2.2% pay increase set for state employees; state tax revenue better than expected

by Michael Tilley ([email protected]) 2,797 views 

Gov. Asa Hutchinson said Tuesday (June 30) that better-than-anticipated tax revenue allows him to authorize a 2.2% merit pay increase for all state employees. The governor said the state will end the fiscal year with $360 million more in tax revenue than anticipated.

State officials earlier this year made several preemptive budget cuts in advance of anticipated revenue losses resulting from COVID-19 economic disruptions. In announcing that the revised available revenue for the fiscal year – which ended Tuesday – will be $5.624 billion, Gov. Hutchinson said he can reverse course on delaying pay raises to about 24,500 state workers.

“I am today authorizing a merit pay increase for state employees of 2.2%. This is a recognition that they’ve worked very hard, particularly during this pandemic, in delivering state services … in every agency of state government,” the governor said prior to his daily COVID-19 briefing.

The governor said better revenue also allows restoration of $121 million to the public school fund and $42.4 million to the higher education budget. He said the $42.4 million fully restores previous budget cuts to higher education. A better revenue stream also allows for a $72.2 million payment to the Medicaid trust fund, which restores the fund to a pre-COVID balance of $255 million.

“This trust fund had been reduced during the course of the year because of needs and because of costs, and this restoration of the $72.2 million will bring the balance of the trust back to where we started at the beginning of the fiscal year,” Gov. Hutchinson said.

The state also ends the fiscal year (July 1 – June 30) with $225 million in “unallocated reserves,” which Gov. Hutchinson said the responsibility for that money is up to the Arkansas General Assembly. He also said the state has a $152 million long-term reserve fund.

It’s not a surprise the state ended the year on a positive revenue note. Arkansas tax revenue in the first 11 months of the fiscal year (July 2019-May 2020) was down just 2%, but was 3.2% above the budget estimated. Revenue in the May report released earlier in June was down just 2.9%, much better than the 28% drop in April.

The Arkansas Department of Finance and Administration is expected to release the fiscal year revenue report later this week.