February Revenue Report
STATE ADDS SURPLUS MONEY TO THE BANK AS LEGISLATIVE FISCAL SESSION NEARS END
The Arkansas Department of Finance and Administration (DFA) reported today that February net general revenue was above forecast by 23.4%, which added $77 million to the state fiscal year surplus. This brings the year-to-date surplus to $317.8 million with four months remaining in the fiscal year. This is above the surplus that DFA predicted to total over $1 billion when DFA revised and increased the forecast in December. February revenue situates the Governor and Legislature well as they work to finish the fiscal session. The state budget is being finalized currently with the state Revenue Stabilization Law consideration, which determines how general revenue can be spent.
February net general revenue was actually $30.8 million less than the previous February. The February 2021 report was somewhat distorted by the fact that state income tax refunds were delayed by one month as a result of IRS processing delays. The IRS is back on its normal refund schedule, and DFA correctly built increased income tax refunds into this February forecast, which caused the total net forecast to be less than last February collections. This is why revenues exceeded the forecast even though the total was less than last year. As a result, expect to see less refunds and higher net revenue amounts for the final three months of the fiscal year.
DFA reported that revenue was above forecast in the two major categories of income tax and sales and use tax. Individual income tax was above forecast by $55.9 million or 26.8%. This was mainly attributed to increased payroll withholding, which is the leading indicator of improved economy. Individual withholding tax was above forecast by 10.7%. A continuing trend in this magnitude could certainly result in increased forecasts for this fiscal year and future fiscal years. This would provide means for increased spending or tax cuts or just savings in surplus funds.
Sales and use tax collections were $5.1 million, or 2.3%, above forecast. DFA reported mixed results among major reporting sectors. Retail trade tax and sales declined compared to last February, and DFA cited the federal stimulus payments last year as a factor in that comparison. However, sales and tax increased in the hotel hospitality and restaurant categories as those businesses continue to recover from the COVID economy. Motor vehicle sales tax also was back on the rise, exceeding last year by 10% after pausing successive increases in January.
The February revenue report continues to indicate that the Governor and Legislature can afford the one-time spending that is being discussed (Corrections, Department of Health and Human Service, Teacher and State Employee Insurance etc.) and absorb the tax cuts that have been previously passed into law. It could also provide incentive to add to the list in the flurry as the fiscal session winds down.