For fiscal '16, state reports revenue surplus of $177.4M

Gov. Asa Hutchinson, while indicating Tuesday that he wants to set aside as much of the surplus as possible, said new tax cuts will be proposed.
Gov. Asa Hutchinson, while indicating Tuesday that he wants to set aside as much of the surplus as possible, said new tax cuts will be proposed.

Arkansas' government ended fiscal 2016 with a $177.4 million general-revenue surplus, officials said Tuesday.

photo

AP

Senate President Pro Tempore Jonathan Dismang, R-Searcy, is shown in this 2015 file photo.

photo

AP

Arkansas House Speaker Rep. Jeremy Gillam, R-Judsonia, speaks at a meeting of the Political Animals Club in Little Rock, Ark., Tuesday, March 17, 2015.

photo

Arkansas Democrat-Gazette

Graphs showing Arkansas sources of general revenue.

photo

Arkansas Democrat-Gazette

Graphs showing six straight years of Arkansas general revenue surpluses.

The surplus resulted mostly from higher-than-expected individual and corporate income tax collections and lower-than-expected individual and corporate income tax refunds, according to a report released by the state Department of Finance and Administration. Fiscal years end June 30.

"This is a significant surplus that's the result of proper budgeting -- perhaps you can say conservative budgeting -- but that's the pattern we always follow in Arkansas," Gov. Asa Hutchinson said at a news conference in the governor's conference room at the Capitol.

The surplus also is the result of a growing economy fueled by the cuts to the individual income tax rate that were enacted by the 2015 Legislature, the Republican governor said.

The fiscal 2016 surplus falls short of the $191.6 million surplus accumulated in fiscal 2015, but it's the sixth-largest surplus during the past 20 fiscal years, according to state records. The largest surplus during the 20-year period was $409.3 million in fiscal 2007, and the second-largest was $402.7 million in fiscal 2006.

The Republican-controlled Legislature and Hutchinson will decide how to allocate the $177.4 million surplus during the 2017 regular session that starts in January, said finance department Director Larry Walther. For now, the funds will remain in the allotment reserve fund, said Jake Bleed, a spokesman for the department.

Hutchinson said he wants to put as much of the surplus as possible into the long-term reserve fund.

"I want to continue to put money aside for that because, as our economy is doing well now ... we all know that at some point in time, there will be a slowdown in the economy and we want to budget wisely for that," Hutchinson said.

In addition, "we always have one-time needs," he said, noting that those needs in the past included shoring up the state's Medicaid budget and creating more prison space.

Senate President Pro Tempore Jonathan Dismang, R-Searcy, said he wants to use the surplus to continue to build up the long-term reserve fund and possibly for the early payoff of certain state debts, if it makes financial sense.

House Speaker Jeremy Gillam, R-Judsonia, said he would prefer to leave the surplus in the bank in case of an emergency.

During fiscal 2016, the state's total general-revenue collections declined by $19.2 million, or 0.3 percent, from fiscal 2015 to $6.45 billion, but they exceeded the state's forecast by $42.6 million, or 0.7 percent.

The state's record for general-revenue collections in a fiscal year remains the $6.47 billion collected in fiscal 2015, said Whitney McLaughlin, a tax analyst for the finance department.

The revenue report for fiscal 2016 "shows that we are still on track with [the economic] recovery and also meeting that step up in growth that was in this forecast," said John Shelnutt, the state's chief economic forecaster.

Arkansas' tax refunds and some special government expenditures, such as court-mandated desegregation payments, come off the top of total revenue, leaving a net amount that state agencies are allowed to spend.

In fiscal 2016, net revenue increased by $117.3 million, or 2.2 percent, over fiscal year 2015 to $5.37 billion. The total exceeded the forecast -- made in February -- by $141.5 million. The finance department's forecast in February included a $35.9 million surplus.

Last year, the Legislature enacted a $5.19 billion budget for fiscal 2016 -- a $131.5 million increase over the budget in fiscal 2015 -- as it approved individual income tax cuts projected to reduce general revenue by $26.5 million in fiscal 2016 and nearly $101 million in fiscal 2017, which started Friday.

