October Revenue Report
STATE REVENUE NEWS REMAINS POSITIVE AS LEGISLATIVE PLANNING BEGINS
The Arkansas Department of Finance and Administration (DFA) reported today that the fiscal year revenue surplus continued to grow in October ahead of budget planning for the upcoming 2023 legislative session. Net General Revenue was $49.2 million or 8.9% above forecast in October. The total surplus for the current fiscal year which ends in June 2023 is now $224 million or 10% above forecast. These will be the latest collection numbers and trends that will be available for planning as the pre-legislative session budget committee sessions begin this month.
Governor Hutchinson will present his revenue forecast for the next two fiscal years to the Joint Budget Committee on Thursday, November 10, 2022. Legislative committees will then meet for the remainder of the calendar year to hear Governor Hutchinson’s funding and spending proposals for the new budget. The Joint Budget Committee will vote on proposals for state spending to draft initial budget bills. Since this is an election year with a term-limited governor, a new governor will have the opportunity to have his or her recommendations for the revenue forecast and budget bills presented to the legislature after the election.
DFA reported that revenue was above forecast in all major sectors. They attributed the bulk of the surplus to Individual and Corporate Income Tax, which together were $40.3 million above forecast. The growth was reported to be “largely in Final Return Payments tied to extension filers.” October is the filing deadline for taxpayers who filed an extension and additional payments are made with extensions if the taxpayer underpaid for their 2021 tax year. Extensions, unlike Withholding Income Tax payments and Income Tax Estimate payments, are not based on the current economy. Offsetting the growth partially were Income Tax Refunds, which were above forecast by $15.7 million. Sales Tax growth was reported to be “broad based across reporting sectors.”
October Individual Income Tax was $32.3 million or 10% above forecast. DFA reported that there were additional payrolls in October that affected the results positively. They characterized this as “a positive payday calendar timing benefit providing temporary gains.” Presumably, these gains would offset next month’s payrolls, lowering November Individual Income Tax collections.
DFA reported that October Sales and Use Tax collections were $22.8 million or 8.8% above forecast. They reported that most major sectors of Sales Tax “displayed high growth over the prior year, reflecting continuing economic expansion in many sectors.” Motor vehicle sales were up 4.7% compared to last October.
As Governor Hutchinson presents his forecast and budget proposals, the most current revenue collections will show no sign of recession. The November 10 forecast will be for collections beginning in July of 2023 for the next two years. With many, if not most, national economists warning of a coming recession, it will be interesting to see what the forecasting professionals at DFA and Governor Hutchinson will predict for the next two fiscal years. An additional dynamic in the budget process will be the economic opinion and input of a new governor next year. Governors must govern within the revenue collections and the budget that they propose as approved by the legislature. Conservative caution should rule the day, and the new forecast will likely account for some economic slowing in the next two years. The big question is whether this will reduce predicted growth in the budget that will be available for tax cuts or new spending. Both the current governor and his successor now have reserve funds that have been enhanced during the last seven years that will be increased this fiscal year. This buffer could temper the perceived need for a larger slowing or recessionary adjustment. We will know more November 10.