November 2022 Revenue Report
NOVEMBER STATE REVENUE COLLECTIONS CONTINUE ON TRACK AFTER NEW INCOME TAX CUTS
The Arkansas Department of Finance and Administration (DFA) reported today that November general revenue was $27.8 million less than November of 2021. Revenues were expected to be less due to tax cuts implemented in a recent special legislative session. This is the first month that employers have fully implemented the withholding cuts from employee paychecks. Even after the tax cuts were absorbed, revenue came in better than expected and exceeded forecast by $12.3 million or 2.7%.
The Official General Revenue Forecast for this fiscal year was revised November 10, 2022 to include the recent tax cuts. The forecast was also adjusted for current assumptions by DFA and Governor Hutchinson about the economy. All of the monthly collections amounts for the remainder of the fiscal year, which ends June 30, were adjusted. This reset includes a projected surplus of $598.1 million. If the surplus this month were added to the built-in surplus, the current fiscal year surplus would be $610.4 million. This sets the table for Governor-elect Sanders to plan for additional tax cuts or spending during the regular session, which will begin after the first of the year. It provides the seed for her first term in government.
DFA reported that revenues were above forecast in all major categories. Sales and Use Tax was $17.5 million, or 7%, above last year. That was above forecast by $11.6 million or 4.5%. DFA said “Most major reporting sectors of Sales Tax displayed high growth over the prior year, reflecting continuing economic expansion in many sectors.” That news indicates continued economic stability for the fiscal year. Motor vehicle sales tax collections were down 2.6%.
November Individual Income Tax collections were essentially right on target for the forecast after adjustments for new tax cut implementation. Collections were $1.1 million, or 0.5%, above forecast. DFA explained that Individual Withholding was down 13.4% from last year and attributed that partially to a payroll timing issue they noticed last month. This is in addition to the reduction in withholding reduction for tax decreases.
The results this month point to two factors. First, Sales and Use Tax Performance indicate that the state economy is currently strong, even in light of some pundits projecting future downturns and recession. Secondly, the report indicates that the initial projections for absorbing the most current Income Tax cuts are accurate. This, along with a $600 million dollar surplus, puts Governor-elect Sanders in a good position. All eyes will be on the incoming governor as she establishes her priorities for the state budget.
A large part of the state budget and the funding to support it will depend on the fiscal professionals Governor-elect Sanders chooses for her staff, cabinet and agencies. She will begin office in the enviable position of having money in the bank. History and economics demonstrate that both the national and Arkansas economies will likely experience downturns at some point. Now the challenge will be to maintain the fiscal status of the state and respond to all the demands of her office. As demands for spending for areas such as prisons or education grow, and taxpayers desire more of the tax cuts they have experienced the last few years, Arkansas citizens wish her financial success.
The November 2022 revenue report may be viewed and downloaded here.