State ends fiscal year with $145.6 million surplus

Arkansas ends its fiscal year with a $145.6 million surplus from gross revenues totaling $5.924 billion, or 4.4% higher than fiscal year 2011 and 2.2% above forecast.

June also marked the seventh month of year-over-year tax collection gains during the state’s fiscal year (July 2011 - June 2012).

The surplus is likely to become a political topic during the run-up to the November elections, especially as legislators may face a shortfall in the Medicaid program that could reach $400 million. The state also has a little more than $70 million remaining from the surplus in the 2011 fiscal year. Historically, legislators have used some or all of the surplus money for General Improvement Fund capital projects.

In the revenue report released Tuesday (July 3) by the Arkansas Department of Finance and Administration, the state’s economist said higher collections from individual income taxes, corporate income taxes and gross receipts — primarily sales and use taxes — boosted the fiscal year collections.

“The gain in gross receipts contributed $11.4 million above forecast. Sales and Use tax growth recovered in both consumer and business activity during the second half of the fiscal year, after a weak start in the first half,” noted John Shelnutt, head of the Department of Finance and Administration’s Economic Analysis & Tax Research division.

THE NUMBERS
Year-to-date (July 2011-June 2012) individual income tax collections totaled $2.895 billion, an increase of $156.2 million or 5.7% from last year, and 2.1% above forecast.

Year-to-date (July 2011-June 2012) gross receipts collections — primarily sales and use taxes — totaled $2.128 billion, an increase of $56.1 million or 2.7% from last year, and 0.5% above forecast. The gross receipts tally is an indicator of consumer spending.

Year-to-date corporate income taxes totaled $435.3 million, an increase of $43.7 million or 11.2% from year-to-date last year. Corporate income is above forecast by 11%.

Total revenues reported in the June report were $581.5 million, up 5.4% compared to June 2011. The June individual income tax collections were $253.8 million and gross receipts collections totaled $180.8 million, up 7.9% and 8.6%, respectively.

THE POLITICS
Rep. Terry Rice, R-Waldron, said legislators should remember that tax surpluses are easy come and easy go.

“I am very pleased to see the uptick in revenue, but I would caution everyone based on what I see in retail,” said Rice, a business owner who could also be the Speaker of the Arkansas House of Representatives if the GOP gains a minority in the November elections. “What we are seeing is this pent-up demand where people put off buying. ... And then we see these waves in retail come, but then we could fall back pretty quick.”

Rice said he believes Gov. Mike Beebe (D) and most legislators are waiting to see how they address the expected shortfall in Medicaid funding before considering other plans for the surplus.

“That’s still the big concern,” Rice said of the Medicaid issue. “I’m encouraged from both parties, even though you’ll hear rhetoric through November, I’m seeing both Republicans and Democrats really focus on how to cut costs and make government more efficient.”

To best ensure tax collections continue to fund necessary state operations, Rice said legislators also need to “do things smartly ... to stimulate jobs in Arkansas.”

OTHER TAX COLLECTIONS
Alcoholic beverage
July 2011 - June 2012: $33.5 million
July 2010 - June 2011: $32.9 million

Games of skill
July 2011 - June 2012: $27.4 million
July 2010 - June 2011: $14.8 million

Tobacco
July 2011 - June 2012: $239.9 million
July 2010 - June 2011: $239.6 million

Insurance
July 2011 - June 2012: $99.3 million
July 2010 - June 2011: $114.5 million

COLLECTIONS HISTORY
Fiscal year 2012 marks the second year of year-over-year gains. Arkansas tax collections reversed a negative two-year slide in the 2011 fiscal year, with collections up 4.5% in the July 2010-June 2011 period.

State tax collections for fiscal year 2011 totaled $5.673 billion, up 4.5% above the $5.43 billion in the 2010 period. Total state revenue of $5.43 billion in fiscal year 2010 was 2.4% below the previous fiscal year and marked the second consecutive year of revenue decline.

The biggest declines in the 2009 and 2010 fiscal years were with individual income tax collections and sales and use tax collections.