State revenue up by $34.4M in November

Month’s take at $464.6M, fed by rise in tax collections

Driven by rising individual income tax collections, state general revenue in November increased by $34.4 million from a year ago to $464.6 million.

Last month’s tax collections exceeded the state’s forecast by $12.7 million, the Department of Finance and Administration reported Tuesday in its monthly revenue report.

Individual income taxes and sales and use taxes are state government’s two largest sources of general revenue. State general revenue helps finance government services, including public schools, human services, prisons, and colleges and universities.

John Shelnutt, the state’s chief economic forecaster, said November’s 14.9 percent increase in individual income tax collections primarily resulted from one more Friday payroll than a year ago.

The state collected individual income tax withholdings in November from five Friday paydays in October, one more than in October 2013, he explained.

“We are going to have a sizable drop [in individual income tax collections] coming on the heels of this. In December, it should even out,” Shelnutt said.

In contrast, sales and use tax collections increased by 3 percent last month from a year ago.

Richard Wilson, who tracks tax collections for the state Bureau of Legislative Research as its assistant director of research, said November is the second-consecutive month with “a decent sales tax report,” after October’s general revenue was aided by higher-than-expected sales and use tax collections.

“We will see if that holds with the [sales-tax revenue from] holiday shopping coming in,” he said.

The revenue report for November generally reflects “slow, steady [economic] growth,” said finance department Director Richard Weiss.

During the first five months of fiscal 2015, which started July 1, general revenue increased by $67.4 mil-

lion (2.8 percent) over the same period in fiscal 2014 to $2.45 billion. That’s $12.7 million (0.5 percent) above the forecast.

Tax refunds and several government expenditures come off the top of “gross” general revenue, leaving a “net” amount that agencies are authorized to spend.

So far in fiscal 2015, the net increased by $72.7 million (3.6 percent) over the first five months in fiscal 2014 to $2.11 billion, which exceeds the state’s forecast by $24.8 million (1.2 percent).

Earlier this year, the Republican-controlled Legislature approved a $5 billion general revenue budget for fiscal 2015 that increased projected spending by $109 million over the previous fiscal year, with most of the increase allocated to public schools, prisons and human services.

That budget anticipates $85 million in general revenue reductions from tax cuts enacted by the Legislature in 2013 and up to $89 million in savings from the use of federal funds to purchase private health insurance for low-income Arkansans under the so-called private option.

Departing Democratic Gov. Mike Beebe and Republican Gov.-elect Asa Hutchinson disagree about whether state government can afford tax cuts during the next two fiscal years.

Beebe, who will leave office in January, last month recommended that lawmakers delay the implementation of two tax cuts that are projected to reduce revenue by $29.4 million in fiscal 2016 and $24.5 million in fiscal 2017.

Hutchinson, who will be sworn in Jan. 13, has said he wants lawmakers to approve his income-tax cut plan, which would reduce general revenue by $50 million in fiscal 2016 and $100 million in fiscal year 2017.

According to the finance department, November’s general revenue includes:

A $29.4 million (14.9 percent) increase in individual income-tax collections over a year ago to $227.1 million. That exceeded the forecast by $12.2 million (5.7 percent).

Individual income-tax withholdings increased by $28.1 million from the same month last year to $218.2 million, which exceeded the forecast by $10.9 million.

The increased individu- al income-tax collection includes slow, steady growth in the number of people working, but it was largely the result of an additional payroll week compared with a year ago, said Shelnutt.

Arkansas’ unemployment rate fell to 6 percent in October from 6.2 percent in September, an improvement that was accompanied by monthly gains in the labor force and the number of employed workers, the U.S. Bureau of Labor Statistics reported last month.

It was the second-straight month that the labor force and the number of employed in the state grew after six consecutive months of declines in those categories.

The national unemployment rate was 5.8 percent in October.

A $5.3 million (3 percent) increase in sales and use tax receipts to $180.5 million. That exceeded the forecast by $700,000 (0.4 percent).

Sales and use tax collections increased last month over a year ago, despite “a small negative” from a decline in sales-tax collections from motor vehicle sales, said Shelnutt.

The finance department’s deputy director, Tim Leathers, said the lower sales-tax collections from motor-vehicle sales either resulted from people purchasing cheaper vehicles or buying fewer vehicles.

A $200,000 (2.8 percent) increase in corporate income tax collections over a year ago to $6.4 million, which is $1.1 million (15.2 percent) below the forecast.

State officials said corporate income tax collections are volatile and often track with corporations’ federal tax strategies.