Arkansas' government is now projecting a $1 billion general revenue surplus at the end of this fiscal year, Gov. Asa Hutchinson and a Bureau of Legislative Research official said Friday.
Hutchinson said that while state officials previously expected a $600 million general revenue surplus as fiscal 2022 ends on June 30, the projection is now up to $1 billion "based upon our economic performance in Arkansas, which is great news."
"Whenever you look at options for this money, I certainly will work with the Legislature and listen to them, and we will make a joint decision as to the steps that need to be taken," Hutchinson said during a news conference in the governor's conference room.
Options include using part of the state's general revenue surplus to accelerate broadband deployment in the state; using some of the surplus to provide more money for public school facilities because of the rising cost of construction; and using part of it to provide tax relief to help Arkansans dealing with financial pressures resulting from the increased rate of inflation, he said.
"There is no decision point today," Hutchinson said. "This is a conversation that we'll be having with the Legislature. ... We'll be making a decision with them as time goes on."
If he calls a special session, the governor said, it would be held at the earliest in mid- or late summer.
"There might not be a consensus for it, and I don't think anyone is in a particular mood for a special session," he said.
Kevin Anderson, assistant director of fiscal services for the Bureau of Legislative Research, in response to a question from state Rep. David Ray, R-Maumelle, told lawmakers Friday morning that officials for both the bureau and state Department of Finance and Administration expect at least a $1 billion surplus by the end of fiscal 2022.
Through the end of March, the finance department reported that state general revenue had exceeded the department's latest forecast by $456 million, he said.
By the end of April, the state probably will collect $300 million more in general revenue than the finance department had projected, he said.
"We are going to have a pretty healthy surplus," Anderson said.
During the 2021 regular session, the Legislature and the governor enacted a fiscal 2022 general revenue budget totaling $5.84 billion. The state's Dec. 16 forecast had already projected a $264.4 million general revenue surplus by the end of the current fiscal year.
Finance department spokesman Scott Hardin said Friday in a written statement that "Based on revenue collection to date in April, we do anticipate the state could complete the month with more than $300 million in collection above forecast."
"We will continue to closely monitor daily collection through the end of the month," he said. The finance department will release April's revenue results on May 3.
"A strong April, combined with the money collected above forecast through the first nine months of the fiscal year, could potentially lead to a surplus approaching $1 billion," Hardin said. "However, we have two full months of collection remaining along with the remainder of April."
Asked how much of the fiscal 2022 general revenue surplus already has been obligated by the Legislature and the governor, Hardin said $50 million is set aside for state highway funding to match federal highway funds; $50 million is set aside for stipends to law enforcement officers; and $150 million is allotted for the restricted reserve fund for various improvements and projects, including a proposed prison expansion.
During this year's fiscal session, legislative leaders said the $150 million in the restricted reserve fund could pay for a proposed prison expansion; provide state funds to match federal funds for a new veterans home in Northwest Arkansas; add money to the public safety equipment grant fund; fund projects at the Arkansas School for the Deaf and Arkansas School for the Blind; and assist the Arkansas National Guard Foundation. The Legislative Council's approval will be required to tap funds requested by the governor for these projects.
Asked if he knows how much he wants to provide for broadband development, school facilities and tax relief, Hutchinson said he has learned that the Legislature typically likes to change the amounts, so he wants to be able to work with lawmakers as they determine what the state needs to do.
Asked whether he is considering options such as providing a temporary reduction in the state's sales tax, sending out $100 checks to taxpayers or trimming the state's top individual income tax rate sooner than existing state law allows, Hutchinson said there are a number of different models to provide tax relief.
"No decision has been made on the right model," he said. "I am not in favor of suspending temporary taxes. I think that is not a good permanent approach. I think a better approach is simply returning part of the surplus to the taxpayers directly. That has been done in the past. It is easy to implement, and it's always a challenge of fairness, and that is something we always have to look at."
During a special session in December, the General Assembly enacted income tax cuts that are projected by the finance department to reduce general revenue by $135.25 million in the current fiscal 2022, then gradually increase from $307.4 million in fiscal 2023 to $497.7 million in fiscal 2026.
The income tax cuts that took effect Jan. 1 include a reduction in the top individual income tax rate from 5.9% to 5.5%; a consolidation of the state low- and middle-income tax tables; and the creation of a nonrefundable income tax credit for low-income taxpayers.
The top individual income tax rate will gradually decline to 4.9% on Jan. 1, 2025, under certain conditions under the tax-cut laws. The laws also envision adjusting the standard income tax deduction by the cost of living in future tax years and gradually reducing the top corporate income tax rate from 5.9% to 5.3% on Jan. 1, 2025, under certain conditions.
Ray, the Maumelle lawmaker, tweeted Friday that state government "should never collect $1 billion more in taxes than it needs to operate in back-to-back years. #arleg must continue lowering our income tax while making some key strategic investments along the way (public safety, for example)."
Also on Friday, state Sen. Jonathan Dismang, R-Searcy, said in an interview that he believes that some one-time money should be returned to the taxpayers, and there will be debate about whether the tax relief should be provided through the state's sales tax or the state's income tax.
"It's a pretty complicated issue," he said.
"It is going to take a lot to get that right and build a consensus," said Dismang, who is a co-chairman of the Joint Budget Committee and vice chairman of the Senate Revenue and Taxation Committee. "I am not sure we need to go into special session, maybe wait for the regular session."
Hardin said the Department of Finance and Administration does not have any record of a direct payment of state funding to residents across the state.
State Rep. Denise Garner, D-Fayetteville, who serves on the House Revenue and Taxation Committee, said she would be "absolutely" in favor of providing some sales tax relief.
"I think we need to take care of the people who are underserved right now," she said, adding, "I wouldn't mind a tax cut, but I would want regressive taxes cut, not income taxes."
Sen. Bart Hester, R-Cave Springs, asked whether he expects a special session to be held sometime this summer to provide a temporary tax rebate or tax credit or whether the Legislature should consider the matter in the 2023 regular session, said that "I sure hope we wait until January when we have a lot of time to think through the best way to do this."
"What we don't want to do is throw together a special session to spend money just because we have it," said Hester, who as the Senate president pro tempore-elect is in line to be the Senate's leader from 2023-25.
"People don't do that with their households, and they shouldn't. We want to be responsible," Hester said. "We have done such a great job over the last years with Gov. Hutchinson's leadership, and being responsible and making good decisions. I hope we continue that."