Gov. Asa Hutchinson said Thursday that he supports accelerating the implementation of the state's individual income tax rate cuts enacted in a special session in December.
But the Republican governor said he's not reached a consensus yet with legislative leaders on the other items to be considered in a potential special session this summer.
The special session could be held in July or August "if we arrive at a consensus on what needs to be done," Hutchinson said at a news conference in the governor's conference room Thursday afternoon, after he huddled with legislative leaders earlier in the day.
"But we still have some work to do before I will commit to a special session for sure, but clearly there is a need for one," to provide more tax relief to Arkansans struggling with the increased costs of fuel and food, the governor said.
Afterward, Sen. Jonathan Dismang, R-Searcy, who is a co-chairman of the Legislature's Joint Budget Committee, said that "as of right now, we are a long ways from reaching a consensus between the legislative and executive branches."
On Thursday, the state Department of Finance and Administration reported that the state's general revenue tax collections dropped in May compared with the same month a year ago, but still beat the state's latest forecast.
On May 18, the finance department increased its general revenue forecasts for the current fiscal year 2022 that ends June 30 to a $1.47 billion surplus in fiscal 2022, and for fiscal 2023 that begins July 1 and ends June 30,2023, to a $914 million surplus.
Hutchinson said he supports accelerating the implementation of the individual income tax rate cuts to give immediate benefit to Arkansas taxpayers through the adjustment of their withholding tables based on the state's general revenue collections, projected surplus and projections for future general revenue collections.
Afterward, Hutchinson spokeswoman Shealyn Sowers said the governor was referring to making the individual income tax rate cuts, retroactive to Jan 1, 2022, in regard to accelerating the implementation of individual income tax cuts so Arkansans will see immediate tax relief.
Nearly a month ago, Dismang floated this idea and House Revenue and Taxation Committee Chairman Joe Jett, R-Success, replied that he agreed. They also have said they want lawmakers to adopt the federal depreciation schedule for small businesses and farmers.
The individual income tax and corporate income tax cuts -- enacted in the Dec. 7-9 special session -- are projected by the state Department of Finance and Administration to reduce state general revenue by $132.5 million in fiscal 2022, then gradually increase from $307.4 million in fiscal 2023 to $497.7 million in fiscal 2026. Some of the future individual and corporate income tax rate cuts are contingent on the state not tapping the $1.2 billion catastrophic reserve fund during certain periods under the tax cut laws enacted in the December special session.
Dismang said there also are discussions about the possibility of providing a temporary income tax credit targeted to low-income Arkansans in a potential special session.
Hutchinson said he wants to use some of the state's surplus funds to finance increased public school safety efforts in a possible special session.
In addition, the governor said there have been discussions with legislative leaders about the possibility of using part of the state's surplus funds to pay for a new building for the Arkansas Crime Lab and to help finance a building expansion at the University of Arkansas for Medical Sciences.
Afterward, Sowers said the estimated cost of a new crime lab building is about $202 million and the proposed cost and funds request from UAMS for a proposed expansion includes $147 million from the state, $147 million from a bond issue, and $147 million from private donations.
UAMS spokeswoman Leslie Taylor said "increasing our hospital capacity by adding a new hospital tower is something that is part of our UAMS master plan.
"Every year we turn down thousands of transfer requests from other hospitals across the state because we are always full," she said in a written statement. "We have had some preliminary discussions with state leaders about the need for this hospital tower, and we are hoping to have more discussions in the future."
Dismang said he is generally willing to consider the state helping finance the UAMS project because it is a statewide project. He said he's also willing to consider financing the new crime lab building, but he has questions about the timing for the project.
Hutchinson said "there also is a nervousness about the future economy, so we do want to make sure we have [a] sufficient amount in reserves so that if there is uncertainty in the economy in the future that we can adjust to it, and make sure we can meet our commitment to state services."
