Fueled by rising individual and corporate income and sales tax collections, Arkansas' general revenue tax collections in September increased by $84.3 million or 11% over a year ago to $849.6 million.
Last month's tax collections beat the state's May 18 forecast by $135.9 million or 19%, the state Department of Finance and Administration said Tuesday in its monthly revenue report.
September's total general revenue outdistanced the state's previous record of collections in the month of September of $765.3 million in 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 the amount authorized by the state's Revenue Stabilization Act.
Net general revenue in September increased by $75.8 million or 11% over the same month a year ago to $766.1 million and exceeded the state's forecast by $128.7 million or 20.2%.
Gov. Asa Hutchinson said Tuesday the September revenue report shows another significant surplus over the state's forecast and demonstrates that Arkansas' economy continues to be resilient.
"The diversity of our economy is a strength that protects us from the national economic slowdown," the Republican governor said in a written statement.
"I do expect our economy to gradually slow down because of rising interest rates, but we have sufficient reserves that gives the state room for investment in education," Hutchinson said.
Finance department Secretary Larry Walther said Tuesday that corporate and individual income tax filings "indicate we are on track for a third consecutive year of high growth in incomes.
"There appears to be no pullback in tax payments for tax year 2022 liabilities," he said in a written statement.
John Shelnutt, the state's chief economic forecaster, said "the forecast assumed a more orderly and timely pullback in incomes and consumption off the stimulus-fueled gains of the prior two fiscal years and so far we are not seeing evidence of that pullback."
The state is seeing robust growth in income and consumption and corporate profits, he said, and inflation is a factor in income and consumption growth.
Fiscal 2023 started July 1.
During the first three months of fiscal 2023, the state's total gross general revenues increased by $126 million or 6.4% over the same period in fiscal 2022 and beat the state's forecast by $175.3 million or 9.2%.
During the first three months of fiscal 2023, the state's net available general revenues have increased by $126 million or 7.3% over the same period in fiscal year 2022 to $1.85 billion and exceeded the state's forecast by $174.8 million or 10.4%.
GENERAL REVENUE BUDGET
In the fiscal session earlier this year, the General Assembly and Hutchinson authorized a general revenue budget of $6.02 billion for fiscal 2023 -- up by $175.1 million from fiscal 2022's general revenue budget with most of the increases going to public schools and human service programs.
The state's latest forecast May 18 projected a $914 million surplus at the end of fiscal 2023 on June 30.
That was before the Legislature and Hutchinson in the Aug. 9-11 special session enacted a four-pronged tax cut package that the finance department projected would reduce state general revenue by $500.1 million in fiscal 2023, by $166.6 million more in fiscal 2024, by $69.5 million more in fiscal 2025, by $18.4 million more in fiscal 2026 and by $8.4 million more in fiscal 2027.
During the special session, House Revenue and Taxation Committee Chairman Joe Jett, R-Success, told the House committee that enactment of the tax cut measure would leave a projected general revenue surplus of roughly $400 million in fiscal year 2023.
But the state's general revenue surplus in fiscal 2023 could be larger than that because the state's net general revenue collections during the first three months of fiscal year have exceeded the state's forecast by $174.8 million.
On Nov. 10, the finance department is scheduled to release an update its May 18 general revenue forecast and Hutchinson's proposed general revenue budget for fiscal 2024 that begins July 1, 2023, and ends June 30, 2024. Hutchinson's successor as governor will take office in January.
The state's catastrophic reserve fund totals $1.21 billion and the state's general revenue allotment reserve fund totals $1.34 billion, said finance department spokesman Scott Hardin. The Legislature will consider how to use the general revenue allotment reserve balance in the 2023 regular session.
The state's overall restricted reserve fund balance totals $227 million and the state's rainy-day fund balance is $1.3 million, he said.
The four-pronged tax cut package, enacted in the Aug. 9-11 special session, accelerated the reduction of the state's top individual income tax rate from 5.5% to 4.9% retroactive to Jan. 1, 2022, and the state's corporate income tax rate from 5.9% to 5.3%, effective Jan. 1, 2023.
The tax cut package also granted a temporary, nonrefundable income tax credit in tax year 2022 of $150 for individual taxpayers with net income up to $87,000 and of $300 for married taxpayers filing jointly with net income of up to $174,000, and adopted the 2022 federal Section 179 depreciation schedule as it existed on Jan. 1, 2022, which provides an income tax reduction for the expensing of certain property.
Hutchinson declined to put teacher raises on the call for the Aug. 9-11 special session, citing the lack of support in the Republican-dominated Legislature. Prior to that, he had floated proposals to boost teacher salaries in the special session and House and Senate Democrats said they wanted to consider raising teacher salaries in the special session.
But Republican legislative leaders said they wanted lawmakers to consider increasing teacher pay during the 2023 regular session, starting Jan. 9, after the House and Senate education committees complete their biennial educational adequacy review this fall.
The House Education Committee on Tuesday recommended $4,000 raises for teachers and raising minimum teacher pay from $36,000 to $40,000 a year as part of its educational adequacy recommendation, while the Senate Education Committee rejected that recommendation.
The Legislative Council and Joint Budget Committee's budget hearings for fiscal 2024 are scheduled to begin Tuesday and run until Nov. 10.
According to the finance department, September's general revenue included:
• A $28.6 million or 8.6% increase in individual income tax collections to $361.4 million, which exceeded the state's forecast by $38.8 million or 12%.
The largest category of individual income tax collections is withholdings.
Collections from withholdings increased by $8.6 million or 4% over a year ago amid tax rate reductions to $226 million and beat the state's forecast by $7.5 million.
Collections from estimated payments increased by $15.6 million over a year ago to $112.3 million, and outdistanced the state's forecast by $25.3 million.
Collections from returns and extensions increased by $4.3 million over a year ago to $23.1 million and exceeded the state's forecast by $6 million.
• A $29.7 million or 11.5% increase in sales and use tax collections to $288.7 million, which outdistanced the state's forecast by $29.8 million or 11.5%. Most major reporting sectors of sales tax experienced high growth over a year ago.
Sales tax collections for retail trade increased by $9.9 million over a year ago to $109 million, while sales tax collections from motor vehicles increased by $0.6 million over a year ago to $32.9 million and sales tax collections from wholesale trade increased by $4.6 million over a year ago to $26.8 million.
• A $24.8 million or 17.7% increase in corporate income tax collections to $164.8 million, which beat the state's forecast by $64.3 million or 64%.
The state's estimated payments for corporate income tax collections increased by $23.9 million over a year ago to $155.6 million, which exceeded the state's forecast by $62.9 million.