Revenue for state $4.3M off forecast
November’s haul at $448.5 million
State general revenue collected in November dipped by $14.5 million from the same month a year ago, to $448.5 million, and fell short of the state’s forecast by $4.3 million, according to a report released Friday.
Last month’s general-revenue collections declined from a year ago because of a drop in individual income-tax collections — this November had one fewer payday compared with November 2015 — while sales and use tax collections were virtually flat, state Department of Finance and Administration officials said Friday.
Individual income taxes and sales and use taxes are the two largest sources of state general revenue.
The record general-revenue collection for November continues to be $480.7 million received in that month in 2009, said Whitney McLaughlin, a tax analyst for the finance department.
Gov. Asa Hutchinson
said last month’s report overall is good news for the state.
“Individual income tax exceeded expectations, a good sign that Arkansans are on the job and earning more,” the Republican governor said in a written statement. “While we remain slightly below our general revenue forecast for this point in the year, this month’s results [are] an indication that we are likely to achieve our revenue forecast.”
But the report prompted Sen. Bryan King, R-Green Forest, to tweet. “Another month Ark is [i] in the red. Kept saying big spending gov was spending us into trouble.” November is the fifth month in fiscal 2017, which started July 1.
During the first five months of fiscal 2017, total state general revenue has increased by $23.4 million, or 0.9 percent, over the same period in fiscal 2016 to $2.49 billion, but it’s $21.1 million, or 0.8 percent, below the state’s forecast.
So far in fiscal 2017, individual income-tax collections have increased by $30.2 million, or 2.7 percent, over the same period in last fiscal year to $1.16 billion and have outdistanced the forecast by $5.9 million, or 0.5 percent.
In fiscal 2017, sales and use taxes have slipped by $1.9 million, or 0.2 percent, from fiscal 2016 to $972.7 million, and these collections are $40.3 million (4 percent) behind the forecast.
The lagging sales-tax collections are “a little scary,” said the Joint Budget Committee co-chairman, Sen. Larry Teague, D-Nashville.
He said he’s hoping salestax collections bounce back during the Christmas shopping season.
“What’s going on there [with lagging sales tax collections] is something we’ve got to determine and try to figure out what is happening,” said finance department Director Larry Walther.
Tax refunds and some special government expenses, such as court-mandated school desegregation payments, come off the top of total general revenue, leaving a net amount that state agencies are allowed to spend.
The net in November increased by $6.1 million, or 1.6 percent, over the same month a year ago to $380.7 million and exceeded the forecast by $12.6 million, or 3.4 percent, because of lower-than-expected individual income-tax refunds and corporate income-tax refunds, said Walther.
During the first five months of fiscal 2017, the net has increased by $35 million, or 1.7 percent, over the same period in fiscal 2016 to $2.15 billion, but it’s $10.6 million (0.5 percent) below the state’s forecast.
“We are getting back toward where the [proposed] budget is in the last two months,” Walther said.
Earlier this year, the Republican-controlled Legislature and Hutchinson enacted a $5.33 billion general-revenue budget for fiscal 2017 that factors in nearly $101 million in income-tax rate cuts approved in 2015. Most of the $142.7 million increase in the budget goes to the Department of Human Services and public schools under the Revenue Stabilization Act enacted in this spring’s fiscal session.
Hutchinson said Friday that the November revenue report “also serves as a reminder that we have to be cautious in determining the amount of future tax cuts. I continue to be comfortable with the $50 million tax cut outlined in my balanced budget.”
Last month, the governor presented lawmakers with a proposed general-revenue budget of $5.48 billion for fiscal 2018, a $153 million increase in which most of the additional money would go to the Human Services Department. The Legislature will make budgeting decisions about fiscal 2018, which starts July 1, 2017, in the session starting Jan. 9.
Hutchinson also said he would ask the Legislature to enact a tax cut that would become effective in the last half of fiscal 2019, which starts July 1, 2018. The tax cut, taking effect Jan. 1, 2019, would reduce general revenue by $25 million in fiscal 2019 and by $50 million a year thereafter. He said he prefers an income-tax cut but hasn’t made a decision.
Some lawmakers have been reluctant to embrace Hutchinson’s tax-cut plan with the general-revenue collections lagging the forecast in fiscal 2017. They want to see a few more months of tax collections to determine whether revenue rebounds.
But other lawmakers want to cut taxes by more than the governor’s $50 milliona-year proposal and repeal some sales-tax breaks to help finance income-tax cuts exceeding $100 million a year. Some lawmakers also want to eliminate the income taxes levied on military retirement benefits, which would reduce general revenue about $13 million a year.
According to the finance department, November’s general revenue included:
A $11.2 million, or 5.3 percent, decrease in individual income-tax collections from a year ago to $202.2 million that exceeded the forecast by $1.6 million, or 0.8 percent.
Withholdings are the largest category of individual income taxes.
The withholdings in November declined by $11.6 million from a year ago to $189.1 million but exceeded the forecast by $1.4 million. That’s because the month had one fewer payday than a year ago, said John Shelnutt, the state’s chief economic forecaster.
A $400,000 (0.2 percent) decrease in sales and use tax collections compared with a year ago to $184.5 million that fell behind the forecast by $8.7 million (4.5 percent).
These sales and use tax collections in November are based on taxes collected by businesses from their sales in October.
“Car sales were very strong in November, at least the tax collection, but retail and business categories were down and somewhat mixed,” Shelnutt said.
A $2.8 million (36.7 percent) increase in corporate income-tax collections over a year ago to $10.4 million that exceeded the state’s forecast by $2.7 million (34.6 percent). Corporate income taxes are volatile, often driven by corporations’ federal tax strategies, state officials have said.