The governor said there also have been ongoing discussions about the possibility of raising teacher salaries, but "we have got to look at the entire budget picture and the uncertainty in the economy in the future and make a judgement as to what we can do and when we can do it."
Sowers said Hutchinson supports the proposal to raise teacher salaries to a minimum of $46,000 and implement at least a $4,000 salary increase. Under Act 170 of 2019, the minimum salary for a starting teacher with a bachelor's degree is $34,900 in the 2021-2022 school year and will increase to $36,000 in the 2022-2023 school year.
Dismang said raising teacher salaries is an ongoing expense for the state, and he wants to stay away from increasing ongoing state expenses in a potential special session.
MAY TAX COLLECTIONS
According to the finance department, Arkansas' general revenue tax collections in May dropped by $177.4 million or 21.6% from a year ago to $645.4 million, yet exceeded the state's latest forecast by $6.6 million or 1 %.
The state's individual income tax and sales tax collections both declined in May from the same month in 2021, the department said Thursday in its monthly revenue report. Individual income tax collections in May beat the state's forecast, but sales and use tax collections trailed the forecast.
"May revenue results are in line with the recently revised forecast that predicts a $1.473 billion surplus at fiscal year-end on June 30th," said finance department Secretary Larry Walther.
The state's individual income tax filing and payment deadline in 2021 was May 17 and this year's deadline was April 18. That makes it difficult to compare May's total general revenue collections with the total collections in May of 2021.
The state's individual income and sales and use tax collections are state government's two largest sources of general revenue.
The highest general revenue collections for the month of May continue to be the $822.8 million collected in May 2021, 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 collections, leaving a net amount that state agencies are allowed to spend up to their maximum distribution under the state's Revenue Stabilization Act.
The state's net general revenue in May fell by $142.2 million or 21.7% from a year ago to $512.7 million, but exceeded the state's latest forecast by $4.6 million or 0.9%.
May is the 11th month of fiscal 2022.
During the first 11 months of fiscal 2022, total general revenue increased by $616.6 million or 8.5% over the same period in fiscal 2021 to $7.87 billion and exceeded the state's latest forecast by $6.6 million or 0.1%.
So far in fiscal 2022, the state's net general revenue increased by $593.7 million or 9.7% over the same period in fiscal 2021 to $6.69 billion, and beat the state's May 18 forecast by $4.6 million or 0.1%.
In the 2021 regular session, the Republican-dominated General Assembly and Hutchinson enacted a Revenue Stabilization Act to distribute $5.84 billion in general revenue in fiscal 2022 to state-supported programs, such as human services, public schools, colleges and universities and correctional programs.
In this year's fiscal session, the General Assembly and Hutchinson enacted a $6.02 billion general revenue budget for fiscal 2023.
According to the finance department, May's general revenue included:
• A $168.1 million or 35.6% decline in individual income tax collections from a year ago to $303.6 million, which beat the state's latest forecast by $5.5 million or 1.9%.
Withholding is the largest category for individual income tax collections. Withholding declined by $1.3 million compared with a year ago to $241.8 million, but beat the state's forecast by $1.6 million.
• A $12.3 million or 4.5% slip in sales and use tax collections from a year ago to $261.9 million, which fell $1.3 million or 0.5% below the state's forecast.
Major reporting areas in sales and use taxes displayed mixed results in May compared with a year ago in part from the comparison with the surge in federal stimulus-fueled retail spending in May of 2021.
Motor vehicle sales tax collections declined in May compared with a year ago, largely because of the spike in vehicle sales and collections in May 2021.
• A $4.3 million or 10.7% increase in corporate income tax collections to $45 million, which beat the state's forecast by $1.2 million or 2.7%.
The department is projecting some elevated growth in general revenue collections in fiscal 2023 and eventually that growth "will come back to a trend average" in fiscal year 2024 and year 2025, said John Shelnutt, the state's chief economic forecaster.
"At this point, we don't see early signs of a recession."