State’s fis­cal 2017 ends with sur­plus

Af­ter year of bud­get un­cer­tainty, Arkansas is $15.7 mil­lion in black

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - MICHAEL R. WICKLINE

Arkansas’ state govern­ment ended fis­cal 2017 with record gen­eral rev­enue and a $15.7 mil­lion sur­plus af­ter tax col­lec­tions see­sawed above and be­low fore­cast over most of the past 12 months, of­fi­cials said Wed­nes­day.

The state Depart­ment of Fi­nance and Ad­min­is­tra­tion re­ported the sur­plus in a monthly re­port Wed­nes­day. On Fri­day, the last day of the state’s fis­cal year, Gov. Asa Hutchin­son’s ad­min­is­tra­tion re­stored all but $10 mil­lion of a $70 mil­lion bud­get cut an­nounced in late April amid fears of a rev­enue short­fall.

In restor­ing much of the cut, Fi­nance and Ad­min­is­tra­tion Di­rec­tor Larry Walther on Fri­day cited re­bound­ing tax col­lec­tions and much lower-than-ex­pected in­di­vid­ual in­come tax re­funds. When the bud­get cut was

an­nounced in April, Hutchin­son pointed to lower-thanex­pected sales and cor­po­rate in­come tax col­lec­tions, and higher-than-ex­pected in­di­vid­ual in­come tax re­funds.

“Our econ­omy is strong and grow­ing and the most-re­cent rev­enue re­port con­firms that fact,” the Repub­li­can gov­er­nor said Wed­nes­day in a writ­ten state­ment. “From the rev­enue re­port, we can see that Arkansans are work­ing hard and earn­ing more. We can also see that con­sumer and busi­ness spend­ing are stronger, which is a good sign both for our bud­gets and for the state’s econ­omy.”

Asked if he con­sid­ered not restor­ing much of the bud­get cut and sav­ing the $60 mil­lion as ad­di­tional sur­plus, Hutchin­son said, “Our pri­mary goal was re­plen­ish­ing the Med­i­caid Trust Fund, and ad­just­ing the fore­cast was nec­es­sary to do that. With un­cer­tainty in Wash­ing­ton and the pos­si­ble changes to Med­i­caid, it is an ap­pro­pri­ate step to as­sure a strong foun­da­tion for the com­ing years.”

The Med­i­caid Trust Fund is used to help match fed­eral dol­lars for the Med­i­caid pro­gram. One of the fund­ing sources is a tax on soft drinks.

“By re­vis­ing the fore­cast on Fri­day, we were able to move $43 mil­lion in ad­di­tional money into the Med­i­caid Trust Fund, which brings it to about al­most $70 mil­lion,” Walther said Wed­nes­day.

The Repub­li­can-con­trolled Congress is con­sid­er­ing mea­sures to re­peal and re­place the fed­eral Pa­tient Pro­tec­tion and Af­ford­able Care Act, un­der which the state is autho­rized to re­ceive fed­eral fund­ing for its ver­sion of Med­i­caid ex­pan­sion called Arkansas Works.

The state pro­vides pri­vate health in­sur­ance for roughly 300,000 Arkansans un­der the pro­gram, with the fed­eral govern­ment pay­ing for 95 per­cent and the state chip­ping in 5 per­cent this year. The state is pro­jected to pay $109 mil­lion of the pro­gram’s $1.8 bil­lion cost in fis­cal 2018. The state’s share will in­crease each year un­til it reaches 10 per­cent in 2020 un­der ex­ist­ing fed­eral law.

Dur­ing fis­cal 2017, Arkansas’ gross gen­eral rev­enue to­taled $6.55 bil­lion — an in­crease of $100.4 mil­lion, or 1.6 per­cent, above fis­cal 2016. To­tal col­lec­tions also ex­ceeded the lat­est fore­cast by $18.2 mil­lion, the fi­nance depart­ment re­ported Wed­nes­day.

The pre­vi­ous record for a fis­cal year’s to­tal gen­eral-rev­enue col­lec­tions was in fis­cal 2015, when they to­taled $6.47 bil­lion, ac­cord­ing to John Shel­nutt, the state’s chief eco­nomic fore­caster.

