted restricted fund] and put subcategories, so we can manage even tighter on it," Hickey said, referring to Senate Bill 375 by Sen. Jonathan Dismang, R-Searcy.

He said he doesn't know whether the Legislature will enact more tax cuts.

"We are still looking at everything," Hickey said. "You got the car tax bill. You got the soda tax [phase out bill]. You got all this stuff out here."

The House Revenue and Taxation Committee on Tuesday afternoon delayed action on House Bill 1546 by Rep. Lanny Fite, R-Benton, that would phase out the state's soft drink tax by Jan. 1, 2025, after hearing from both supporters and opponents of the bill. The bill would provide for phased-in increases in transfers of general revenue to the state's Medicaid trust fund to replace the lost soft drink revenue, which is projected by the state at $39.4 million a year after the soft drink tax is completely eliminated.

The committee chairman, Rep. Joe Jett, R-Success, told the House tax committee that "we are not going to take a vote just because this is highly controversial.

"There is a lot of information out floating there and I want everybody to do their due diligence," he said. "We're going to let this rest and talk to people back home and come back and take a vote at a later date."

FEBRUARY REVENUE

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

• A $33.3 million, or 12.2%, decline in individual income tax collections from the same month a year ago to $238.3 million. That's above the forecast by $3.3 million, or 1.4%.

Withholdings is the largest category of individual income tax collections.

They dropped by $32.7 million, or by 12.9% compared with a year ago to $221 million, exceeding the forecast by about $600,000.

That reflects a combination of a reduction in the state's top individual income tax rate, withholding formula changes tied to the income tax cut, and one fewer Thursday payday compared to a year ago, Shelnutt said.

• A $28.8 million, or 14.9%, increase in sales and use tax collections over the same month a year ago to $221.8 million. That beat the forecast by $31.3 million, or 16.4%.

The state had "a rather stunning result in the retail portion of sales tax making up for the other categories in revenues, but also within sales tax made up for a week of snow affecting motor vehicle tax, the purchasing of the vehicles, and the revenue offices to accept money," Shelnutt said.

Retail sales tax collections last month increased by $21 million from a year ago to $91.7 million, while motor vehicle sales tax collections dropped by $2.2 million from a year ago to $23.4 million, he said.

• A $2.8 million, or 34.3%, decrease in corporate income tax collections over the same month a year ago to $5.3 million, lagging the state's forecast by $4.2 million, or 43.7%.

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