Idea Transcript
STATE OF ARKANSAS
Department of Finance and Administration
OFFICE OF THE DIRECTOR 1509 West Seventh Street, Suite 401 Post Office Box 3278 Little Rock, Arkansas 72203-3278 Phone: (501) 682-2242 Fax: (501) 682-1029 http://www.dfa.arkansas.gov
December 1, 2017
The Honorable Bill Sample, Chair Arkansas Legislative Council State Capitol Little Rock, Arkansas 72201
Dear Senator Sample:
In accordance with Arkansas Code Annotated §19-4-304 (b) (1), I am submitting our Official General Revenue Forecast for the 2018 – 2019 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 2018 and 2019.
Summary of Net Available Revenues:
Actual • In FY 2017 net available revenues totaled $5,348.8 million, a decrease of $19.0 million or -0.4% from FY 2016.
Forecast • For FY 2018 net available revenues are expected to reach $5,453.2 million, unchanged from the prior forecast. This is an increase of $104.4 million, or 2.0 percent from FY 2017 net available. Year-to-date actual change after four months in the fiscal year has been 1.3 percent above year earlier levels, but $36.2 million below forecast at that point. Sales and Use Tax collections and Corporate Income Tax filings have generally been below forecast year to date.
The FY 2018 forecast is expected to fund the allocations “A” + Rainy Day Fund + Medicaid Trust Fund + and 67.26 percent of “B” in the current Revenue Stabilization Law. •
For FY 2019 net available revenues are expected to reach $5,690.2 million, an increase of $237.0 million or 4.3 percent above FY 2018. This result is also unchanged from the prior forecast.
Economic Forecast Assumptions
The U.S. macroeconomic outlook provides a relevant guide for short term projections given the state’s convergence toward the national average in recent years. Revised short-term U.S. growth forecasts continue to depict moderate growth with limited increase in inflation and gradual interest rate increases through CY 2019.
Economic models employed by the Department of Finance and Administration indicate continued growth in key economic drivers for revenue growth in Arkansas with moderate job gains and rising wage income. Private sector job growth will decelerate slowly over the next two years as labor market constraints and rising interest rates constrain activity and rates of new investment. High-growth areas of the state will continue to drive state averages higher in jobs, income, and growth in local labor force. Rising wages in core sectors plus slight acceleration in inflation explain the forecast pattern of acceleration in nominal incomes and consumption over a period of decelerating job growth. Forecasts specific for state growth indicate nominal growth of 3.5 to 4.5 percent in a low but rising inflationary setting. Real growth net of inflation will remain in the 2.2 to 2.5 percent range for annual growth in the absence of better demographic growth and with constraints on access to subprime consumer finance. The Arkansas economy remains near the national average growth rate after maintaining a stable footing in earlier phases of the recovery. Consumers will again be an important driver for growth along with further recovery in housing markets and business investment. Transition to higher inflation from commodity markets and the first evidence of wage pressure in the labor market is in process. The macro threat of overheated markets or rapid increases in interest rates appears limited across the biennial projection period. Higher growth from major Federal tax reform changes is not assumed in the forecast due to questions about timing and final composition. The list of risk factors for the forecast remains significant. They range from large-scale international trade disputes to threats of military conflict with North Korea and open conflict between major OPEC oil member states. Other risk factors have lessened over 2
STATE AND NATIONAL ECONOMIC AND REVENUE FORECASTS The following sections summarize the economic outlook for the nation and Arkansas for the remainder of the biennium with comments updating current year conditions. The Official Revenue Forecast for the 2017-2019 Biennium Forecast is included. The revenue forecasts are conditionally based on the expected economic conditions in the state and nation as of November 2017. The U.S. and state economic forecasts were compiled from simulations representing structural economic modeling systems at IHS Inc. and Moody’s Analytics, the two largest U.S. economic forecast groups. The Office of Economic Analysis and Tax Research, Office of the Director, DFA, prepared the general revenue forecast.
Economic and Revenue Estimates for the 2017–2019 Biennium FY 2017 Gross General Revenues
Actual Gross General revenues were $6,551.8 million, an increase from FY 2016 of $100.4 million, or 1.6 percent.
FY 2017 Net Available General Revenues
Actual Net Available revenues were $5,348.8 million, a decrease of $19.0 million or -0.4 percent compared to FY 2016.
FY 2017 Selected Special Revenues: •
FY 2017 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 March 1, 2004. Effective July 1, 2004, a new sales tax on selected services went into effect in addition to an increase in vending machine decal fees. Act 94 increased the minimum corporate franchise tax and the tax rate, 4
effective for calendar years beginning January 1, 2004. Effective with FY 2008, a portion of the six-cent per gallon dyed diesel tax is also deposited to the Educational Adequacy Fund to partially offset the revenue loss from exempting dyed diesel from sales tax. 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. FY 2017: $488.7 million. •
FY 2017 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, $29.5 million was distributed in FY 2017.
•
FY 2017 Soft Drink Excise Tax (Medicaid Program Trust Fund). In FY 2017, the soft drink excise tax collections were $47.0 million, representing a 2.3 percent increase compared to FY 2016 collections.