House Speaker Jeremy Gil­lam, R-Jud­so­nia, said he’s en­cour­aged by Fri­day’s restora­tion of much of the ear­lier bud­get cut and by Wed­nes­day’s rev­enue re­port.

“This is a much bet­ter sce­nario to find our­selves in than fore­casts be­ing in the op­po­site di­rec­tion where the rev­enues com­ing in were sig­nif­i­cantly be­low the re­vised fore­cast,” Gil­lam said. “Over­all, I think to fin­ish out the fis­cal year the way we’re able to do is great news. I think it puts us on some pretty good foot­ing mov­ing into the next fis­cal year.”

A Joint Bud­get Com­mit­tee co-chair­man, Sen. Larry Teague, D-Nashville, said, “It’s al­ways bet­ter to have a sur­plus than to be in a hole.” Arkansas is barred un­der state law from spend­ing more than it col­lects in taxes.

The $15.7 mil­lion sur­plus is less than sur­pluses in each of the pre­vi­ous six fis­cal years. Those ranged from $78.7 mil­lion in fis­cal 2014 to $299.5 mil­lion in fis­cal 2013, ac­cord­ing to Fi­nance and Ad­min­is­tra­tion Depart­ment records.

Those records show that the largest sur­plus over the past 20 fis­cal years was $409.4 mil­lion in fis­cal 2007.

Arkansas tax re­funds and some spe­cial govern­ment ex­pen­di­tures, such as court-man­dated de­seg­re­ga­tion pay­ments, come off the top of to­tal rev­enue, leav­ing a net amount. In fis­cal 2017, net avail­able gen­eral rev­enue to­taled $5.349 bil­lion — a de­crease of $19 mil­lion from fis­cal 2016 and $25.7 mil­lion above the lat­est fore­cast.

Paul Louthian, deputy di­rec­tor of the fi­nance depart­ment, said the $15.7 mil­lion sur­plus was cal­cu­lated based on net avail­able gen­eral rev­enue of $5.349 bil­lion ex­ceed­ing the orig­i­nal gen­eral-rev­enue bud­get of $5.333 bil­lion un­der the Rev­enue Sta­bi­liza­tion Act. The act was passed by the Repub­li­can-con­trolled Leg­is­la­ture and Hutchin­son in the 2016 fis­cal ses­sion.

Louthian said the fi­nance depart­ment trans­ferred $25.7 mil­lion — or the amount by which to­tal net gen­eral rev­enue ex­ceeded Fri­day’s re­vised $5.323 bil­lion bud­get — to the Gen­eral Rev­enue Al­lot­ment Fund on Fri­day.

“Ad­di­tional amounts of re­claimed gen­eral rev­enue [from state agen­cies for fis­cal 2017] will oc­cur through Au­gust,” and go to the Gen­eral Rev­enue Al­lot­ment Fund, he said. Spend­ing money from that fund would re­quire the au­tho­riza­tion of the Leg­is­la­ture and the gov­er­nor, Louthian said.

Dur­ing this year’s reg­u­lar leg­isla­tive ses­sion, the Leg­is­la­ture and Hutchin­son passed a $5.49 bil­lion gen­eral-rev­enue bud­get for fis­cal 2018, which started Satur­day. Two months ago, Hutchin­son trimmed that bud­get by $43 mil­lion.

Asked if the state will now change the fis­cal 2018 fore­cast, Walther said, “We’ll be look­ing at it again at the end of Novem­ber, early De­cem­ber,” as re­quired un­der state law.

Across the coun­try, gov­er­nors are be­ing “ex­tra cau­tious” with their bud­gets for fis­cal 2018 “as states con­tend with slow growth, lim­ited bud­get flex­i­bil­ity and sub­stan­tial fed­eral un­cer­tainty,” ac­cord­ing to a re­cent re­port from the Na­tional As­so­ci­a­tion of State Bud­get Of­fi­cers.

