Many states see finances start to slip
Posted on Sunday, December 23, 2007
State government finances are weakening across the nation, with some states collecting less revenue than projected and others worried about that possibility, a National Conference on State Legislatures’ report says.
Officials in Arkansas said it shows that Arkansas’ finances compare favorably to those of many other states.
In July-November, the first five months of fiscal 2008, the Arkansas Department of Finance and Administration reported state general revenue increased $ 43. 3 million (2. 1 percent ) compared with the same period last year, reaching $ 2. 099 billion. That’s $ 53. 6 million (2. 6 percent ) above the state’s general revenue forecast.
Although tax collections are hitting or exceeding projections for most states, a growing number report collections are failing to keep pace with forecasts and the figures lawmakers relied on when establishing state budgets.
Twenty-two of the 50 states have revised their forecasts for fiscal 2008, which started in July. Eleven reduced their forecast; 11 raised theirs. Some other states are considering cutting spending, the National Conference on State Legislatures reported this month.
States raising their forecasts included Texas, Iowa, Kansas and Nebraska. Those cutting included Florida, California and New York. Florida lowered its general fund estimate $ 1. 1 billion or about 4 percent in August, then lowered it by $ 1 billion more in November.
A dozen states report spending overruns. Arkansas is required by law to reduce spending if revenue falls short of the forecast. That’s mandated by the Revenue Stabilization Act, said Richard Weiss, director of the Department of Finance and Administration. Arkansas hasn’t had a general revenue deficit budget since that law was enacted in 1945.
Richard Wilson, assistant director of research for the state Bureau of Legislative Research, said Arkansas is benefiting from “a very conservative forecast” by the finance department for fiscal 2008 and 2009. The department factored in the impact of tax cuts enacted by the Legislature and Gov. Mike Beebe this year.
“If they were going to err, they were looking to err on the right side,” Wilson said of the department.
Weiss said the department’s forecast reflected both slower growth in the economy and cuts in the state sales tax on groceries and energy used by manufacturers.
Nobody is going to ask for a revision of the forecast anytime soon because the state has “a little comfort zone” thanks to revenue exceeding the forecast so far, Wilson said.
“Stuff can go south on us in a hurry if a full blown national recession hits,” said Weiss.
Economists across the nation disagree about whether the United States is on the brink of a recession.
But Weiss said Arkansas is “well-positioned to be right on track” with the finance department’s revenue forecast.
The state legislatures conference reported 24 states, but not Arkansas, said that revenue has been adversely affected by the housing sector slump.
“We were not the beneficiary of the [housing ] boom like California, so we are not going to see the downside effects like they are,” said Wilson.
In Virginia, Gov. Timothy Kaine has proposed a budget that provides no raises for teachers and state employees until 2009, increases fees for drivers’ licenses by $ 10, and borrows more than $ 2 billion. The proposal reflects an economic slowdown resulting largely from a cool-down in home mortgages that had pumped up state revenue for years.
The conference’s report said collection of individual income tax appears to be the strongest among the major tax categories for states. Sales tax collection may be exhibiting the greatest weakness, it said.
It’s difficult to draw any conclusions about states’ corporate income tax collections, said the report.
For the first five months of fiscal ’ 08, Arkansas’ individual income tax increased $ 45. 9 million (5. 2 percent ) to $ 931. 7 million over the same period last year, according to the finance department. That’s $ 24. 3 million (2. 7 percent ) above the forecast.
Arkansas’ corporate income tax increased $ 12. 3 million (10. 2 percent ) to $ 132. 2 million. That’s $ 25. 9 million (24. 4 percent ) above the forecast.
Gross receipts, which are primarily sales and use taxes, decreased $ 26. 5 million (2. 9 percent ) to $ 890. 8 million. That’s $ 4. 6 million (0. 5 percent ) above the forecast.
The sales tax cuts Arkansas enacted this year included reducing sales tax on groceries from 6 percent to 3 percent, effective July 1. That was the biggest part of the biggest tax cut ever in Arkansas. It alone is projected to reduce state general revenue by $ 90. 8 million in this fiscal year, according to the finance department.
In addition, the state reduced the state sales tax on energy used by manufacturers from 6 percent to 4. 5 percent. That’s projected to reduce general revenue by $ 15 million this fiscal year. The state also exempted off-road diesel from the sales tax. That’s expected to reduce revenue by $ 10. 6 million this fiscal year.
Twenty-two states enacted sales tax cuts for fiscal 2008; two enacted sales tax increases, said another report, this one from the National Governors Association and the National Association of State Budget Officers.
The largest sales tax cut was Arkansas’.
The National Conference on State Legislatures report said 23 states, including Arkansas, see the revenue outlook as stable the rest of this fiscal year. Eighteen others are concerned about it, and nine were optimistic.
The report said state budget conditions for the rest of fiscal 2008 and revenue forecasts for fiscal ’ 09 will determine how much flexibility lawmakers have to address a wide range of fiscal issues during next year’s legislative sessions. Arkansas’ next regular legislative session isn’t set to begin until January 2009.
The public schools, health care and Medicaid are perennial budget issues across the nation. They account for at least half of general fund budgets.
State funding for transportation and capital projects will get greater attention next year than in previous years, the report said.
“An overarching concern is simply the ability to fund needed improvements in the transportation system or big projects,” the conference report said. “Related to this issue is the ability of states to secure permanent and enhanced-revenue streams to adequately fund transportation projects.” Beebe has said he’ll push for a proposed initiated act in the 2010 election if a consensus in the 2009 General Assembly is not reached to increase the state’s severance tax on natural gas. He wants the money to go to highways.
A severance tax increase “isn’t going to be the only answer to highway issues, but we think it would be a strong step in the right direction,” said Beebe spokesman Matt DeCample.
Arkansas would have collected millions of dollars more in severance tax last fiscal year if its tax rate on natural gas equaled any of the rates levied in surrounding states, according to a finance department report.
Arkansas took in $ 619, 417 from natural gas severance tax last fiscal year. The state’s rate is threetenths of 1 cent per thousand cubic feet.
In the Arkansas Legislature it’s difficult to raise the rate because the state Constitution requires a three-fourths favorable majority in the House and the Senate to do it. Arkansas’ rate has been unchanged since 1957.
Two groups have signaled plans to try to qualify proposed ballot measures to increase the severance tax in the 2008 general election. Higher education is among the areas that would benefit if an increase is enacted through those measures.
Work continues toward a consensus for a severance tax increase, DeCample said, but “there is no specific timeline for reaching one, and to this point no plans for a special [legislative ] session.” The governor has authority to call the Legislature into special session between regular legislative sessions.
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