State budget coffers top $2.85 billion, see $17 million surplus ahead of upcoming session

Arkansas lawmakers will go into the upcoming legislative session with a $17 million surplus as Gov. Asa Hutchinson’s plan for a sizable tax cut to reduce the top personal income bracket from 6.9% to 5.9% by 2023 builds momentum.

Halfway through fiscal year 2019 that began on July 1, 2018, Arkansas’ budget coffers total net available general revenues of $2.85 billion year to date, which is $163.2 million or 6.1% ahead of year ago levels and $17 million or 0.6% above the state’s official forecast, according to financial data produced monthly by the state Department of Finance and Administration (DFA).

Yearly gross general collections, a broader economic indicator that includes collections from all available categories, increased by $137.8 million, or 4.4% to $3.26 billion compared with the same period of fiscal 2018, and $23.5 million, or 0.7%, above the revised general forecast.

Once the 92nd General Assembly gets underway on Jan. 14, the legislature is expected to immediately take up Gov. Hutchinson’s two-phase tax relief package. Under the proposal know as the 2-4-5-9 plan, lawmakers would implement major recommendations developed by the Arkansas Tax Reform and Relief Task Force that would simplify the state’s tax code and cut the top marginal tax rate eventually to 5.9%.

Under the draft proposal adopted by the tax reform panel in the summer, the Arkansas standard deduction would rise to $6,800 and $13,600 for individual and joint taxpayers, respectively. Afterward, the new rate schedule in “Phase 1” would be 2% for the first $8,000, 4% through $18,000, 5.9% through $65,000, and 6.5% for anything in excess of $65,000.

In “Phase 2,” the 6.5% bracket would be eliminated leaving the state with a top 5.9% marginal rate. The net effect would simplify and flatten Arkansas’ income tax bracket schedules, DFA officials have said, with the initially higher rates for lower income levels helping to reduce the revenue impact.

Overall, Hutchinson’s $5.75 billion budget request for the upcoming fiscal year 2020 would increase by 2.3%, or $125 million above the fiscal 2019 budget of $5.6 billion, which ends June 30, 2019. The 2021 fiscal budget request would rise another 2.3% to nearly $5.88 billion.

Besides the governor’s third tax cut since taking office in 2015, his budget priorities also include a $60 million program to increase the minimum teacher salary levels in Arkansas from $31,800 to $36,000 over the next four years.

Hutchinson also has asked the legislature to plug a $38.5 million “budget hole” caused by the passage of the constitutional amendment in the Nov. 6 election to legalize casino gambling at Oaklawn Racing & Gaming in Hot Springs, Southland Park Gaming & Racing in West Memphis, and in Pope and Jefferson counties. To date, investor groups at those venues have proposed expanded gaming facilities that total more than $500 million in new investments, although the state won’t likely see revenue from those ventures until at least 12 months down the road.

In December, the last month before the 2019 session convenes, general revenue collections jumped 3.9% to $541.6 million, which is $20.5 million above year ago levels and $5.6 million or 1% above the DFA forecast. December gross collections totaled $605.9 million, up $16.5 million or 2.8% ahead of last year and $8.7 million or 1.5% above forecast.

Among the major categories, individual income tax collections rose by 2.3%, or $5.9 million, to $268.6 million, which is $7.6 million, or 2.8% below forecast. Corporate income tax collections for the year rose by $20.8 million to $87.6 million, which is $26.5 million or 43.4% above forecast.

Sales and use tax collections in the December report, which reflects November consumer spending, fell by 2% or $4.5 million from a year ago to $215.6 million, which is $5 million or 2.3% below forecast. Year-to-date, sales and use tax revenue is up 4.1% at nearly $1.25 billion, which is $49.4 million ahead of last year and $1 million above forecast.

On New Year’s Day, Gov. Hutchinson’s $50.5 million tax cut for the working poor enacted in the 2017 legislature went into effect.

OTHER TAX REVENUE SOURCES

Alcoholic beverages
July-December 2019: $28.6 million
July-December 2018: $27.9 million

Games of skill
July-December 2019: $32.6 million
July-December 2018: $30.7 million

Tobacco
July-December 2019: $111.8 million
July-December 2018: $112.3 million

Insurance
July-December 2019: $44.4 million
July-December 2018: $42.7 million