State tax coffers hold $177 million surplus to end fiscal 2016, governor makes new case for tax cuts

State tax coffers ended fiscal year 2016 with a robust $177 million surplus, confirming Gov. Asa Hutchinson’s recent assessment that Arkansas government would close out the year with enough to pay for near-term highway needs, provide rainy day funds for education and other pressing needs, and further tax cuts.

According to the final revenue report for fiscal year 2016, which ended June 30, Arkansas “net available” revenue totaled $5.36 billion, some $117.3 million or 2.2% above prior year results and 2.7% above forecast. Total revenue collected was $6.451 billion, below the $6.47 billion in fiscal year 2015.

According to state Department of Finance and Administration officials, the resulting year-end surplus is also 3.4% above the amount budgeted for fiscal year 2016, highlighted by better-than-expected individual and corporate income collections, healthy sales tax growth and improved tax collections from tobacco sales and games of skill.

On a month-to-month basis, June net available general revenues were $541.7 million, $45.3 million, or 7.7% below last year. Net general revenues were $36.7 million, or 7.3% above forecast for the month.

During his weekly media press conference at the State Capitol, Hutchinson said tax cuts will likely follow the state’s revenue report, noting that income tax reductions had a net gain of 4.4% over the previous year even after he and the Legislature enacted a $100 million tax cut in the 2015 legislative session.

“I think from that you can say the sky is not falling, falling because we had the tax cut, but that as we expected, it helps our economy grow, and the income tax collections increased, and so in essence we had more money for state services,” he said.

POSSIBLE INCOME TAX REDUCTION
Hutchinson credited conservative budgeting and a growing economy for creating the surplus, adding that the fiscal overflow will make it easier to introduce more tax cuts in the next legislative session. He told reporters he has not formulated his legislative agenda but income taxes will be a priority, and he expects the package to be smaller than the one in 2015, or perhaps phased in.

“I want to see as much of this surplus as possible put into a reserve fund,” which was created this year by the Legislature, he said.

Speaking to the Good Roads Foundation last week, Hutchinson forecasted the budget surplus and recommended that the group develop a long-term solution for state highway and transportation improvements without a tax hike. Hutchinson also laid out a preview of his long-term highway planning agenda for the next legislative session in 2017, challenged the Good Roads Foundation and lawmakers at the assembly that between the “pause” – from the end of the fiscal year 2016 that ended June 30, and the beginning of 90th General Assembly in January – to think about new ways to pay state highway needs beyond the next five years.

“I believe what we have done is a good solution for our state for some time,” Hutchinson said of the five-year Arkansas Highway Improvement Plan of 2016 that was passed by lawmakers during a special session earlier this year. “But we also recognize there is a need for an overlay, there are additional needs down the road long-term, and so as you look to the January session it is important for me to send the right signal.”

At the same time, the governor said, there should be no new transfers from general revenue funds without any offsets.

“We have tapped into general revenue as unallocated surplus because we want to protect (those funds) for education and all other needs of our state.”

In his recent public appearances, the popular Republican governor has highlighted the state’s all-time unemployment rate of 3.8% and the more than 51,000 jobs added to the state’s economy. He has cited a new tax cut as a necessary stimulus to keep the state’s economy and job growing.

ANNUAL REVENUE DETAILS
In Tuesday’s revenue report, state budget officials said the resulting surplus is 3.4% above the amount that forecasted for the year, highlighted by strong growth in income tax collections from the state’s expanding labor pool. In closing out the year, gross collections totaled $6.45 billion, representing a decrease of $19.2 million or 0.3% below last year. Gross general revenues were $42.6 million or 0.7% above forecast.

Individual income tax collections for fiscal year 2016 were $3.14 billion, $40.2 million or 1.3% below the previous year and $16 million or 0.5% above forecast. Net revenue results with refunds factored in were $82.1 million above forecast and 4.4% above prior year results.

Individual income tax refunds totaled $366.8 million, $157.5 million or 30% below last year and $66.1 million or 15.3% below forecast. Corporate income tax refunds total $68.9 million, $25.3 million or 58.1% above last year and $9.3 million below the general revenue forecast. Amounts below forecast in refund categories contribute to net general revenue results, budget officials said.

Fiscal year corporate income tax collections totaled $486.7 million, a decline of $6.4 million or 1.3% percent below 2015 levels. Collections came in $17.7 million or 3.8% above forecast. Net corporate Income tax revenue after refunds was $27 million above forecast.

Sales and use tax collections in 2016 totaled $2.29 billion, an increase of $92.2 million or 4.2% better than a year ago and $15.4 million or -0.7% below forecast. This category is closely watched because it reflects consumer spending.

THE JUNE REVENUE REPORT
June gross general revenue collections totaled $624.2 million, a decrease of $46.1 million or 6.9% below last year and $27.7 million, or 4.6% above forecast.

June sales tax collections totaled $194.9 million, up $35.5 million or a strong 22.2% above last year. Collections exceeded forecast levels by $2.6 million or 1.3%. The sales tax overflow compared to year ago levels was largely impacted by a court settlement of $28.7 million a year ago involving a natural gas fracking case, DFA officials said.

June individual income tax collections total $270.2 million, down by $9.2 million, or 3.3% lower compared to last year. With respect to the forecast, collections were up slightly by 0.9% as withholding tax from payrolls were below year ago levels. Corporate income tax totaled $85 million, an increase of $4.6 million or 5.8% from year earlier levels, and $14.4 million or 20.3% above forecast.

June income tax refunds were $33 million, up by $800,000 or 2.4% above year ago levels and $6.9 million better than the monthly forecast. Corporate income tax refunds were $800,000, $1.1 million below year ago levels.

OTHER REVENUE SOURCES (Fiscal year)
Alcoholic beverage
July 2015-June 2016: $56.7 million
July 2014-June 2015: $55.1 million

Games of skill
July 2015-June 2016: $55.9 million
July 2014-June 2015: $47.3 million

Tobacco
July 2015-June 2016: $223.5 million
July 2014-June 2015: $218.5 million

Insurance
July 2015-June 2016: $101.8 million
July 2014-June 2015: $169.3 million