Lower Gains Shown On State July Revenue Report Not Necessarily Indicating Economic Trends

Aug 2, 2019

Credit Stock Photo

July marked the beginning of the fiscal year and state revenues totaled over $462 million, which is 1.4 percent lower than last year. Though some revenue sources are lower compared to last year, according to Friday’s released report, that does not necessarily indicate a negative trend to Arkansas’ economy.

Since this is the first month of the new fiscal year, there are no cumulative balances to consider. The report instead makes comparisons to last July.

Dr. Michael Pakko, state economic forecaster and chief economist with the Arkansas Economic Development Institute, says at first glance, the report appears to be “fairly negative,” due to all of the main components of revenue being lower than last year.

“Little bit more concerning is the sales and use tax was both below last year’s level and below forecast, which is an indication that retail spending activity isn’t as robust as we might have thought,” Pakko said.

Sales and use tax collections totaled $205.8 million, down by $3.7 million or 1.8 percent compared to last year. However, motor vehicle sales tax collections are up by 8 percent. In the area of net available revenue, the numbers fell where they were expected to. 

“Once you subtract off some of the basic deductions from gross revenues, everything’s right on target. 0.0 percent above or below forecast. So in some sense, July came right about where expected,” Pakko said.

One aspect of tax collection not disclosed in this report is revenue gained from out-of-state entities. These new collections, part of a recently passed law in the legislature, went into effect in July. Those numbers should appear on later revenue reports. 

“We’re not likely to see any of that impact until the next month’s report because there’s usually about a month delay between the spending and the receipt of the taxes associated with it,” Pakko said. When those numbers are available, Pakko does not expect collections from those out-of-state collections to have a big effect. 

One area of revenue that will probably increase in future reports will be in gaming. The report shows a 6 percent increase compared to last year. While there will be an increase in revenue as more casinos get built or expanded in the state, Pakko says new laws will break up where that revenue will ultimately go.

“The new gaming laws redirected some of the revenue. So now more of it is going to the county instead of directly to the state, but the gaming activity itself, the increase there should boost revenue,” Pakko said.