If you don't want to read all of this here is a short summation:
For Fiscal Year 2013, net available revenues are expected to increase $161 million or 3.5% above the net available revenues for this year, FY12. However, today’s forecast has been revised downward by a total of $121.3 million from the forecast for FY13 presented in November 2010. The downward revision is due to lower economic expectations and tax policy changes from the session.
December 1, 2011
The Honorable Mary Anne Salmon, Co-Chair
The Honorable Tommy Lee Baker, Co-Chair
State Capitol
Dear Senator Salmon and Representative Baker:
In accordance with Arkansas Code Annotated §19-4-304 (b) (1), I am submitting our Official General Revenue Forecast for the 2011 – 2013 Biennium. This law states that the Director of the Department of Finance and Administration shall submit the annual revenue forecast to the Legislative Council not later than December 1 of the year preceding a fiscal session. Included in the tables are selected economic assumptions and the details of the updated revenue forecasts for Fiscal Years 2012 and 2013.
Summary of Net Available Revenues:
Actual
In FY 2011 net available revenues totaled $4,572.8 million, an increase of $249.7 million or 5.8% from FY 2010. Net available revenues for distribution totaled $4,478.9 million, an increase of $155.8 million from FY 2010. The difference of $93.9 million between total net available funds and net available for distribution was transferred to revenue allotment reserve fund as surplus.
Forecast
For FY 2012 net available revenues are expected to reach $4,566.5 million, a decrease of $6.3 million, or -0.1 percent from FY 2011 net available collections. Year-to- date actual growth after four months in the fiscal year has been 2.7 percent above year earlier levels, resulting in $9.9 million above forecast at that point. The forecast for FY 2012 is unchanged from the forecast released on April 21st and the current budget.
The forecast is expected to fund the allocations 100% of “A” + $2.5 million for Rainy Day Fund set aside in the current Revenue Stabilization Law.
For FY 2013 net available revenues are expected to reach $4,727.5 million, an increase of $161.0 million or 3.5 percent above FY 2012. We last presented a preliminary economic forecast for FY 2013 on November 10th, 2010, prior to the last regular session. Subsequent to that forecast we have revised economic expectations and included tax policy changes from the session. This forecast is lower by a total of $121.3 million. This includes a reduction of $87.2 million attributable to the economic forecast revision. The remainder is from tax policy changes and other adjustments.
Economic Forecast Assumptions
Recent downward revisions of economic forecasts by contract providers and other forecasting groups point to less robust recovery for the remainder of FY 2012 and FY 2013. These revisions reflect a combination of near-term reaction to U.S. activity indicators and concerns for global market prospects for growth, particularly in Europe. Beyond FY 2012 expected growth was also reduced to reflect a slower path for labor market recovery with implications for consumer contribution to domestic market growth.
The risk of a return to recessionary economic and business conditions is still elevated, but not part of the baseline simulation. Many sectors of the economy remain close to the low point observed during the last official recession in 2008. More importantly for FY 2013, the forecasts account for a more realistic pattern of slow recovery for the next few years during a protracted period of consumer debt deleveraging, reluctance to hire, and generally weaker growth prospects compared to previous cycles of recovery.
Anticipation of weak growth helped limit the impact of these revisions in the U.S. and Arkansas forecasts for FY 2013. No change is expected in the FY 2012 forecast as a result of conservative forecasts that anticipated recent downward revisions in the near-term economic prospects.
I have attempted to provide this information in a format that facilitates your work. A narrative summary of the revenue forecasts and tables for quick reference are included with this letter.
Director
RAW/jps
Attachments (2)
STATE
The following sections summarize the economic outlook for the nation and
The revenue forecasts are conditionally based on the expected economic conditions in the state and nation for the remainder of the biennium as of September 2011. The economic forecasts were compiled from simulations, representing structural economic modeling systems at IHS Global Insight, Inc., a national forecast provider. The Arkansas economic forecast was derived from U.S. and Arkansas-specific model simulations with consistent economic relationships across sectors and linked models. The Office of Economic Analysis and Tax Research, Office of the Director, DFA, prepared the general revenue forecast.
Economic and Revenue Estimates for the 2011–2013 Biennium
Summary of Economic and Revenue Estimates for FY 2012
· FY 2012
· U.S. gross domestic product in current dollars is estimated at $15,280 billion, an increase of $474.0 billion or 3.2 percent over FY 2011.
· Average annual U.S. oil prices are estimated at $98.0 per barrel (domestic crude for refiners) in FY2012. Continued growth in global demand for oil and gradual improvement in domestic macroeconomic conditions will support limited upward price movement. Weekly and monthly price swings could vary widely around the annual averages.
· FY 2012 state nonfarm personal income is estimated at $100.7 billion (current dollars), an increase of $3.69 billion or 3.8 percent over FY 2011.
