Arkansas’ estimated revenue surplus rises to $708 million

Arkansas legislators received a nice surprise Wednesday (May 15) when the Arkansas Department of Finance and Administration (DFA) revised the fiscal year 2024 revenue surplus estimate from $240 million to $708 million.

The revision was filed with the Bureau of Legislative Research and presented to the Arkansas Legislative Council. The state’s fiscal year ends June 30.

“Individual Income Tax collections have been better than projected with $193.2 million over the prior forecast. Sales and Use Tax collections have been above the prior forecast, with most major sectors contributing to the gain. Corporate Income tax collections, while down from the previous year, are also above the prior forecast following three years of growth. The downward adjustment has been more limited than expected,” noted the letter from DFA Secretary James Hudson.

Hudson said the forecasts include the individual and corporate income tax rate cuts passed during the 94th General Assembly in 2023.

Hudson also reported that the fiscal year 2025—which ends June 30, 2025—surplus estimate has risen by $370 million to $763 million. He said the forecasts include the individual and corporate income tax rate cuts passed during the 94th General Assembly in 2023.

According to the DFA, the 2024 surplus builds upon a $1.628 billion surplus in fiscal year 2022 and $1.16 billion surplus in fiscal year 2023 surplus. Those remain the two largest in state history.

“As a result of strong revenue collection and large surpluses, the state now has a record amount of money in reserve. This includes $1.5 billion in the Catastrophic Reserve Fund and $2 billion in Restricted Reserve,” the DFA noted in a statement.

Hudson’s letter also included the following notes about the state’s economy and expectations.
• The Arkansas economy remains resilient in labor market indicators, with unemployment rates at or below the U.S. average.

• A conservative forecast remains in place over the biennium for corporate income tax collections because of its history of volatility.

• The short-term outlook for the Arkansas economy indicates stable and moderate growth for total personal income by fiscal year from FY24 to FY25.

• Wage and salary income is expected to decelerate from elevated gains in FY23 (8%) and FY24 (5.4%) to 4.2% in FY25. This deceleration corresponds to lower net employment growth over time and less wage inflation.

• Last year’s job gains in manufacturing are expected to turn negative in 2024 and 2025. Growth in construction employment continues to be strong but most major sectors are slowing in growth.

• Collectively, Arkansas will experience slower growth over FY24 and FY25 in the aftermath of historic gains that included the effects of high inflation.

• The risk set is again tipped toward the alternative pessimistic case, which is characterized by brief and slight declines in consumer spending and GDP. The pessimistic case with a 30% probability involves greater deceleration in real GDP growth to 1.6% in 2024 and 0.9% in 2025.

• Consumer spending slows 1.4 in 2024 to 1.2% in 2025.

• The pessimistic case also assumes higher energy prices due to worsening in the conflicts underway in Ukraine and the Middle East.