Week in Review

State Capitol Week in Review

LITTLE ROCK – State government's fiscal year for 2010 began July 1, and Arkansas is in relatively good financial shape compared to other states.

California legislators were struggling to eliminate a $24 billion deficit, and California officials said the state may have to issue IOUs to creditors until its budget crisis is resolved. The Arizona legislature had to find a way to raise more than $3 billion in revenue, or cut state services. The projected shortfall in North Carolina was about $4 billion. In both Ohio and Pennsylvania legislators faced shortfalls in state revenue of more than $3 billion.

In many other states the legislature worked late, or even past midnight, to write budgets before deadline.

State revenues across the country are below expectations because of the downturn in the economy. Arkansas has avoided fiscal turmoil because of our tradition of budgeting conservatively, even in times of prosperity. In fact, during a period when many other states are looking at possible increases in taxes or fees, Arkansas has been able to reduce taxes on groceries and energy use by manufacturers.

Act 436 lowers the state sales tax on groceries by a penny, from 2.875 to 1.875 percent. It reduces state revenues by about $40 million a year. Act 695 lowers the sales tax on energy used by manufacturers by three-fourths of a cent, from 3.875 to 3.125 percent. Both tax reductions took effect on July 1.

Act 1274 repeals the sales tax on mini-warehouses and self storage rentals, beginning July 1, 2011. It will reduce state and local sales taxes by $5.6 million a year.

Act 498 provides income tax credits for renovating historic structures. One goal is to boost economic development in downtown areas. Act 816 renews incentives and rebates for movie producers who film in Arkansas. Their revenue impact will depend on how many people and companies take advantage of them.

State general revenue consists mainly of the sales tax and the income tax on individuals and on companies. The individual income tax fluctuates according to the rate of unemployment and sales tax revenue varies according to the amount of goods that people buy. People's buying habits are fairly predictable and they tend to stay in their jobs if possible, so projecting revenue from sales taxes and individual income taxes is comparatively simple.

However, estimating revenue from the corporate income tax is tricky because businesses make so many financial decisions for such a variety of reasons. They time those decisions to take advantage of favorable tax codes, and they also take into account changing market conditions. The result is that state revenue officials cannot predict with as much certainty how much corporate income taxes will amount to for a given period.

Powerball

The state Lottery Commission has voted to join the Multi-State Lottery Association, which has 32 states. Arkansas will be the 33rd.

Joining the group means that Arkansas will participate in Powerball, which offers enormous prizes to lottery winners. A man in South Dakota recently won $232 million, a man in North Carolina won $88 million and a person in Connecticut won $25 million.

The director of the Arkansas lottery said Powerball tickets should be on sale in Arkansas by the end of the year.