State’s revenue for July exceeds forecast by 9.4%
$166M off from a year ago; recovery robust, analyst says
Arkansas’ general-revenue tax collections in July beat the state’s forecast by $51.6 million, or 9.4%.
But looking at revenue another way — by comparing last month’s take with what the state received in the same month a year ago — is distorted because the state shifted its individual income tax filing and payment deadline from April 15, 2020, to July 15, 2020, to coincide with the federal government’s shift of these deadlines during the coronavirus pandemic, the finance department noted.
State fiscal years start July 1 and end June 30.
Last month’s total general revenue was $166.5 million, or 21.7%, less than what the state took in during the same month a year ago, to $600.3 million, the Department of Finance and Administration reported Tuesday in its monthly revenue report.
The largest general-revenue collection in any July is the $766.8 million received in fiscal 2020, said Whitney McLaughlin, a tax analyst for the finance department.
Robust rebound
The state’s two largest sources of general revenue — individual income and sales and use taxes — both exceeded the forecast for the month of July.
Gov. Asa Hutchinson said the general-revenue collection in July reflects a continued robust and growing economy in Arkansas.
John Shelnutt, the state’s chief economic forecaster, said the July report “shows a robust rebound at this point from the combination of lagging sectors catching up and continued spending by consumers and more travel than what we saw last year.”
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.
July’s net general revenue dropped by $151.1 million, or 22.7% from the same month a year ago to $514.9 million, but exceeded the forecast by $39.2 million, or 8.2%.
Hutchinson said it’s encouraging to start the fiscal year with a $39 million net surplus.
“This surplus is early in the year and it could change month to month so it is critical to continue a conservative approach to the state’s finances,” the Republican governor said in a written statement.
Earlier this year, the Republican-dominated General Assembly and Hutchinson enacted a general-revenue budget for fiscal 2022 totaling $5.849 billion, including a $17.1 million allocation to the restricted reserve fund.
The current general-revenue forecast for fiscal 2022 anticipates all categories of the Revenue Stabilization Act, which distributes the money to state-supported programs, will be fully funded, said finance department spokesman Scott Hardin.
Hutchinson has said that he plans to call a special session this fall for the Legislature to consider cutting the top individual tax rate of 5.9% further.
A law enacted in 2019 cut the top rate from 6.9% to 6.6% on Jan. 1, 2020, and to 5.9% on Jan. 1, 2021.
Senate Revenue and Tax Committee Chairman Bill Sample, R-Hot Springs, said legislative leaders are working through “smoothing of the cliffs” in the state’s individual income tax code and listening to the governor’s desire to reduce the state’s top rate to 5.5%.
“Nothing is final and solid,” he said.
Long-term reserve
In fiscal 2021, the general-revenue budget totaled $5.899 billion, including a $76.2 million allocation to the restricted reserve fund and a $5.9 million allocation to the Medicaid trust fund, and all categories of the Revenue Stabilization Act were fully funded 2021, Hardin said.
In fiscal 2021, Arkansas’ surplus set a record, totaling $945.7 million, which is more than twice the previous record of $409.3 million in fiscal 2007, according to finance department records.
The Long Term Reserve Fund, which Hutchinson has called the state’s savings account, has been the primary beneficiary of the surplus.
Its balance is now $1.2 billion, Hardin said.
To take money from the Long Term Reserve Fund, the receiving fund must be supported by general revenue and the chief fiscal officer must determine there is no need to use money in the reserve fund for public schools’ educational adequacy.
There are other restrictions, including that no money can be transferred if there is a “revenue shortfall” as defined in the law and the reserve fund can’t be used for an economic development superprojects fund, Hardin said.
July’s collections
July’s general revenue included: - A $198.1 million, or 45%, drop in individual tax collections from a year ago to $241.7 million as a result of the filing and payment deadline shift from April 15, 2020, to July 15, 2020.
But the individual tax collections last month beat the forecast by $27.9 million, or 13.1%.
Withholdings is the largest category of individual income-tax collections.
They increased by $13.5 million, or 6.5%, over the same month a year ago to $220 million and exceeded the forecast by $14.8 million. The 6.5% withholding increase over July 2020 was a surprise and that reflects a pretty strong economic rebound in the state and more people working, Shelnutt said.
Individual tax collections from estimated payments dropped by $28.3 million compared with the same month a year ago to $8.5 million, but outdistanced the forecast by $5.3 million.
Individual collections from returns and extensions dropped by $183.3 million from a year ago to $13.2 million, but beat the forecast by $7.8 million.
- A $23.6 million, or 10%, increase in sales and use tax collections over the same month a year ago to $260.1 million, which outdistanced the forecast by $17.4 million or 7.2%
The 10% gain in sales and use tax collections over July 2020 reflects a continued strong economic rebound in the state, Shelnutt said.
Tax collections from accommodations and food services, including restaurants, increased by $5.6 million, or 30%, from a year ago to $24.2 million, he said.
Tax collections from retail increased by about $3 million, or 3%, over the same month a year ago to $100.4 million and collections from motor vehicle sales rose by $1.5 million, or 4.7%, over July 2020 to $33.9 million, Shelnutt said.
- A $12.9 million, or 24.4%, drop in corporate tax collections from July 2020 to $39.9 million, which exceeded the forecast by $1.9 million, or 5%.