Arkansas budget coffers still ahead of forecast, September collections tepid

Arkansas’ economy continues to see broad-based growth in the first quarter of fiscal 2018 even as state revenue collections remained mostly flat, caused mainly by a continued decline in new car sales and weak business investment across the state.

Net available general revenues in September totaled $518.8 million, $3.3 million or 0.6% above last year’s results and only $7.1 million or 1.3% below forecast, according to monthly revenue report released Tuesday (Oct. 3) by the state Department of Finance and Administration (DFA).

Michael Pakko, chief economist and state economic forecaster for Arkansas Economic Development Institute at the University of Arkansas at Little Rock, noted that despite trailing sales tax revenue, state budget coffers are still up from a year ago.

“After the first quarter of FY2018, budget finances look to be fairly well on track with small surpluses showing for both total gross revenue and net available revenue,” Pakko said. “The increases in income tax withholding and consumer categories of sales tax receipts indicate healthy, broad-based growth in both incomes and spending.”

State budget officials said among the major revenue categories, declining sales tax revenue offset notably higher collections in consumer-related categories that reflected an uptick in spending by Arkansas taxpayers. Corporate and income tax collections were close to expected level, while income tax revenue totals exceeded the September forecast.

The weakening sales tax collection for the month is primarily a reflection of fewer sales of new cars and truck through September, a national trend that is expected to get a significant boost in upcoming months as consumers in hurricane plagued states such as Texas, Florida and Louisiana look to purchase vehicles.

Arkansas budget officials also reported that business spending in September fell short of expectations. Last week, the U.S. Bureau of Economic Analysis’ (BEA) third estimate of U.S. gross domestic product showed that the nation’s economy grew by 3.1% in the second quarter, primarily driven by strong consumer and business spending. However, most economic experts expect third quarter GDP to dip significantly for the three-month period ended Sept. 30, largely due to the hurricane impact and low productivity growth.

Overall, net available general revenue collections in Arkansas now total $1.379 billion for the first three months of the new fiscal year, which is $43.9 million or 3.5% above last year’s results. Those results, however, are just above forecast by $2.2 million, or 0.2%. The Arkansas Revenue Stabilization Act mandates a balanced budget to provide appropriate funding levels for all the state’s major priorities under Gov. Asa Hutchinson’s $5.5 billion budget for fiscal 2018.

In September, year-to-date gross general revenues rose by $59.1 million, or 3.9% to $1.579 billion. That tally is $8 million, or 0.5% above the yearly forecast, state budget officials said. Gross general revenues measure the total income for the state.

Monthly individual income tax collections totaled $83.9 million, up $8.1 million or 2.9% from a year ago. With respect to the forecast, collections were $500,000 or 0.2% below forecast as individual as withholding tax from payrolls rose 7% from a year ago. Volatile corporate income collections totaled only $71.2 million, a decrease of $1.6 million from a year ago, and $3.3 million or 4.9% above forecast in a key month for estimate payments in this category.

Individual income tax refunds totaled $11.5 million, or $6.6 million above last year and $5.2 million above forecast. September corporate income tax refunds were $2 million, which is $1.1 million below a year ago and $1 million above forecast.

OTHER TAX REVENUE SOURCES
Alcoholic beverage
July-September 2018: $14.6 million
July-September 2017: $14.3 million

Games of skill
July-September 2018: $15.5 million
July-September 2017: $14.1 million

Tobacco
July-September 2018: $56 million
July-September 2017: $54.6 million

Insurance
July-September 2018: $21.1 million
July-September 2017: $22.2 million