Northwest Arkansas Democrat-Gazette
May revenue down 9.2% from ’22
But collections of $585.8 million surpass state’s forecast by 4.5%
Arkansas’ general revenue collections in May dropped by $59.6 million, or 9.2%, compared with the same month a year ago, to $585.8 million, but still beat the state’s May 17 revenue forecast by $25.5 million, or 4.5%.
State sales and use tax collections in May surged as the state’s individual income tax collections declined compared with a year ago, the state Department of Finance and Administration said Friday in its monthly revenue report.
Finance Department Secretary Larry Walther said Friday in a written statement that “Revenue collections remain on track after upward revision of the Official Revenue Forecast on May 17” which is projecting a state general revenue surplus of $1.035 billion at the end of fiscal year 2023 on June 30.
“Sales tax and individual income tax continue to outperform the forecast in a strong state economy,” Walther said.
John Shelnutt, the state’s chief economic forecaster, said the May revenue report shows a stronger state economy than forecast, adding that he doesn’t see any signs of a pending recession in Arkansas.
The state’s highest general revenue collection for the month of May continues to be the $822.8 million collected in May 2021, 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 collections, leaving a net amount that state agencies are allowed to spend up to their maximum distribution under the state’s Revenue Stabilization Act.
The state’s net general revenue in May fell by $119.8 million, or 23.4%, below the same month a year ago, to $392.9 million, but exceeded the state’s May 17 forecast by $18.5 million, or 4.9%.
May is the eleventh month of the state government’s fiscal 2023, which started July 1, 2022, and ends June 30.
During the first eleven months of fiscal 2023, the state’s total general revenue collections increased by $28.9 million, or 0.4%, over
the same period in 2022, to $7.8 billion, and exceeded the state’s latest forecast by $25.5 million, or 0.3%.
So far in fiscal 2023, the state’s net general revenue has dropped by $282.9 million, or 4.2%, from the same period in fiscal 2022, to $6.4 billion, but has outdistanced the state’s forecast by $18.5 million, or 0.3%.
“We have one month left in the fiscal year [and] at this point I don’t see anything that can really detract from the results,” Shelnutt said.
In the 2022 fiscal session, the General Assembly and then- Republican Gov. Asa Hutchinson authorized a general revenue budget of $6.02 billion for fiscal 2023 — up by $175.1 million from fiscal year 2022’s general revenue budget, with most of the increase going to public schools and human service programs.
The Finance Department’s projection for a $1.035 billion general revenue surplus at the end of fiscal 2023 comes after its previous Nov. 10 forecast projecting a general revenue surplus of $598.1 million at the end of fiscal 2023.
In the Aug. 9-11 special session, the Legislature and Hutchinson enacted a fourpronged tax cut package that the finance department projected would reduce state general revenue by $ 500.1 million in fiscal 2023, $166.6 million in fiscal 2024, $69.5 million in fiscal 2025, $18.4 million in fiscal 2026 and $8.4 million in fiscal 2027.
The special session came after the state reported accumulating a record general revenue surplus of $1.628 billion in fiscal 2022, which ended June 30. In fiscal 2021, the state reported a $945.7 million general revenue surplus.
In the regular session that adjourned May 1, the General Assembly and Republican Gov. Sarah Huckabee Sanders enacted a general revenue budget that will increase by $177.7 million to $6.2 billion in fiscal 2024, which starts July 1 and ends June 30, 2024.
Most of the increased general revenue will be allocated to education and corrections programs.
At the end of fiscal 2024, the Finance Department is now projecting a $423.3 million general revenue surplus at the end of fiscal 2024 according to its May 17 forecast.
During this year’s regular session, the Legislature and Sanders also enacted a measure that would authorize the transfers of $1.4 billion in unallocated and unallocated state funds, including $1.3 billion in surplus funds from the general revenue allotment reserve balance, and up to $380.6 million in surplus funds in fiscal 2023 largely to set-aside accounts in the restricted reserve fund for nearly 30 projects.
In April, Sanders signed into law a bill that cuts the state’s top individual income tax rate from 4.9% to 4.7% and the state’s top corporate income tax rate from 5.3% to 5.1%, retroactive to Jan. 1, 2023.
About 1.1 million individual taxpayers with taxable income greater than $24,300 will receive a tax reduction under Senate Bill 549 by Sen. Jonathan Dismang, R-Searcy, that’s now Act 532, according to the Finance Department.
The measure is projected by the department to reduce state general revenue by $186 million in fiscal 2024 and $124 million in fiscal 2025. The department said the measure’s projected revenue impact assumes that employee withholding will be adjusted by employers on or after June 1, 2023. The measure will reduce state general revenue more in fiscal 2024 than in fiscal 2025 because it is retroactive to Jan. 1, 2023.
In April, Sanders also signed into state law House Bill 1045 by Rep. Howard Beaty, R- Crossett, which will gradually phase out the “throwback rule” on business income of multi-state corporations. The bill is now Act 485.
The gradual phase- out will begin in the tax year starting on or after Jan. 1, 2024, and be complete in tax year 2030 under the measure. The Finance Department projects that the measure will reduce general revenue by $10.6 million in fiscal 2024 and ultimately reduce general revenue by $74 million a year by fiscal 2030 and thereafter.
MAY’S COLLECTIONS
According to the Finance Department, May’s general revenue included:
• A $29.9 million, or 11.4%, increase in the state’s sales and use tax collections from the same month a year ago to $291.7 million, which outdistanced the state’s forecast by $13.8 million, or 5%.
May was “a fairly good month with broad- based gains above a year ago,” Shelnutt said.
Most major reporting sectors for sales taxes displayed high growth from a year ago, reflecting continuing economic expansion in many sectors.
Shelnutt noted that motor vehicle sales tax collections increased by $4.9 million, or 15.2%, from a year ago to $37.5 million.
Based on national figures, it appears that vehicle inventory has increased at dealerships and “there is some pent- up demand for vehicles” so it’s reflected in Arkansas’ sales tax collections, he said.
• A $53.2 million, or 17.5%, reduction in individual income tax collections compared with the same month a year ago, to $250.4 million, which still exceeded the state’s forecast by $11.8 million, or 4.9%.
Shelnutt said the state’s individual income tax collections dropped significantly as a result of the combination of tax cuts cutting withholding collections; May having one fewer Friday payday than a year ago; and the unusual income gains a year ago from factors such as bonuses and capital gains.
Withholding collections — the largest category of individual income collections — dropped by $23.3 million, or 9.6%, from a year ago, to $218.5 million, exceeding the state’s forecast by $4.7 million.
Collections from returns and extensions dropped by $31.9 million from a year ago, to $22.9 million, beating the state’s forecast by $2.7 million.
Collections from estimated payments increased by $1.9 million from a year ago, to $9 million, outdistancing the state’s forecast by $4.4 million.
• A $36.8 million or 81.9% decrease in corporate income tax collections compared with a year ago, to $8.1 million, which fell short of the state’s forecast by $1.5 million, or 15.8 %. The collection decrease in May from a year ago reflects shifts in selected month-to-month payments benefiting figures released for April.