State cuts revenue forecast

Gov. Asa Hutchinson’s administration on Friday trimmed by $ 22.1 million its projection for increased general-revenue tax collection in fiscal 2018 over the last fiscal year, but it didn’t cut the state’s projected budget of $5.45 billion.

The new projection is the state will take in $183 million more in 2018 than last year. Fiscal 2018 began July 1.

Officials for the state Department of Finance and Administration said they changed the general- revenue forecast — originally issued in May — largely by cutting projections for state sales and use tax and corporate income tax collection. Both have been lagging. They said they made up for the reduced projection largely by cutting the toohigh projection for individual income tax refunds.

“Last year, we saw monthto-month fluctuations in the budget, but at the conclusion of the fiscal year, the original forecast was right on target,” Hutchinson said in a statement regarding why the department didn’t cut the projected budget for 2018.

“Based on that experience and the revenue numbers thus far this year, I am satisfied that maintaining the forecast without adjustment is the right approach,” the governor said.

“As an additional conservative tool to managing the budget, we will present to the General Assembly a [fiscal 2019] budget that will reduce spending,” Hutchinson said. “This will provide a sufficient cushion in the event there is any unanticipated economic news that changes the revenue picture next year.”

The Finance Department will report the state’s general-revenue tax collection for November — the fifth month of fiscal 2018 — on Monday. Department Director Larry Walther declined to reveal Friday whether collection rebounded in November after dipping in October.

In early May, Hutchinson announced a $43 million cut to the general-revenue budget for 2018.

That’s the second consecutive year that saw a cut. In late April, Hutchinson announced a $70 million cut in the 2017 budget because of lagging sales and use tax and corporate income tax collection. But after tax collection rebounded, he later restored $60 million of that cut at the

end of the fiscal year.

In 2018, the general revenue budget of $5.45 billion is $130.1 million more than last year, with most of the increase going to the state Department of Human Services, according to the Finance Department.

The Finance Department cut its projection for 2018’s total general revenue from $6.756 billion, which was a $205.1 million, or 3.1 percent, increase over 2017, to $6.734 billion, which is a $183 million, or 2.8 percent, increase over 2017.

Sen. Bryan King, R-Green Forest — a critic of Hutchinson — said the department should have forecast a 1.5 percent increase in general-revenue tax collection in 2018 and planned on reaping the benefits in the form of a larger surplus at the end of the year.

The state’s two largest sources of state general revenue are individual income taxes and sales and use taxes.

The Finance Department’s forecast released Friday projects $3.323 billion in individual income tax collection in 2018 — up by $108.4 million over 2017. That’s a $4 million increase over the May forecast.

The department now forecasts $ 2.418 billion in sales and use tax collection in 2018 — an $81 million increase over 2017. That’s a $26 million decline from the May forecast.

The department’s newest forecast projects $465.7 million in corporate income collection in 2018 — a $31.9 million increase over 2017. That’s a $9.2 million decline from the May forecast.

For 2018, the department projects paying out individual income tax refunds totaling $485.1 million — up by $38.1 million over 2017. That’s a reduction of $37 million from the May forecast.

The department also forecasts paying out corporate income tax refunds totaling $78.9 million — up by $11.5 million over the previous year. That’s a $14 million increase from the May forecast.

The department now projects total general revenue of $6.942 billion in 2019 — an increase of $207.2 million, or 3.1 percent, over 2018. Fiscal 2019 starts on July 1, 2018.

For net general revenue available for distribution, the department’s latest forecast still projects $5.69 billion in

2019 — an increase of $237 million, or 4.3 percent, over 2018.

King said the projected 4.3 percent increase in 2019’s net revenue “is so unrealistic.”

But the forecast for 2019 “assumes that as the desegregation payments end in 2018, the sales tax rate reduction on food will be triggered to become effective Jan. 1, 2019,” said Whitney McLaughlin, a tax analyst at the Finance Department.

The state’s sales tax on groceries will decline from 1.5 percent to 0.125 percent with the use of savings from the state no longer making desegregation payments to three Pulaski County school districts under a law enacted in 2013.

“Thus, the 2019 forecast includes the impact of a reduction of $25 million in sales tax collections and the benefit of not deducting $65.8 million for desegregation payments,” McLaughlin said.

Hutchinson provided no details about what he called a “conservative tool to managing the budget” he plans to present to the Legislature for 2019.