In fis­cal 2017, states ex­pe­ri­enced slug­gish rev­enue growth of 2.4 per­cent, with 33 states re­port­ing col­lec­tions be­low pro­jec­tions. At least 23 states made midyear 2017 bud­get cuts to­tal­ing $4.9 bil­lion, the as­so­ci­a­tion re­ported.

“Look­ing back at fis­cal year 2017, it was a dif­fi­cult year,” Walther said.

“We started out with cor­po­rate in­come tax be­ing well be­low what we had fore­casted be­cause some cor­po­rate fil­ers were do­ing some tax plan­ning. They lit­er­ally over­paid in 2016, and there­fore didn’t ask for a re­fund. We didn’t see that, so it caused us to be well be­hind from the very be­gin­ning,” he said.

“The good thing is the in­di­vid­ual in­come tax has been pretty much on line with what we fore­casted. We have had a good year in in­di­vid­ual in­come tax with­hold­ings, so … we’re think­ing the econ­omy is still strong and look­ing strong into 2018,” Walther said.

Ac­cord­ing to the fi­nance depart­ment break­down of fis­cal 2017 gen­eral-rev­enue fig­ures by cat­e­gory were: m A $66.5 mil­lion, or 2.1 per­cent, in­crease in in­di­vid­ual in­come tax col­lec­tions over fis­cal 2016 to $3.21 bil­lion, which ex­ceeded the fore­cast by $3.1 mil­lion, or 0.1 per­cent. m A $48 mil­lion, or 2.1 per­cent, in­crease in sales and use tax col­lec­tions over fis­cal 2016 to $2.33 bil­lion, which ex­ceeded the fore­cast by $2.6 mil­lion, or 0.1 per­cent. m A $52.9 mil­lion, or 10.9 per­cent, de­cline in cor­po­rate in­come tax col­lec­tions from fis­cal 2016 to $433.8 mil­lion, which ex­ceeded the fore­cast by $4.6 mil­lion, or 1.1 per­cent.

The fis­cal 2017 fig­ures also showed: m In­di­vid­ual in­come tax re­funds in­creased by $80.1 mil­lion, or 21.9 per­cent over fis­cal 2016 to $447 mil­lion, which was $6.2 mil­lion, or 1.4 per­cent, be­low fore­cast. This added to net gen­eral rev­enue.

The state record for to­tal gen­eral-rev­enue col­lec­tions in the month of June con­tin­ues to be $670.3 mil­lion in 2015, Shel­nutt said. This year, to­tal col­lec­tions in June were $666.1 mil­lion.

Net avail­able gen­eral rev­enue for the month in­creased by $30 mil­lion over a year ago to $571.7 mil­lion, which ex­ceeded fore­cast by $25.7 mil­lion.

June’s in­di­vid­ual in­come tax col­lec­tions in­creased by $6.6 mil­lion to $276.8 mil­lion and ex­ceeded fore­cast by $3.1 mil­lion.

In­di­vid­ual in­come tax with­hold­ings are the largest cat­e­gory of those col­lec­tions. They to­taled $198.5 mil­lion in June — a $9.9 mil­lion in­crease over a year ago and a $3.1 mil­lion in­crease over the state’s fore­cast, Shel­nutt said.

Last month’s sales and use tax col­lec­tions in­creased by $7.9 mil­lion from a year ago to $202.8 mil­lion and ex­ceeded fore­cast by $2.6 mil­lion.

The in­crease in sales and use tax col­lec­tions “was across the board of [both] con­sumers and busi­ness, with the ex­cep­tion of mo­tor ve­hi­cle that was flat and has been flat for a few months,” Shel­nutt said.

June’s cor­po­rate in­come tax col­lec­tions de­clined by $16.2 mil­lion, or 19 per­cent, from year-ago fig­ures to $68.8 mil­lion, but that’s $4.6 mil­lion above the lat­est fore­cast.

Louthian said fed­eral and state gov­ern­ments changed the due date for cor­po­rate in­come tax fil­ings from March 15 to April 15, so “what we nor­mally would have as due in June now will be due in July.”

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