State budget coffers holding $57.5 million surplus

Arkansas revenue collections in October continued a steady upward path in October as rising payrolls and strong sales tax collections boosted state budget coffers ahead of the all-important holiday shopping season and upcoming 2019 legislative session.

“The revenue report reflects more good news overall and the 4th consecutive month above forecast in fiscal 2019 in the July to October period,” state Department of Finance and Administration (DFA) economist John Shelnutt told Talk Business & Politics.

Through the first four months of the fiscal year beginning July 1, 2018, net available general revenues totaled $1.908 billion, up 6.4% or $114.6 million from a year ago, which is $57.5 million or 3.1% ahead of the state’s forecast. On a monthly basis, general revenue collections were $435.4 million, which is 5% or $20.9 million above year ago levels and $24.1 million or 5.9% above forecast.

Yearly gross general collections, a broader economic indicator that includes collections from all available categories, increased by $87 million to $2.166 billion, up nearly 4.2% compared with the same period of fiscal 2018, and $33.9 million or 1.6% above the general forecast.

‘GIVES US SOME CUSHION’
The stable October revenue report comes as Arkansas legislators conduct joint budget hearings at the State Capitol ahead of the upcoming legislative session that begins in mid-January. Gov. Asa Hutchinson is expected to release details of his fiscal 2020 revenue and budget plan on Nov. 14, with tax cuts and reform, higher teacher salaries and government downsizing as key priorities in his agenda.

Gov. Hutchinson said the upward trend bodes well for boosting teacher pay.

“The October revenue report shows we have exceeded our revenue forecast for four consecutive months. This demonstrates the continued consumer confidence in the Arkansas economy. The fact that both sales tax and individual income tax collections exceed expectations for the year to date puts us in a strong position to boost teacher pay and meet our other priorities in 2019,” the governor said in a statement that followed Friday’s (Nov. 2) revenue report.

Hutchinson’s proposed budget for fiscal year 2019 forecasted net available revenues to reach $5.69 billion, an increase of $237 million or 4.3% above fiscal year 2018. At the end of the biennial fiscal session in March, Hutchinson signed off on a $5.6 billion budget for fiscal 2019, a modest 2.8% increase in general revenues.

Four months ago, Arkansas closed out the year with a surplus of $41.7 million. That trend of strong, across-the-board tax collections has continued into the 2019 fiscal year, said Shelnutt. With only two months before the 2019 session begins, the DFA economist said there will likely be extra revenue to consider once the 92nd General Assembly convenes.

“The year-to-date (YTD) position of $57.5 million above forecast after four months gives us some cushion going forward in FY 2019 to deal with volatility or other unexpected events in corporate income tax filings and the next Individual Income tax filing season starting in late January through the April filing deadline,” said the state chief economic forecaster.

Shelnutt said two components of the monthly revenue report – payroll withholding and sales tax revenue – are the “main economic story indicators” in fiscal 2019. On the rising number of Arkansas workers on state payrolls, Shelnutt called the two-month growth rate of 5.6% in September and October a “peak-of-cycle type performance in comparison to the best years of past economic cycles in past decades.” He said the growth in in sale tax revenues was in line with robust income growth.

“The concurrent gains in consumer- and business-oriented sectors of sales tax are interesting but limited at this point for making significant conclusions about the breadth of this expansion,” he said.

Statewide, general revenues are primarily driven by individual and corporate income tax collections, sales taxes and other tax collections by the state. Among the major categories, Shelnutt said individual income tax collections were slightly lower primarily due to payroll timing differences.

OCTOBER NUMBERS
Besides the strong general revenue collections for the month, gross monthly revenues grew by $9.4 million to $510 million, which is 1.9% compared to year ago results. October income tax collections totaled $252.4 million, as noted, were down $2 million or 0.1% from a year ago and $3.7 million or 1.5% above forecast. Corporate income tax collections totaled $21.4 million, an increase of $100,000 million from a year ago and $1.5 million or -6.5% below forecast.

Sales and use tax collections, another key revenue component, rose to $199.7 million, which is $8.8 million or 4.6% ahead of October 2018. Collections, however, were $2.4 million or 1.2% below projections due in part to lower utility tax inflows, state budget forecasters said.

Year-to-date, individual income tax collections rose $35.5 million or 3.6% to $1,019 billion from a year ago, which is $13.4 million or 1.3% above forecast. Sales and use tax revenue for fiscal 2019 grew to $828.9 million, up $38.6 million or 4.9% from a year ago and fractionally above forecast.

OTHER TAX REVENUE SOURCES
Alcoholic beverage
July-October 2019: $19.4 million
July-October 2018: $19 million

Games of skill
July-October 2019: $22.1 million
July-October 2018: $20.7 million

Tobacco
July-October 2019: $74.5 million
July-October 2018: $74.5 million

Insurance
July-October 2019: $23.1 million
July-October 2018: $22.3 million