Fueled primarily by better than expected corporate and individual income tax collections, Arkansas' general revenue increased in December by $53.6 million, or 7.4%, over the same month a year ago to $773.2 million.
The month's total general revenue collections beat the state's latest forecast issued Nov. 10 by $117.4 million, or 17.9%, the state Department of Finance and Administration reported Wednesday in its monthly revenue report.
December's general revenue collections represent the largest amount collected in any December and the previous high was $719.6 million collected in December 2021, said Whitney McLaughlin, a tax analyst for the finance department.
John Shelnutt, the state's chief economic forecaster, said Wednesday the revenue report for December "still shows high growth and fits with other information that we have that shows really no slowdown at this point of the state economy in terms of the workforce, the labor market, [and] job conditions.
"The spending is still elevated compared to forecast as well as pre-covid averages," he said.
Finance department Secretary Larry Walther said income tax payments reflecting tax year 2022 liabilities pushed corporate and individual income tax categories well above forecast.
"2022 was a very good year in Arkansas," he said in a written statement. "Sales tax collection growth remained elevated in December and over the first six months of fiscal year 2023."
Tax refunds and some special government expenditures are taken off the top of general revenue, leaving a net amount the state agencies are allowed to spend up to the amount authorized by the state's Revenue Stabilization Act.
The state's net in December increased by $38.1 million, or 5.9%, over December 2021 to $684.3 million, outdistancing the state's forecast by $112.9 million, or 19.8%.
Departing Gov. Asa Hutchinson said Wednesday that "Arkansas is still going strong with a net revenue above the revised forecast despite concerns of a recession," after the first six months of fiscal 2023.
"While a recession is predicted by some nationally, I have more confidence in Arkansas's economic resilience," the Republican governor said in a written statement.
"As this is the last revenue report under my watch as governor, I would note that our conservative approach to state spending has resulted in record reserves of over $2 billion, historic tax cuts, and a reduction in our state bonded indebtedness of over $1 billion," Hutchinson said.
December is the sixth month of fiscal 2023, which started July 1, 2022, and ends June 30.
During the first six months of fiscal 2023, the state's total general revenue increased by $249.2 million, or 6.4%, over the same period in fiscal 2022 to $4.1 billion, beating the state's forecast by $133.9 million, or 3.3%.
So far in fiscal 2023, the state's net general revenues increased by $192.3 million, or 5.6%, over the same period in fiscal 2022 to $3.6 billion, exceeding the state's Nov. 10 forecast by $125.2 million, or 3.6%.
FISCAL 2023 SURPLUS
In the fiscal session last 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 year 2022's general revenue budget with most of the increases for the public schools and human service programs.
The finance department's Nov. 10 forecast projects a general revenue surplus of $598.1 million at the end of fiscal 2023.
Asked if that projected surplus is essentially guaranteed, Shelnutt said, "we still have a major hurdle and that is the income tax filing season, so that is a major determinant with the largest collection month in April and really large refund months in March and April, [and] we really need to look at that and see how it relates to our assumptions about that accelerated income tax cuts that have been enacted."
Asked if the state is going to collect another $1 billion plus general revenue surplus in fiscal 2023, he acknowledged "it is possible."
The finance department's previous forecast May 18 projected a $914 million surplus at the end of fiscal 2023. 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.
The tax cut package accelerated the reduction of the state's top individual income tax rate from 5.5% to 4.9%, retroactive to Jan. 1, 2022, and accelerated the cut in the state's top corporate income tax rate from 5.9% to 5.3%, effective Jan. 1, 2023.
The package also granted a temporary nonrefundable income tax credit of $150 for individual taxpayers with net income up to $87,000 and of $300 for married taxpayers filing jointly with net income up to $174,0000, and adopts a federal depreciation schedule for businesses.
Governor-elect Sarah Huckabee Sanders will be sworn in as governor Tuesday, taking the reins of state government from Hutchinson. Sanders also is a Republican. Hutchinson has served as governor since 2015.
In November, Hutchinson proposed a $314 million increase in the state's general revenue budget to $6.33 billion in fiscal 2024, starting July 1, 2023, with $200 million of the increased general revenue earmarked for the public schools to help boost teachers' salaries.
At that time, the governor said his proposed budget for fiscal 2024 would represent a 5.2% increase over the current budget of $6.02 billion, leaving a projected general revenue surplus of $254.9 million at the end of fiscal year 2024. Considering inflation was more than 8% last year, limiting the growth of the state's general revenue budget to 5.2% reflects conservative budgeting in these challenging times, he said.
Sanders spokesman Judd Deere has said Sanders wants to "develop a budget that makes government lean and efficient, cuts taxes and prioritizes the promises she made to Arkansans to make our state one of the best to live, work and raise a family."
DECEMBER'S COLLECTIONS
According to the finance department, December's general revenue collections included:
• A $14.6 million or 5.3% increase in individual income tax collections over the same month a year ago to $288.9 million, outdistancing the state's forecast by $31.5 million, or 12.2%.
Withholding tax revenue is the largest category of individual income taxes.
Withholding tax collections dropped by $14 million, or 5.8%, from a year ago t0 $229.3 million, lagging the state's forecast by $5.5 million, with lower withholding rates tied to the enactment of tax reductions in the Aug. 9-11 special session.
Collections from estimated payments increased by $27.2 million from a year ago to $45.8 million, outdistancing the state's forecast by $33.7 million.
"The final estimated payment for 2022 is not [due] until mid-January, but some payers paid early and we are seeing that here with estimated payments driving the result for overall individual income tax compared to forecast," Shelnutt explained.
Collections from returns and extensions increased by $1.4 million from a year ago to $13.8 million, exceeding the state's forecast by $3.3 million.
• A $14.9 million or 5.4% increase in sales and use tax collections over December 2021 to $289.6 million, exceeding the state's forecast by $8.6 million, or 3.1%.
The growth rate in sales and use tax collections in December was about double of what was projected, and "so we have a lot of gains across sectors in sales tax, both business and consumer spending, and motor vehicle sales tax was up 7.8% year over year after a decline last month," said Shelnutt.
Most major reporting sectors displayed high growth over the prior year, reflecting continuing economic expansion in many sectors.
• A $14.6 million or 10.7% increase in corporate income tax collections over the same month a year ago to $151.5 million, which beat the state's forecast by $66.3 million, or 77.8%.
The collections in December reflect estimated payments toward tax year 2022 liabilities from corporate accounts following calendar year tax years.
"Now admittedly, we are conservative in corporate [income tax collections projections] because of the volatility of it and we have been that way for a number of years," Shelnutt said.
Sources of the money