State reports $44M surplus at end of May

Month misses projections but still beats ’17 revenue

a month remaining in the current fiscal year, Arkansas’ net general revenue has eclipsed last year’s 11-month total by nearly $160 million, leaving a surplus of $44.2 million.

May’s gross general revenue collections of $473 million exceeded by 0.9 percent the same collections from a year ago, but they fell shy of projections by $23.6 million, or 4.8 percent, according to the state Department of Finance and Administration’s monthly revenue report released on Monday.

The report, Gov. Asa Hutchinson said in a statement, positions the state for a strong finish to fiscal 2018, which ends June 30.

“From a significant increase in motor vehicle sales to a retail sector up more than 6.5 percent, this report includes several indicators that reflect the strength of Arkansas’ economy,” the Republican governor said.

May’s report follows a record-breaking April, in which $824.8 million in gross revenue was collected. The month of April typically accounts for the highest month of collection because it’s when tax returns are due.

Last month, the state’s two largest sources of general revenue — individual income taxes and sales-anduse taxes — each exceeded year-ago totals by 4.5 and 4.7 percent, respectively.

Both categories lagged slightly behind expectations. Individual income taxes tallied $218.8 million, which was 0.1 percent below projections; sales-anduse tax receipts were $201.5 million — 0.3 percent below the forecast.

Corporate income tax collections reached $17.2 million in May — a $16.2 million decrease from the same month in 2017. Furthermore, the corporate tax receipts fell short of the forecast by 60.2 percent.

John Shelnutt, the state’s chief economic forecaster, said that corporate income taxes are difficult to predict, but forecasters have built in safety nets by conservatively predicting tax refunds. In May, corporate tax refunds were $4.5 million less than projected, offsetting in part the lag in collections.

“It’s just a very volatile sector, and it’s been more volatile than normal the last two years,” Shelnutt said.

May’s revenue report also comes just days after a positive U.S. Labor Department report showing the national unemployment rate dropping to 3.8 percent.

Individual income tax withholding grew 5.1 percent last month, which Shelnutt said was a “very, very strong number.”

“Year-to-date, [individu-

al income tax withholding] is up 4.4 percent, which is also a good number and above forecast,” he said. “That does correlate with the labor market economic indicators.”

Tax refunds and some special government expenditures, like educational adequacy funding, are deducted from the total general collection, leaving a net amount for state agencies to spend.

May’s net general revenue grew by $8.1 million from a year ago, or 2.4 percent, to $347.4 million; however, it fell $9.6 million short of the forecast.

Similar to the corporate income taxes, state forecasters’ conservative projections for individual income tax refunds offset the amount that collections fell short of expectations. The state paid out $59.2 million in individual tax refunds — 8.7 percent less than expected.

In total, the state has grossed $6.1 billion in fiscal 2018, netting $4.9 billion after all deductions.

The state’s general-revenue budget for the year is $5.45 billion, up $130.1 million from fiscal 2017, according to the finance department.

Earlier this spring, the General Assembly enacted Hutchinson’s proposed $5.63 billion budget for fiscal 2019.

The governor’s plan to cut individual income tax rates for those earning up to $21,000 annually takes effect Jan. 1. The state expects those cuts to reduce revenue by about $25 million in fiscal 2019 and $50 million in subsequent years.

The current fiscal year is the second under income-tax reductions for those with incomes between $21,000 and $75,000. Those cuts were projected to cost the state about $100 million annually.

May’s numbers continued the current economic expansion that began in June 2009; the ongoing expansion would set the record for the longest such expansion if it continues into July 2019.

The longest prior expansion lasted from March 1991 until March 2001.

“I think we’re on forecast, essentially, for the year,” Shelnutt said. “We have a nice cushion going into the last month, and it does seem to correlate with the economy doing better.”