|STATE REVENUE SURPLUS “SURGES” IN JANUARY
The Arkansas Department of Finance and Administration (DFA) reported today that the fiscal year revenue surplus surged to $240.8 million for the year. The State has experienced a positive revenue surge amidst recent negative news regarding the omicron surge. The current $240 million surplus is in addition to the surplus above budget that was already factored in the forecast when the fiscal year forecast was raised two months ago. January net general revenue contributed $188.7 million to the fiscal year total, which exceeded the monthly forecast by 35.8%.
DFA reported that revenue was above forecast in all major categories. The largest contributor was Individual Income Tax, which exceeded forecast by $124 million or 38.5%. DFA attributed this increase to Estimated Tax payments and Payroll Withholding Tax, which are both leading indicators of economic activity. These numbers mean that self-employed taxpayers and wage earners are earning more money in a growing economy. Payroll Withholding increased by 13.4%, which DFA partially attributed to payroll timing. “Payroll timing” means that more payroll payments were made during the month than usual because of the date the payments fell in the month. This may be plausible, and if it is true, there will be less payroll in February and decreased revenue next month.
January Sales and Use Tax collections exceeded forecast by $34.2 million or 14.6%. DFA reports that Retail Trade, Services, and Transportation sectors contributed to the surplus. Declines occurred in Motor Vehicle Sales, Utilities, and Hotel and Restaurant sales. The mixed bag likely reflects the volatility of the COVID-related sectors, which may smooth out when COVID finally subsides.
The legislature will begin the fiscal session to set the state budget this month with great revenue news. Traditional thinking has been that budgeting should be easier with good revenue. However, sometimes competing demands for funding complicate the legislative process when “money raises its ugly head.” We can look forward to watching this play out in legislative fiscal session.
The January 2022 revenue report may be viewed and downloaded here.