State forecasts surplus of $94.8 million
Posted on Thursday, May 8, 2008
URL: http://www.nwanews.com/adg/News/225072/
State officials said Wednesday that they expect a $ 94. 8 million surplus when this fiscal year ends June 30.
Department of Finance and Administration officials increased the year’s net general revenue forecast by $ 101. 4 million, setting that part of the state budget at $ 4. 447 billion, said Tim Leathers, deputy department director.
That means state agencies may spend an additional $ 6. 6 million, which will give the state a fully funded budget, and yet have a surplus of $ 94. 8 million, if the projections prove correct over the next couple of months.
The state also has $ 70 million left from the past fiscal year in its General Improvement Fund, said Mike Stormes, the budget administrator.
Leathers said department officials revised the forecast for this year because collections of individual and corporate income taxes have been strong, exceeding the forecast, thanks to economic conditions. Also, the state has collected $ 65 million in onetime individual income taxes, thanks to some transactions by large businesses.
The general revenue portion accounts for between $ 4 billion and $ 5 billion of the state’s annual budget, which totals in the range of $ 18 billion to $ 19 billion. Such revenue is derived chiefly from sales and income taxes.
Although the current year’s forecast was raised, the state has lowered the outlook for the year that will start July 1.
The forecast for fiscal 2009 has been trimmed by $ 106. 8 million, lowering the general revenue budget to $ 4. 411 billion. Officials made the change because they expect a slowing of income- and sales-tax collections as a result of changes in the economy and do not expect a repeat of the $ 65 million windfall in income-tax collections, Leathers said.
RECESSION IN FORECAST Leathers told the Legislature’s Joint Committee on Economic and Tax Policy that a “mild recession” is expected in Arkansas, with a slowing economy in the first half of fiscal 2009 and a slightly improving economy in the last half.
The lowered forecast was inadvertently made public a month ago when it was posted on a department Web site.
At Wednesday’s meeting, several lawmakers peppered state finance officials with questions about whether the forecast is too pessimistic.
Rep. Bruce Maloch, D-Magnolia, asked why a $ 94. 8 million surplus is projected for this fiscal year when net general revenue was $ 158 million above forecast through April.
Leathers said state officials expect to collect $ 43 million less in individual income taxes than projected and $ 14 million less in sales taxes the rest of the fiscal year.
Rep. Chris Thyer, D-Jonesboro, questioned why the officials didn’t update the forecast’s projected surplus after they reported record individual income tax collections for April.
“We are being conservative in what we do, as we always try to do,” said Leathers. He said there is no reason to revise the forecast for this fiscal year after doing so in April. Thyer, co-chairman of the Joint Budget Committee, asked, “So you still think there is going to be a $ 60 million hit [to the projected surplus ] between now and the end of the [fiscal ] year ?” “ We may have, on the basis of last month, overestimated that to some degree, ” Leathers said, “but not enough to change this.”
Maloch raised questions about the department projecting a 0. 1 percent decline in individual income taxes in fiscal 2009 when nonfarm income, wage income and total employment are expected to grow at a slower rate.
“We do see enough of a slowdown to produce the kind of a pullback that we have seen in previous recessions in Arkansas, payroll growth very limited, very anemic job growth going forward, and that’s already started,” said John Shelnutt, the state’s chief economic forecaster. He also noted the state won’t collect the windfall again.
Maloch said Arkansas’ economy is probably in better shape than the national average as far as the subprime mortgage crisis and the positive economic impact of the development of the Fayetteville Shale. He wondered how the state will compare in the next year or two with the total national economy.
“I think, compared to the national average, we’ll be right there with it, which will make us look better than some of the states that are leading the drop through the housing problem and subprime issues,” Shelnutt said. “We look better than some of those states, but we look a lot like the national average over-all, which is not good by the way of this forecast and all of our inputs.” Leathers said the state is seeing declining sales-tax collections from lumber and home improvements.
FAYETTEVILLE SHALE The development of the Fayetteville Shale has been good for the state’s economy, but a University of Arkansas study projecting the state would collect about $ 360 million a year in additional taxes from the development overstated the effect on state taxes, he said.
But Thyer said the state has only experienced a decline in individual income tax collections one time in the past 30 years and that was in fiscal 2001-2002.
Leathers said state officials could increase the revenue forecast if the state’s economy performs better than expected and tax collections increase. That would authorize agencies to increase spending.
Afterward, Thyer said the revised revenue forecast is “overly pessimistic.” But he said it’s better to err on the side of caution and “take one [budget ] cut rather than a whole bunch of cuts.”
Committee Co-Chairman Sen. John Paul Capps, D-Searcy, said finance department officials “by nature almost have to be a little pessimistic. I think deep down they are a little more optimistic than they indicated, but they want to base [the revenue forecast ] on conservative figures and conservative thinking.”
“I have been here when we had to cut, cut and cut during a two-year term and it’s not fun,” Capps said.