State’s fiscal year ends with $15.7 million surplus on strong June tax collections

Arkansas budget coffers were brimming in June as tax collections in all major categories came in well above forecast and the state’s financial books for fiscal 2017 were closed with a $15.7 million surplus.

Net available general revenues in June totaled $571.7 million, $30 million or 5.5% above last year’s results and $25.7 million or 4.7% above forecast, according to monthly revenue report released today by the state Department of Finance and Administration (DFA). State budget officials said strong general revenue collections in June benefitted from gains across the board and lower than expected income tax refunds. John Shelnutt, DFA Administrator for Economic Analysis and Tax Research, said the strong June tally closes out an up-and-down year, which included several warnings over the past 12 months of possible budget shortfalls for the fiscal year that ended on June 30.

Only a few months ago, state lawmakers nervously put the final touches on the state’s budget for fiscal 2018, setting aside millions of dollars in expected surplus funds for the governor’s Quick Action Closing Fund, shared executive and legislative priorities, and the state’s rainy day fund.

“It was a volatile year, but it did finish strong both in contribution from collections as well as individual refunds,” Shelnutt said.

For the year, net available general revenue collections were $5.34 billion, about $19 million or 0.4% below last year’s results and 0.5% above forecast. Shelnutt said the resulting $15.7 million surplus is 0.3% above the Revenue Stabilization Act’s balanced budget, providing funding levels for all of the state’s major priorities.

Under state law, the legislature usually divides new state general revenues into “A”, “B”, and “C” categories as part of the Revenue Stabilization Act (RSA). Allocations in the “A” category have top priority and normally are 100% funded. If there is money left over after funding the “A” category, the “B” category is also funded, and so on. The budget is “fully funded” if there are enough general revenues to cover all categories. If there is not enough money to fully fund the budget, all remaining funds get a percentage of their original allocation. If there is more than enough money to fund all categories, the state ends the fiscal year with leftover money, or a “surplus.”

Ahead of the 2017 legislative session, Gov. Asa Hutchinson laid out a $5.5 billion budget for the state through fiscal year 2018, highlighting his tax cut proposals, efficiency measures and economic development and education initiatives.

As part of negotiations with the Hutchinson administration and state fiscal officers at the end of the 2017 General Assembly, the state’s Joint Budget Committee laid the state’s operating budget through the RSA laid out budget allocations for fiscal 2018 that gave the Department of Education’s Public School Fund the biggest slice of the fiscal 2019 budget with an outlay of $2.19 billion, essentially the same as the previous year.

The second largest allocation will go to the Department of Human Services at $1.55 billion, up 7.6% from the previous year. At $588.1 million, the state-supported four-year colleges and universities 2018 fiscal budget is exactly the same as the prior year, while two-year colleges across the state will also see the same budget allocation from the previous year at $111.9 million.

Of the $239.4 million expected to remain at the end of the fiscal year, more than $160 million will pay down mandatory state debt and $14 million will go to DHS’s Children and Family Services unit to provide extra funding for the crisis-plagued foster care system. At the beginning of the session, Gov. Hutchinson proposed $26 million in fiscal year 2018 and $11 million in fiscal year 2019 to fund 228 additional staff members at DHS’ foster care division, including 150 new caseworkers.

After that, nearly $65 million will be distributed for shared project funding between the executive and legislative branches, including $32 million for the governor’s Quick Action Closing Fund and other economic development drivers and $20 million to the Highway Transfer Fund to help the state receive matching federal dollars for short-term highway needs.

The remaining $12.9 million will go into the state’s rainy day fund, a discretionary account the governor may use for emergencies such as a superproject. Shelnutt said Wednesday net available revenues will provide funding for 100% of the “A” category allocations, rainy day funding and 92.19% of “B” allocations.

Despite the strong finish for fiscal 2017, Shelnutt said state budget officials will continue to watch sales and use tax collections and other key categories going into fiscal year 2018, which began on July 1.

“We feel good about fiscal 2018, but we are going to have to continue watching sale taxes because (they) were below forecast during most of fiscal 2017 and only improved fairly late in the past two months of the fiscal year,” the DFA economist said of the key economic indicator.

Overall, gross general revenues for fiscal 2017 were $6.55 billion, representing an increase of $100.4 million or 1.6% above year ago results, and $18.2 million or 0.3% above forecast. Gross general revenues in June were $666.1 million, an increase of $41.9 million or 6.7% above last year and $18.2 million or 2.8% above forecast.

Monthly, sales and use collections totaled $202.8 million, an increase of $7.9 million or 4.1% above last year.  Collections were above monthly forecast levels by $2.5 million or 1.3%.

June individual income tax collections totaled $276.8 million, up $6.6 million or 2.4% above last year. With respect to the forecast, collections were up 1.2% as withholding tax from payrolls jumped 5.2% compared to last year and accounted for all of the again in this category.

Volatile corporate income collections totaled $68.8 million, a decrease of $16.2 million or 19% from year ago, but $4.6 million or 7.2% above forecast. Corporate income tax refunds were $1.1 million, $300,000 above year ago levels.

Individual income tax refunds total $22.3 million, down $10.7 million or 32.5% below year ago levels and $6.2 million below forecast. That put total individual refunds for the year at $447 million, or $80.1 million or 21.8% above last year and 1.4% below forecast.

All refund amounts below forecast add to net general revenue tallies, state budget officials said.

OTHER TAX REVENUE SOURCES
Alcoholic beverage
July-June 2017: $57.5 million
July-June 2016: $56.7

Games of skill
July-June 2017: $60.3 million
July-June 2016: $55.9 million

Tobacco
July-June 2017: $221.6 million
July-June 2016: $223.5 million

Insurance
July-June 2017: $141.9 million
July-June 2016: $101.8 million