· FY 2012 state wage and salary disbursements are estimated at $46.6 billion, an increase of $1.32 billion or 2.9 percent. Total disbursements reflect the combined effects of net job growth, longer average work weeks, and any gains in wage rates, bonuses, or level of overtime pay rates.
· FY 2012 state payroll employment is expected to reach a level of 1.183 million jobs, an increase of approximately 13,080 jobs or 1.1 percent.
FY 2012 Gross General Revenues
Gross general revenues are estimated at $5,757.4 million, an increase over FY 2011 of $84.0 million, or 1.5 percent.
In addition to the usual deductions from gross general revenues, such as the Constitutional Officers Fund, the State Central Services Fund, and refunds of individual and corporate income taxes, the following trust fund is noted:
- Act 1315 (1999) Educational Excellence Trust Fund. Act 1315 (1999) established a benchmark of 14.14 percent which is applied against actual sales and use tax collections of the previous fiscal year. Under this formula, $280.0 million is estimated to be distributed (net) in FY2012.
FY 2012 Net Available General Revenues
Net available revenues are estimated at $4,566.5 million, a decrease of $6.3 million or
-0.1 percent compared to FY 2011.
FY 2012 Selected Special Revenues:
- FY 2012 Educational Adequacy Fund: Act 107 of the Second Extraordinary Session of 2003 increased the state sales and use tax rate from 5.125% to 6.0%, effective
The additional revenues are deposited as special revenues to the Educational Adequacy Fund to be used to fulfill the financial obligations of the state to provide an adequate educational system. Estimate for FY 2012: $433.7 million.
- FY 2012 WorkForce 2000 (Special Corporate Income Taxes). Act 1315 (1999) established a benchmark of 6.78 percent which will be applied against net corporate income tax collections in the previous fiscal year. Under this formula, $24.7 million is estimated to be distributed in FY 2012.
· FY 2012 Soft Drink Excise Tax (Medicaid Program Trust Fund). In FY 2012, the soft drink excise tax is forecast at $46.5 million, representing no change compared to FY 2011 collections.
Summary of Economic and Revenue Estimates for FY 2013
· FY 2013
· U.S. gross domestic product in current dollars is estimated at $15,769 billion for FY 2013, an increase of $488.4 billion or 3.2 percent.
· Average annual U.S. oil prices are estimated at $105.1 per barrel (domestic crude for refiners) in FY 2013. Oil prices are expected to rise with gradual increase in domestic demand and continued global economic growth. Weekly and monthly price swings could vary widely around the annual averages.
· FY 2013 state nonfarm personal income will reach $104.2 billion (current dollars), an increase of $3.5 billion or 3.5 percent over FY 2012. Growth will be held down by limited employment gains, minimal wage-based inflation, and moderate growth in transfer payments. Non-wage income growth will be lower in FY 2013 than in recent years while wage disbursements and proprietor incomes recovery slightly compared to FY 2012.
· FY 2013 state wage and salary disbursements are estimated at $48.5 billion, an increase of $1.9 billion or 4.1 percent.
· FY 2013 state payroll employment is estimated to grow from a level of 1.183 million jobs in FY 2012 to 1.199 million jobs in FY 2013. This represents an increase of approximately 16,000 jobs or 1.3 percent.
FY 2013 Gross General Revenues
The forecast for gross general revenues in FY 2013 is $5,931.7 million, an increase of $174.3 million or 3.0 percent over FY 2012.
In addition to the usual deductions from gross general revenues, such as the Constitutional Officers Fund, the State Central Services Fund, and refunds of individual and corporate income taxes, the following trust fund is noted:
- Act 1315 (1999) Educational Excellence Trust Fund. Act 1315 (1999) established a benchmark of 14.14 percent which is applied against actual sales and use tax collections of the previous fiscal year. Under this formula, an estimated $285.8 million may be distributed (net) in FY2013.
FY 2013 Net Available General Revenues
For FY 2013, net available general revenues are estimated at $4,727.5 million, an increase of $161.0 million or 3.5 percent over FY 2012.
FY 2013 Selected Special Revenues:
- FY 2013 Educational Adequacy Fund: Act 107 of the Second Extraordinary Session of 2003 increased the state sales and use tax rate from 5.125% to 6.0%, effective
The additional revenues are deposited as special revenues to the Educational Adequacy Fund to be used to fulfill the financial obligations of the state to provide an adequate educational system. Estimate for FY 2013: $448.4 million.
· FY 2013 WorkForce 2000 (Special Corporate Income Taxes) Act 1315 (1999) established a benchmark of 6.78 percent which will be applied against net corporate income tax collections in the previous fiscal year. Under this formula, an estimated $23.1 million may be distributed (net) in FY 2013.
· FY 2013 Soft Drink Excise Tax (Medicaid Program Trust Fund). In FY 2013 the forecast is $46.5 million, representing no change compared to FY 2012.
Office of the Director,
Economic Analysis and Tax Research,
Department of Finance and Administration
December 1, 2011
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