May 2022 Revenue Report
MAY STATE TAX REVENUE ADDS TO $1.473B SURPLUS
May State Revenues added $4.6 million to the tremendous unprecedented $1.473 billion that Governor Hutchinson announced last month. On May 18, 2022, the Department of Finance and Administration (DFA) revised the official forecast to reflect the surplus. June is the last month of the fiscal year and the final tabulation will be in for the fiscal year.
DFA reported that May Income Tax was slightly above the new forecast and Sales and Use Tax was below forecast. Individual Income Tax was $5.5 million above forecast, which DFA attributed to “additional extension payments” that were based on last year income earnings and economy. The Income Tax refund season wound down and refunds were above forecast by $4.7 million, reducing the total revenue for the month.
May Sales and Use Tax was slightly below forecast by $1.3 million. DFA attributed this result to the reduction of federal stimulus money that was available for consumer spending last year. They also reported that Motor Vehicle Sales Tax was 10.8 percent below last year when vehicle sales were surging from federal stimulus money.
May Corporate Income Tax increased $4.3 million over last year, which was $1.2 million above forecast.
The forecast revision by Governor Hutchinson and DFA last month seems to make this month’s collections old news. Everyone knows the surplus this year is tremendous. The real news after May, as this fiscal year closes in June, is what it may mean for future years. In light of the extra money in the bank, the legislature may decrease taxes or increase spending that would impact future collections.
It is interesting that DFA announced an increased four-year forecast in May. Historically, DFA and governors have only provided an official forecast for the legislature for current budget purposes. The issuance of an official forecast has certainly not extended two years beyond a governor’s term.
The further into the future that a forecast is made, the more speculative it becomes. The Arkansas economy generally follows the national economy. The past has shown that sudden tragic events can have a large negative economic impact. Also, history demonstrates that recessions do happen.
By predicting continued tax and economic stability and growth beyond his tenure, Governor Hutchinson has set the stage for tax reductions or increased spending. These laws could be passed in his last months in office but would not likely impact state tax collections or budgets significantly until after his tenure. Alternatively, the next governor could inherit a tremendous surplus to budget and develop his or her own forecast for his or her first two years in office.
Arkansas is very fortunate to have benefited from years of conservative budgeting and management. We should hope that future legislators and governors continue the tradition. We should also hope that the May four-year prognostication is correct.