March 2022 Revenue Report
STATE REVENUE SURPLUS APPROACHING HALF-BILLION DOLLARS
The Arkansas Department of Finance and Administration (DFA) reported yesterday that after nine months of the fiscal year, net general revenue is $456 million or 9.9% above forecast. With three months left in the fiscal year, the state is apparently on track to end the fiscal year with a half-billion dollars more than previously forecast. This is in excess of an increased forecast that accommodated tax decreases and spending increases recently enacted by the Arkansas Legislature. Dr. John Shelnutt, the DFA economist, in a quote from yesterday’s Arkansas Democrat Gazette opined to the effect that the extra collections were the result of improved economy. The current signs all point to continued strong collections the remainder of this fiscal year.
Total March collections exceeded forecast by an extraordinary 36.3% and added $138.2 million to the yearly surplus. DFA reported that revenue exceeded forecast in all major categories. Individual income tax exceeded forecast by $80.7 million and was 34.9% above forecast. These collections include year-end tax payments as well as withholding this time of the fiscal year. Withholding income tax, which is directly a result of employment wages, was 7.6% above forecast. Withholding is generally the best indicator of economic strength.
The month of March is also a major month for the payment of income tax refunds to taxpayers. Refunds exceeded forecast by $25.4 million, which reduced the monthly surplus. However, DFA pointed out that the March and February refund forecasts taken together were on forecast. This would indicate that the trend in excess refunds will not continue. During the months of March, April, and May, the timing of individual income tax payments and refunds may disproportionately impact monthly revenue collections. An analysis of the numbers and amounts of tax payments and refunds occurring in each month would be necessary to determine if there was an aberration that significantly contributed to any one month’s performance.
Sales and use tax exceeded forecast by 23.3% or $53.6 million. DFA reports that all major categories of businesses reported were above forecast. Vehicle sales tax was reported down by 6.8%, which may indicate a slowing of those sales. DFA pointed out that by comparison to the March report last year, sales were also up because last March included the sales during the February snow event. In total, the sales and use tax point to a strong economy.
Assuming that current economic trends continue and there is no special legislative session to spend more money or create new tax cuts, the next governor, to be elected November, will inherit a surplus of over half-billion. It will be interesting to note whether Arkansas gubernatorial campaigns include plans for the new surplus. The only history for comparison may be when Governor Mike Beebe succeeded Governor Mike Huckabee and inherited a surplus of similar magnitude. The bulk of that surplus was used to establish a fund to build and improve school buildings which assisted the State in avoiding issues in school litigation.