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State Capitol Week in Review From Senator Larry Teague

By Staff, 07/7/17 10:39 AM

LITTLE ROCK – Thanks to conservative budgeting and a rebound in consumer spending, the state ended Fiscal Year 2017 with a surplus of $15.7 million.
Individuals and businesses were spending more, so sales taxes were strong at the end of the fiscal year. Employment figures were strong, which meant that Arkansans were paying income taxes.
The strong finish to the fiscal year is an abrupt turnaround from late April, when state agencies were notified they had to trim about $70 million from their spending plans due to concerns about a slowdown in revenue. Arkansas operates under a balanced budget law, therefore agencies must reduce spending when revenues fall off.
Because of the strong finish to the fiscal year, all but $10 million of April’s budget cuts were restored.
At the end of the fiscal year, the state spent about $5.35 billion in net general revenue. That is about $19 million less than the previous year.
In Fiscal Year 2017, which ended on June 30, Arkansas collected $2.337 billion in sales taxes. That is an increase of 2.1 percent over the previous year. The state sales tax rate is 6.5 percent and went unchanged from 2016 to 2017. That means the 2.1 percent increase in sales tax revenue represents growth in spending by consumers and businesses. Cities and counties also collect sales taxes, but the revenue from those collections is not part of the state’s final report on Fiscal Year 2017.
Income tax collections for the fiscal year totaled $3.2 billion. That is 2.1 percent above the previous year.
Corporate income tax collections were $434 million, which was almost 11 percent below the previous fiscal year.
Corporate income tax collections traditionally are volatile and hard to gauge because of the timing of moves that corporations make in order to take advantage of state and federal tax laws.
In spite of the difficulty of predicting corporate activity, the $434 million in corporate income taxes collected was 1.1 percent above what budget officials had forecast.
Public schools receive the largest portion of state taxes. They are budgeted to get $2.19 billion this year. The Department of Human Services (DHS) administers Medicaid, the food stamp program, drug and alcohol abuse centers, treatment of people with disabilities and long term care for senior citizens. DHS will get about $1.55 billion of state taxes this year and even more from federal taxes.
The operation of prisons will cost the state more than $341 million. Parole, probation and work release will cost an additional $79 million. The state distributes about $700 million a year to colleges and universities.
According to the National Conference of State Legislatures, 22 states had to adjust spending this fiscal year to meet budget shortfalls. The financial status of most states is stable, but a majority of states report their main challenge is to meet a growing demand for services at the same time that their revenue stream is flat.
States whose economies rely on energy sources, such as oil and gas, are dealing with flat revenue caused by relatively low energy prices. Low commodity prices are a concern in states that depend heavily on agriculture. The uncertain future of Medicaid is a source of concern for many governors and state budget officials.

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