Finance Officials Not Painting A “Rosier Picture” Of Economy

With the economy facing “a lot of headwinds,” state finance officials said the current year’s budget may come in lower than last year’s, and they downwardly revised the following year’s expectations.

“We don’t see any strong economic recovery happening at all,” said Arkansas Department of Finance and Administration director Richard Weiss. “We don’t see any reason to be any more optimistic than what we’re putting out here today.”

The 2011 fiscal year for the state ended with $4.573 billion in net revenues, up 5.8% from the previous year. Arkansas ended its last fiscal year with a $94 million budget surplus that DF&A officials said had dropped to about $70 million after some expected surplus projects were funded.

Forecasters left unchanged the current year’s forecast for fiscal year 2012 at $4.567 billion, 0.1% decrease. That forecast is unchanged from a previously released forecast on April 21.

However, for the following year — fiscal year 2013 — finance officials lowered their growth estimate from 5.3% to 3.5%, an increase of $161 million from 2012, but $121.3 million less than previously estimated. DF&A said that $87.2 million of the $121.3 million reduction was attributable to economic conditions. The remainder of the decrease was based on tax changes and other adjustments.

“Arkansas has been very, very fortunate,” said Weiss. “We are weathering this in much better shape than virtually any other state in the nation.” He added that state revenue projections were “pretty close” to on track.

“We won’t paint any rosier picture of where we are,” Weiss said.

Lawmakers asked a variety of questions regarding recent consumer activity, including the sales tax holiday, Black Friday and Cyber Monday spending.

DF&A officials said their best estimate of how the state was impacted by its first back-to-school sales tax holiday was reflected in last month’s revenue report. Overall, state revenues were about $2 million lower than usual because of the holiday sales break.

Black Friday and Cyber Monday sales effects will not likely be seen until January’s revenue reports, Weiss said.

The revenue forecast presented today will be the foundation for Gov. Mike Beebe (D) to build his balanced budget proposal, which must be submitted to state legislators by mid-January in advance of the February 2012 fiscal session.

Yesterday, Beebe said that he expected revenue growth to be too slow to push for a further reduction in the grocery tax. Beebe said he did hope to recommend a small increase in per-student funding for educational adequacy in the next fiscal year.  He also warned that potential federal budget cuts could hurt state agency funding in the next fiscal year.