LITTLE ROCK – Arkansas celebrated Independence Day this year the same way it always does, by closing out the state fiscal year with a balanced budget and beginning a new fiscal year with a balanced budget in place.
The state fiscal year ends on June 30 and begins on July 1, so technically July 4 is not the first day of the new fiscal year. However, it usually takes a day or two for budget officials to complete their final tally of the state’s fiscal performance during the past year.
Fiscal Year 2023, which just ended, was one of the best in Arkansas history. The state closed out the fiscal year with a budget surplus of $1.161 billion.
The grand total of general revenue collections was $8.85 billion, although some of that was returned to taxpayers as refunds and credits, or used to settle claims.
Some categories within the budget performed better than others, but overall the state saw revenue grow by 0.9 percent over the previous year.
The size of the surplus is proof that the legislature budgets very conservatively. Since 2015, in every regular session the legislature has reduced taxes, therefore the increase in state revenue from one year to the next cannot be attributed to higher tax rates. Instead, it is due to the general strength of the Arkansas economy.
The secretary of the Department of Finance and Administration said that the Arkansas economy outperformed expectations, and the state’s strong economy resulted in the surplus.
Revenue from the state sales tax is a measure of how much consumers are buying. In Fiscal Year 2023 the total was $3.4 billion. That was 8.4 percent greater than the previous year.
Individual income taxes were down by 6.1 percent, largely due to tax cuts enacted by the legislature.
Generally, fluctuations in revenue from the income tax are a gauge of employment trends. Income taxes are deducted from their paychecks, so they indicate how many people are working and how well they’re being paid,
State budget officials expected the drop in revenue caused by the income tax cuts. But even after they lowered their estimate of revenue in the official forecast, actual collections continued to be greater than predicted. For example, individual income tax revenue in fiscal 2023 was 1.1 percent above forecast.
Another reason for the surplus was that the legislature performed its duty to hold down spending levels for state agencies, based on the economic forecast.
Arkansas will be able to celebrate next July 4 because no matter what happens over the course of the current fiscal year, spending will fall in line with revenue forecasts. That’s because of the Arkansas balanced budget law known as the Revenue Stabilization Act.
The act mandates that spending decisions by state government are similar to financial decisions made by families over the kitchen table.
Basically, if revenue slows down, so does spending. If the legislature’s conservative budgeting produces yet another large surplus, there will be more money for reserve funds and emergencies. Also, there will be further consideration of possible tax cuts.
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