February 2024 Revenue Report

STATE SURPLUS GROWS TO QUARTER BILLION DOLLARS IN FEBRUARY

(BUT ALL IS NOT PERFECT)

The Arkansas Department of Finance and Administration (DFA) reported that February net general revenue was again above forecast. Individual Income Tax and Corporate Income Tax cuts were absorbed during the first eight months of the fiscal year, which resulted in net general revenue being below last year by $323.1 million. The official state forecast reported a surplus above forecast of $240 million at the end of January. Revenue was above forecast in February by $10.6 million, or 3.4%, which brings the year-to-date surplus to $240.5 million.

DFA reported that Individual Income Tax collections decreased $16.9 million, or 6.4%, compared to last year due to tax cuts. However, the decrease was less than anticipated and collections were above forecast by $10.2 million or 4.3%. DFA reported that the tax was above forecast “due to non-withholding payments”. These would be payments mainly from estimated tax payments from the self-employed and year-end payments for tax due or collection of tax from prior tax year liabilities. The economic impact of these types of payments do not indicate the same economic strength as the increasing payroll that has recently been the experience. February is not a high collections month, and the month’s withholding results may not indicate the beginning of a trend.

February began the significant Individual Income Tax refund processing season. Individual Income Tax refunds totaled S129.2 million dollars, which was $25.2 million above last year and $13.9 million above forecast. These refund payments are deducted from total Net General Revenue each month. Higher than expected refunds this month could be an indicator that recent tax cuts had more impact than expected. If a trend of higher-than-expected refunds is established, it could result in a reduction of the surplus.

DFA reported that Sales and Use Tax collections were equal to the amount last year. Collections exceeded the forecast by $6.7 million or 2.7%. The month of flat collections ends months of increases when DFA reported economic growth as a factor. For February, DFA said, “Major reporting sectors of Sales Tax displayed mixed results over the prior year.” This is not nearly as favorable as DFA has recently been reporting. Vehicle sales tax was reported to be up 17% over last year. Utility sales tax was down 17.9%, which was reported to be due to a warmer than average winter.

It is favorable that the surplus is growing, and good forecasting and budgeting has allowed it to grow while absorbing significant tax cuts. We have enjoyed good economy and revenue results for four years. February is not a significant month in terms of the amount of revenue normally collected. Hopefully the less positive Income Tax withholding, the Sales Tax experience, and refund experience this February are not indicators that we are headed for a slowing economy.

The February 2024 revenue report may be viewed and downloaded here.

Talk Business

3/4/24

Arkansas’ revenue in February drops by $21.4M from one year ago

Arkansas Democrat Gazette

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Kelly SullivanApril 30, 2024