State officials note ‘unusual’ period of tax revenue declines (Updated)

by The City Wire staff ([email protected]) 25 views 

Total state revenue of $5.43 billion in fiscal year 2010 was 2.4% below the previous fiscal year and marked the second consecutive year of revenue decline, according to a report released Friday (July 2) by the Arkansas Department of Finance & Administration.

Arkansas’ fiscal year is from July 1 to June 30.

The report showed that total state revenue was down $130.7 million (2.4%), but were $73.3 million above budget estimates. The biggest declines were with individual income tax collections and sales and use tax collections.

Individual income taxes were $2.579 billion, down 4.7% ($126.3 million) from fiscal year 2009. Gross receipts — primarily sales and use taxes — collected $1.981 billion, down 5.5% ($116.1 million) below the 2009 period. The sales and use tax collections are a decent gauge of consumer spending, but the decline also includes refund adjustments.

“Decline in collections relative to FY 2009 reflects economic weakness in the collection base and a sales tax rate change on food consumed at home. Further non-economic, negative impact was derived from large sales and use tax refunds. These refunds represented multiple years of overpayment,” noted the DFA report.

Corporate income tax revenue was $423.6 million, an increase of $41 million, or 10.7% more than fiscal 2009.

Overall, the DFA report indicates an “unusual period” of tax collection declines.

“The decline in Net Available funds in FY 2010 and FY 2009 marks an unusual period of back-to-back annual declines in revenue. Prior recessions were limited to single year impacts and with few resulting in zero or negative annual change. In recent years, the only other annual decline in revenues occurred in FY 2002,” explained the DFA memo.

June, the final month of the fiscal year, ended on a positive note for the state.

Gross revenue totaled $505.6 million, up $5.8 million (1.2%) above last year and $36.4 million (7.8%) above forecast. Although June individual income tax collections ($224.5 million) were down 2.9%, gross receipts collections ($164.4 million) were up 3.9% compared to June 2009. DFA officials said the increase was partially a function of the low collections in June 2009.

Lower tax revenue has forced Gov. Mike Beebe to make several budget adjustments during the state’s fiscal year.

An unexpected dip in April tax collections caused Gov. Beebe to shift $41 million in state funds, including using $17.4 million in a “rainy-day fund,” to keep state agencies and universities financially secure for the remaining two months of the state’s fiscal year.

Beebe also pushed two rounds of state budget cuts that total more than $200 million. Beebe on Oct. 20 initiated planned cuts of $100 million after collections were down 7.2% for the first three months of the fiscal year, and announced Jan. 11 cuts of $106 million.

Updated info: Gov. Mike Beebe noted in his weekly column that the state’s conservative budgeting process resulted in the state being in the “advantageous position” of being one of four states — along with Alaska, Montana and North Dakota — without a budget deficit.

“In this year’s fiscal session of the Arkansas Legislature, the General Assembly passed a tight and conservative budget. To help keep our services and programs intact, most spending was frozen at current levels, and state employees will this year forego cost-of-living increases until our economy improves further. As a state, we continue to approach the economic downturn the same way households do. We tighten our belts, spend less, and ride out the tough times,” Beebe noted in his weekly report.

Beebe said the $6 million cut from General Improvement Funds during the fiscal session to help protect state services will be restored. Also, deep cuts made among Arkansas universities will be partially restored with a combined $10 million restoration of higher-education funding.

“A conservative approach to budgeting has served Arkansas well during the recession. We expect conditions to improve throughout this new fiscal year, but as more revenue comes in, we will remain cautious and stalwart in how we spend your taxpayer money,” Beebe explained.

OTHER COLLECTION DATA (Fiscal year 2010)
• Tobacco: $245.1 million, 48.9% above 2009

• Insurance: $94.3 million, 3.5% below 2009

• Alcoholic beverage tax (does not include 10% mixed drink tax or 3% beverage excise: $31.2 million, 1.8% above 2009

• Games of skill: $8.5 million, 37.8% above 2009