April Revenue Report
APRIL STATE REVENUE REPORT IS NOT AN APRIL FOOLS’ JOKE WITH ONE HALF-BILLION SURPUS!
The Department of Finance and Administration (DFA) reported today that April net general revenue exceeded forecast by a whopping $531.9 million or 89.6%. These terrific numbers would cause even trained eyes to question their first reading and look for a typo, a math error, or an April Fools’ joke. It is easy to understand how Governor Hutchinson was confident to predict recently that this fiscal year would end with a billion-dollar surplus with three months remaining; we know he had DFA inside information. This month’s additional $531.9 million brings the year-to-date surplus to $987.9 million, only $12.1 million less than the $1 billion.
April individual income tax was $404.6 million, or 99.6% above forecast, almost double forecast. DFA reported that payments with final returns and extensions, which reflect last year’s economy, were up significantly. They also report that withholding payments and estimate payments were up, reflecting this year’s economy. Refunds were $38.9 million above forecast, which subtracted from the total collections, but were easily offset by the massive income tax collections.
Sales and use tax was actually predicted by DFA to be $17.3 million less than last year because of the infusions of federal stimulus money and “surge in consumer spending last year.” Sales and use tax exceeded that forecast, adding $12.3 million to the surplus. DFA pointed out that motor vehicle sales tax was down 24.1% from last year because of the spike in car sales last year.
DFA reported that corporate income tax collections were $200 million above last year and $136.8 million above forecast. The collections were more than double the forecast. This could be a weak spot in the year-to-date total surplus considering the volatile nature of the corporate tax which makes it difficult to forecast. A substantial portion of the corporate income tax total is paid by a small number of taxpayers so that an aberration in only a few returns or industries can cause disproportionate fluctuations in collections. Also, taxpayers operate on fiscal years that are often different from the State fiscal year and they may make tax payments based on varying their reporting for federal tax or their fiscal reports. A complete analysis of corporate payments would be necessary to determine the stability of these payments. This $136.8 million could disappear before the end of the fiscal year.
When the billion dollars extra that is anticipated by this forecast is added to amounts in the final two months of the fiscal year and the surplus that was available before the forecast was raised during the fiscal year, the total will substantially exceed $1 billion. Governor Hutchinson can tout his state financial management abilities of cutting taxes and working through COVID-19 as he continues to consider a presidential candidacy. States generally have been reporting improved revenues exceeding expectations, according to the Federation of Tax Administrators.
Governor Hutchinson will leave a substantial revenue pot for his successor unless a special legislative session is called and the surplus is used to cut taxes. The news reported potential funding opportunities or tax cuts by a special session, even before the April blowout. The Governor can likely expect more pressure to fund “worthy projects” or return some of this collection to taxpayers before he leaves office in January 2023. Perhaps gubernatorial candidates should be questioned about their plans if they inherit a $1 billion plus dollar surplus. Let’s hope that future governors, legislators, and fiscal leaders continue conservative forecasting, spending, and budgeting leading to more years of surplus. Continued improving economy wouldn’t hurt either.