Revenue rises 10% over ’20 in November
$587M total tops forecast, reaches record for month
State general revenue tax collections in November surged by $53.7 million, or 10.1% over the same month a year ago, to $587.2 million.
Last month’s collections beat the state’s revised Oct. 19 forecast by $53.6 million, or 10.1%, as the state’s two largest sources of general revenue — individual income and sales and use taxes — outdistanced the forecast for the month, the state Department of Finance and Administration said Thursday in its monthly revenue report.
November’s total general revenue collection set a record for the month, exceeding the previous high of $533.5 million in 2020, said Whitney McLaughlin, a tax analyst for the finance department.
Tax refunds and some special government expenditures are taken off the top of total general revenue collection, leaving a net amount that state agencies are allowed to spend. Net general revenue helps finance state-supported programs such as public schools, human service programs, public colleges and universities, and prison programs.
The net in November increased by $36 million, or 7.8%, over a year ago to $500 million, exceeding the forecast by $57.2 million, or 12.9%.
Gov. Asa Hutchinson said Thursday that the revenue report for November “shows that our economy is still picking up steam.
“Even though we revised the revenue forecast upward we continue to have a healthy surplus through 5 months of the fiscal year,” the Republican governor said in a written statement.
“As long as we can grow our workforce through either more Arkansans returning to the labor force or through migration, then our economy will continue to expand upward,” Hutchinson said.
John Shelnutt, the state’s chief economic forecaster, said in an interview that he expects economic growth to slow in the state within the
next several months.
“It can’t continue at this rate,” Shelnutt said. “I think we’ll see a leveling out in more sectors. But the economic expansion continues, so that’s adding some growth that is above average.”
FISCAL 2022 TO DATE
November is the fifth month of fiscal 2022, which started July 1 and ends June 30, 2022.
During the first five months of fiscal 2022, general revenue increased by $84.2 million, or 2.7%, over the same period in fiscal 2021 to $3.17 billion and beat the forecast by $71.2 million, or 2.3%.
So far in fiscal 2022, net general revenue has increased by $79.5 million, or 3%, above the same period in fiscal 2021 to $2.77 billion, outdistancing the forecast by $73 million, or 2.7%.
Comparisons with yearago collections remain somewhat distorted by the individual income tax due-date shift from April 15, 2020, in fiscal 2020, to July 15, 2020, in fiscal 2021 as a one-time change for pandemic relief efforts, according to the finance department. That shift put two income tax filing dates in fiscal 2021.
Earlier this year, the General Assembly enacted a fiscal 2022 general revenue budget totaling $5.849 billion.
On Oct. 19, the finance department increased its projection for net general revenue in the current fiscal year by $246.2 million to $6.11 billion, projecting a year-end surplus of $263 million above the fully funded Revenue Stabilization Act that prioritizes the distribution of general revenue to state-supported programs.
Beating the forecast for net general revenue so far in fiscal 2022 by $73 million “is tracking above that projected year-end result,” Shelnutt said.
The department on Oct. 19 also boosted its forecast for fiscal 2023 net general revenue by $298.5 million to $6.4 billion.
Hutchinson has proposed a general revenue budget for fiscal 2023 of $6.01 billion with an additional $54.9 million transfer to the long-term reserve fund, according to the finance department.
In a special session starting Tuesday, the Arkansas General Assembly will consider cutting the state’s top individual and corporate income tax rates.
The proposal also would create a nonrefundable low-income tax credit; make adjustments to smooth the tax cliff between tax tables; index the standard deduction to the consumer price index; create triggers for some individual and corporate income tax rate cuts; and rename the state’s long-term reserve fund as the catastrophic reserve fund.
The measure reflects an agreement between the Republican governor and Republican legislative leaders, who have said that a majority of the 100-member House and 34 senators support the bill. (The Senate has one vacancy.)
The measure would eventually potentially reduce the top individual income tax rate from 5.9% to 4.9% and the top corporate income tax rate from 5.9% to 5.3%, if the tax-cut triggers are met. Under a 2019 state law, the top corporate rate will drop from the current 6.2% to 5.9% on Jan. 1, 2022.
The state Department of Finance and Administration has projected that the proposal would reduce state general revenue by $135.25 million in fiscal 2022, which started July 1. The total reduction in general revenue is projected to increase to $307.4 million in fiscal 2023.
Asked whether the omicron covid-19 variant could potentially dampen tax collections to the extent that the income tax cut bill would later have to be pared back to adequately fund essential state services, Hutchinson said he doesn’t expect that to be the case.
“The new variant does not cause us to change our strategy and I know we can both protect public health and create jobs for families at the same time,” he said.
NOVEMBER’S COLLECTIONS
According to the finance department, November’s general revenue collections included:
■ An $18.3 million, or 7.3%, increase in individual income tax collections over a year ago to $270.9 million, beating the forecast by $31.3 million, or 13.1%.
Individual withholding tax revenue is the largest category of individual income tax collections.
Withholding tax revenue increased by $15.8 million, or 6.7%, over a year ago to $253.7 million, exceeding the forecast by $20.9 million.
The increased individual withholding tax revenue reflects more people working and more people working longer hours, said Shelnutt.
Individual income tax collections from estimated payments increased by $2.3 million over a year ago to $6 million, beating the forecast by $4.5 million.
The collections from returns and extensions increased by about $200,000 from a year ago to $11.2 million, exceeding the forecast by $5.9 million.
■ A $31.8 million, or 14.5%, increase in sales and use tax collections over a year ago to $251.4 million, outdistancing the state’s forecast by $19 million, or 8.2%.
“Major reporting sectors of Sales Tax displayed mixed results compared to a year ago, with high growth in sectors that experienced later recovery and lower growth in sectors that rebounded earlier,” according to the department.
■ About a $500,000 dip in corporate income tax collections from a year ago to $8 million, outdistancing the forecast by about $600,000. November is a light collection month for corporate income taxes.