Richard Wilson, assistant director of research for the Bureau of Legislative Research, said the state's net of $5.37 billion for fiscal 2016 is $35 million more than the state's forecast for fiscal 2017.

He said the $177.4 million surplus for fiscal 2016 includes about $70 million that he considers one-time money.

Shelnutt said, "I would love to evaluate these results [for fiscal 2016] line by line to determine what was one time in nature that would affect [fiscal year] '17."

FISCAL 2016

Individual income taxes and sales and use taxes are state government's two largest sources of general revenue.

In fiscal 2016, individual income tax collections declined by $40.2 million, or 1.3 percent, below collections in fiscal 2015 to about $3.15 billion, but they exceeded the state's forecast by $16 million, or 0.5 percent.

Individual income tax refunds in fiscal 2016 dropped by $157.5 million, or 30 percent, from fiscal 2015 to $366.8 million and trailed the state's forecast by $66.1 million, or 15.3 percent.

Sales and use taxes in fiscal 2016 increased by $92.2 million, or 4.2 percent, over collections in fiscal 2015 to $2.29 billion, but fell short of the state's forecast by $15.4 million, or 0.7 percent. Comparison to the previous fiscal year's results are affected by a $28.7 million sales tax refund after a court settlement on taxation of materials used in hydraulic fracturing for natural gas, the finance department noted.

Corporate income tax collections in fiscal 2016 dipped by $6.4 million, or 1.3 percent, from fiscal 2015 to $486.7 million, but they exceeded the state's forecast by $17.7 million, or 3.8 percent.

Corporate income tax refunds in fiscal 2016 increased by $25.3 million, or 58.1 percent, over fiscal 2015 to $68.9 million, but they fell short of the state's forecast by $9.3 million , or 11.9 percent.

Tobacco tax collections in fiscal 2016 increased by $5 million, or 2.3 percent, over fiscal 2015 to $223.5 million, and they exceeded the state's forecast by $9.5 million, or 4.4 percent.

In fiscal 2016, the state collected unexpected one-time general-revenue deposits of $8.1 million from the cessation of operations of the Arkansas Comprehensive Health Insurance Pool and $4.5 million from the attorney general's office, the finance department noted.

FUTURE

In this spring's fiscal session, the Legislature and Hutchinson enacted a fiscal 2017 budget of about $5.33 million -- up from $5.19 billion in fiscal 2016 -- with most of the increase of $142.7 million intended for the state Department of Human Services and public schools.

The general-revenue budget for fiscal 2017 factors in the nearly $101 million in individual income tax cuts enacted by the 2015 Legislature and Hutchinson.

In the May special session on highways, the Legislature enacted Hutchinson's highway funding plan that relies largely on using 25 percent of future surpluses and $20 million in future increased earnings from the state's $3 billion in treasury investments to raise about $50 million a year in state highway funds. Those funds would be used to match $200 million a year in federal highway funds available under the five-year federal highway law.

In fiscal 2017, the plan relies on $40 million from the state's rainy-day fund and $7.3 million from other state sources to provide the needed $47.3 million by Sept. 30.

The rainy-day fund now totals $41.1 million. It received $50 million of the unallocated surplus, and $40 million was transferred from the fund to be used for highway funding under the governor's plan, Bleed said.

Hutchinson reiterated Tuesday that he's "sent the signal that there will be additional tax cuts upon the agenda of the next [regular] session," and that his priority is reducing individual income tax rates.

"I am not specifying the amount, but we'll work with the Legislature to identify that, when we have these budget numbers in, and I want to be careful and cautious about how we approach that," he said. "But these numbers are very encouraging as we enter the session."

Asked whether the state can afford more tax cuts, Dismang said lawmakers will have more information, either closer to the regular session or in the regular session, to make that decision.

Gillam said he believes there will be "some room" for a tax cut during the 2017 regular session, but "how large remains to be seen."

Lawmakers need to be responsible and "not dive off a cliff," he said.

A Section on 07/06/2016

Upcoming Events