State revenue jumps $47.8M in September

Increase exceeded forecast for month by $15.2 million

Rising individual income-tax collections helped fuel a $47.8 million increase in state general revenue in September, compared with the same month a year ago, to a record $634.7 million for the month.

Total general revenue collections for last month exceeded the state’s forecast by $15.2 million, the state Department of Finance and Administration reported on Tuesday in its monthly report.

The previous record in September was $590.1 million collected in 2013, said Whitney McLaughlin, a tax analyst for the finance department.

“We have had continued strong results in individual, corporate and sales taxes,” said department Director Larry Walther.

Individual income-tax collections in the month increased by 10.6 percent over year-ago figures, while sales and use collections increased by 4.6 percent from September 2017, the finance department reported.

The individual collections were bolstered by one more Friday payday last month than in September 2017 and generally reflect more people with jobs and people working longer hours in Arkansas, said John Shelnutt, the state’s chief economic forecaster.

Arkansas’ unemployment rate in August fell to 3.6 percent from 3.7 percent in July and tied the historical low, the U.S. Bureau of Labor Statistics reported last month. The national unemployment rate was 3.9 percent.

September “was another good month for … sales and use revenues,” said Richard Wilson, assistant director of research for the Bureau of Legislative Research.

Individual income taxes and sales and use taxes are the largest sources of state government’s general revenue.

September is the third month of fiscal 2019, which started July 1.

During the first three months of fiscal 2019, total general revenue collections increased by $77.5 million, or 4.9 percent, over the same period in fiscal 2018 to $1.66 billion and that exceeded the state’s forecast by $30.8 million, or 1.9 percent.

Tax refunds and some special government expenditures come off the top of total revenue, leaving a net amount state agencies are allowed to spend.

So far in fiscal 2019, the net increased by $93.7 million, or 6.8 percent, over the same period in fiscal 2018 to $1.47 billion and that exceeded the state’s forecast by $33.4 million or 2.3 percent.

Gov. Asa Hutchinson said in a written statement that “an expanding Arkansas economy led to collections that exceeded expectations by $33.4 million” in the first three months of this fiscal year.

In September alone, the net collection increased by $50.7 million, or 9.8 percent, over the same month a year ago to $569.6 million and that exceeded the state’s forecast by $15.4 million or 2.8 percent.

“Net available revenue in September was 9.8% higher than September 2017, the result of gains across several major categories,” Hutchinson said in his written statement.

“One category that has exhibited consistent growth is retail sales tax collection,” the Republican governor said. “This indicates strength in both consumer and business activity. I will continue to monitor our revenue picture which will set the outline for next year’s budget.”

On Nov. 14, eight days after the general election, state officials are scheduled to present the revenue forecasts and the governor’s proposed budgets for the two fiscal years to the Legislature’s Joint Budget Committee and Legislative Council. The next two fiscal years are 2020 and 2021. Fiscal years start July 1.

Hutchinson, who is seeking re-election to a second four-year term on Nov. 6, has signaled his support for a plan to reduce the number of state income-tax tables from three to one and phase in reducing the top individual income-tax rate from 6.9 percent to 5.9 percent. The state projects this plan would reduce revenue by nearly $192 million a year.

For fiscal 2019, the current budget year, the general revenue budget is projected to be $5.63 billion, which is $172.8 million more than the budget for the last fiscal year, which ended June 30.

The Revenue Stabilization Act that distributes general revenue to state-supported programs also would set aside $48 million of what the governor considers surplus money for a restricted reserve fund that he said would set the stage for future tax cuts and another $16 million to help match federal highway funds.

On Jan. 1, cuts in individual income-tax rates for people who make below $21,000 a year will go into effect. In 2017, the Legislature enacted Hutchinson’s plan to cut these rates; the cuts are projected to reduce revenue by $25 million in fiscal 2019 and then $50 million a year thereafter.

Also on Jan. 1, a reduction in the sales tax on groceries from 1.5 percent to 0.125 percent is expected to become effective under a 2013 law that allows the cut using the savings from the end of desegregation payments to three Pulaski County school districts. Those payments total about $65 million a year. The reduction is the final prong of then-Gov. Mike Beebe’s plan to gradually cut the grocery tax from 6 percent.

SEPTEMBER DETAILS

According to the finance department, September’s general revenue included:

A $30.1 million, or 10.6 percent, increase in individual income tax collections from the same month a year ago to $314.1 million, which exceeded the state’s forecast by $4.2 million or 1.3 percent.

Withholdings are the largest category of individual income taxes.

They increased by $28.5 million, or 14.4 percent, over the same month last year to $226 million and exceeded the forecast by $8.6 million.

A $9.1 million, or 4.6 percent, increase in sales and use tax revenues compared to year-ago figures to $208.5 million that exceeded the forecast by $2 million or 1 percent.

The increased sales and use tax revenue for the month reflected both increased consumer and business spending with the exception of motor vehicle sales-tax collections, Shelnutt said. Vehicle tax collections last month declined by $1.2 million from a year ago to $23.9 million, he said.

A $9.2 million increase in corporate tax collections compared with the same month a year ago to $80.4 million, which exceeded the forecast by $9.2 million or 12.9 percent.

“We don’t know exactly what [of the increased corporate income tax collections] is taxpayer strategy and what is the economy, but there is some indication in the corporate income numbers that it is a good year for some corporations,” Shelnutt said.