Week In Review

State Capitol Week in Review

        LITTLE ROCK  –  The Arkansas economy continues to show slight improvement, according to the most recent state revenue report issued for November.

        The state collected $427.6 million in taxes in November.  That is $14.9 million more than the state collected in November of 2011. The main sources of state general revenue are income taxes on individuals and corporations and sales taxes.

So far this fiscal year, net general revenue is up 2.8 percent above the same period last year.  Individual income taxes are up 4.8 percent, which reflects good news about jobs because the more people work the more the state collects in income taxes.

        The amount collected was about $4 million more than forecast.  In other words, revenue is flowing into the state treasury at a faster rate than the administration’s budget forecasters predicted.  If the trend continues of better-than-expected revenue flow, it will set  up interesting political battles during the 2013 regular session.

        The major responsibility of the legislature is to appropriate tax revenue for state government spending.  In preparation for the regular session that begins on January 14, legislators are holding budget hearings to study in detail proposed budgets for every state agency.  Every budget and every spending request is dependent on the economic forecast provided by the Department of Finance and Administration, who work for the governor.

        In past years the forecasts done by the governor’s administration haven’t always tracked the economic forecasts performed by the legislature’s economists.  One reason is that forecasting the economy for the next two years is difficult.  There are political reasons too, which boil down to the question of which branch of government gets to control more spending.

The legislature’s duty is to appropriate tax dollars, which it does using forecasts from its own economists and those who work for the administration.  If the administration’s forecast is low the total amount of legislative appropriations will be correspondingly low. 

If revenue comes in above forecast it results in a surplus, which is basically an amount of money in the state treasury that has not been appropriated for ongoing expenses such as the operations of state agencies.  It is considered “one-time” money and traditionally has been dedicated to “one-time” expenses such as capital projects like buildings or equipment purchases.

In November the administration adjusted its original forecast and raised its estimate of state revenue this year by $99.5 million.  That amount will be combined with surpluses from previous fiscal years in a pot that will total almost $300 million.  With so much “one-time” money sitting unused in the state treasury, there is likely to be a battle of political wills over how to spend it in the 2013 session.

There will be pressure to spend it on the Medicaid program to prevent cuts in services predicted by officials of the state Human Services Department.  There is always a need to boost state appropriations for higher education to prevent the need for tuition increases.  Teachers and public school employees are asking the state to contribute more to their health insurance. There are legislators who believe that consistent surpluses over the past few years are solid proof that taxes can be lowered.