Arkansas tax collections could rise 2% in fiscal 2017, leave $35.9 million surplus

The state Department of Finance and Administration said Tuesday (Feb. 2) that net available revenues are expected to reach $5.33 billion in fiscal year 2017, an increase of $106.8 million or 2% above the current year.

For the remainder of fiscal 2016, which began in July, net available revenues are expected to reach $5.22 billion, a decrease of $24.2 million, or 0.5% below the previous year. Year-to-date, the first six months of fiscal 2016 through December came in slightly below year-ago levels, but $66.9 million above forecast at that point.

State tax officials said sales and use tax collections and other taxable measures of consumption have generally been above forecast year to date, in line with improved income growth and declining motor fuel costs to consumers.

The revenue forecast for fiscal 2016 and 2017 was laid out by DFA Director Larry Walther as Arkansas lawmakers prepare for the upcoming budget session. Gov. Asa Hutchinson (R) is expected to offer a preview of his budget proposal to lawmakers in the weeks ahead of the session in April.

Gov. Hutchinson said Tuesday in a statement that the forecast would cover all budget items and produce a budget surplus.

“The forecast released today will allow us to meet the needs of the state in terms of education, health care, prisons and other essential services. The forecast is an example of our faith in the strength of the state’s economy, our positive outlook for the coming years, and our commitment to conservative, balanced budgets as a hallmark of good government. Over the next two fiscal years, we anticipate that Arkansas’ revenues will grow and that a budget surplus will result. This in addition to major reductions in state income taxes which will save more than $100 million for middle-class Arkansans. State revenues continue to show solid, steady growth. The revenue report from January, which was also released today, is a good example of that.”

Nearly two weeks ago, Gov. Hutchinson laid out his plan to increase highway funding by $750 million over the next 10 years, making the state eligible for $2 billion in federal matching funds over that time period thanks to a federal highway bill passed by Congress in December. Hutchinson said fiscal year 2017’s new funding primarily will come from $40 million in unallocated surplus funds – $20 million of it from fiscal year 2015’s unobligated surplus funds and $20 million from the governor’s rainy day fund.

In the following years, 25% of unallocated surpluses will transfer to the Highway Department. Hutchinson said the average surplus over the past 10 years has been about $48 million a year. The plan also generates money by transferring from general revenues to highways the sales taxes generated from purchases of new and used vehicles, capping out at $25 million a year at the end of a five-year phase-in period.

Hutchinson said the money would be offset by finding efficiencies in government and said he has specific ideas in mind for doing that.

The state needs $46.1 million by Sept. 30 of this year and an average of $50 million in future years to be eligible for $200 million annually in matching federal funds provided by the Fixing America’s Surface Transportation Act, or the FAST Act, passed by Congress and signed by President Obama in December.

In his letter to lawmakers, Walther said the fiscal year 2016 forecast is expected to fund the allocations for this year ending June 30, 2016, leaving state coffers with a $35.9 million surplus over the current revenue stabilization laws.

“Forecasts specific for state growth indicate continued nominal growth of 5% percent in a low inflation and low-interest rate setting,” Walther wrote in a letter on Monday to Republican lawmakers Bill Sample and David Branscum, co-chairs of the Arkansas Legislative Council. “The Arkansas economy is converging on the national average growth rate after maintaining a stable footing in the protracted recovery.”

As with all economic forecasts, Walther said the “risk factors” for the bright forecast were significant.

“They range from international risk of global economic stagnation with over-reliance on financial stimulus efforts to the uncertainty of consumer spending and business investment risks,” the DFA chief wrote. “We have provided a conservative revenue forecast recognizing the growth opportunities and the risk profile.”

Earlier on Tuesday, DFA officials reported that January net available general revenue totaled $551.9 million, $30.6 million or 5.9% percent above last year and $31 million or 5.9% above forecast. Seven months into the fiscal year that began in July, Arkansas’ year-to-date net available general revenues total $3.13 billion, which is $12.9 million or 0.4% above year ago levels and above forecast by $97.8 million or 3.2%.