Summary of Economic and Revenue Estimates for FY 2018 •
FY 2018 U.S. Gross Domestic Product (Real Output). This summary is based on the November 2017 baseline forecast of IHS Inc. During FY 2018, the United States economy is expected to produce final goods and services valued in inflationadjusted dollars at $17,314.1 billion, an increase of $423.1 billion or 2.5 percent. Two general measures of inflation indicate moderate price pressures during the year. The Consumer Price Index is expected to increase 1.8 percent and the GDP price deflator is expected to rise by 1.8 percent.
•
U.S. gross domestic product in current dollars is estimated at $19,816.6 billion, an increase of $831.1 billion or 4.4 percent over FY 2017.
•
Average annual U.S. oil prices are estimated at $49.60 per barrel (domestic crude price to refiners) in FY2018. Higher production by non-OPEC producers and regional stockpiles of oil are expected to maintain ample supply. Weekly and monthly price swings could vary widely around the annual averages.
•
FY 2018 state nonfarm personal income is estimated at $123.66 billion (current dollars), an increase of $4.2 billion or 3.5 percent over FY 2017. 5
•
FY 2018 state wage and salary disbursements are estimated at $57.36 billion, an increase of $2.5 billion or 4.6 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 2018 Arkansas payroll employment is expected to reach a level of 1.26 million jobs, an increase of approximately 24,000 jobs or 1.9 percent. Private sector job growth is expected to be 2.3 percent in FY 2018.
FY 2018 Gross General Revenues
Gross general revenues are estimated at $6,734.8 million, an increase from FY 2017 of $183.0 million, or 2.8 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, $320.3 million is estimated to be distributed (net) in FY 2018.
FY 2018 Net Available General Revenues
Net available revenues are estimated at $5,453.2 million, an increase of $104.4 million or 2.0 percent compared to FY 2017.
FY 2018 Selected Special Revenues: •
FY 2018 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 March 1, 2004. Effective July 1, 2004, a new sales tax on selected services went into effect in addition to an increase in vending machine decal fees. Act 94 increased the minimum corporate franchise tax and the tax rate, 6
effective for calendar years beginning January 1, 2004. Effective with FY 2008, a portion of the six-cent per gallon dyed diesel tax is also deposited to the Educational Adequacy Fund to partially offset the revenue loss from exempting dyed diesel from sales tax. 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 2018: $500.8 million. •
FY 2018 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, $26.1 million is estimated to be distributed in FY 2018.
•
FY 2018 Soft Drink Excise Tax (Medicaid Program Trust Fund). In FY 2018, the soft drink excise tax is forecast at $43.7 million, representing a -7.1 percent decrease compared to FY 2017 collections.
Summary of Economic and Revenue Estimates for FY 2019 •
FY 2019 U.S. Gross Domestic Product (Real Output). During FY 2019, the United States economy is expected to produce final goods and services valued at $17,706.1 billion in inflation-adjusted dollars, an increase of $392.1 billion or 2.3 percent. The two inflation measures of consumer price index (CPI) and GDP price deflator are expected to move up moderately in response to expansion in the overall economy. The consumer price index (CPI) is expected to increase 2.0 percent and the GDP price deflator is expected to increase 2.2 percent in FY 2019.
•
U.S. gross domestic product in current dollars is estimated at $20,705 billion for FY 2019, an increase of $887.9 billion or 4.5 percent.
•
Average annual U.S. oil prices are estimated at $51.90 per barrel (domestic crude price to refiners) in FY 2019. Oil prices are expected to remain under pressure from abundant supplies and gradual change in demand patterns. Weekly and monthly price swings could vary widely around the annual averages.
•
FY 2019 state nonfarm personal income will reach $129.23 billion (current dollars), an increase of $5.56 billion or 4.5 percent over FY 2018. Nonfarm income is expected to accelerate over the biennial period.
•
FY 2019 state wage and salary disbursements (total) are estimated at $60.08 billion, an increase of $2.7 billion or 4.7 percent. 7
•
FY 2019 payroll employment in Arkansas is estimated to grow from a level of 1.262 million jobs in FY 2018 to 1.275 million jobs in FY 2019. This represents an increase of approximately 13,100 jobs or 1.0 percent. Private sector job growth is expected to be 1.1 percent in FY 2019.
FY 2019 Gross General Revenues
The forecast for gross general revenues in FY 2019 is $6,942.0 million, an increase of $207.2 million or 3.1 percent over FY 2018.
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 $331.4 million is estimated to be distributed (net) in FY 2019.
FY 2019 Net Available General Revenues
For FY 2019, net available general revenues are estimated at $5,690.2 million, an increase of $237.0 million or 4.3 percent over FY 2018.
FY 2019 Selected Special Revenues: •
FY 2019 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 March 1, 2004. Effective July 1, 2004, a new sales tax on selected services went into effect in addition to an increase in vending machine decal fees. Act 94 increased the minimum corporate franchise tax and the tax rate, effective for calendar years beginning January 1, 2004. Effective with FY 2008, a 8
portion of the six-cent per gallon dyed diesel tax is also deposited to the Educational Adequacy Fund to partially offset the revenue loss from exempting dyed diesel from sales tax. 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 2019: $514.6 million. •
FY 2019 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 $27.2 million is estimated to be distributed (net) in FY 2019.
•
FY 2019 Soft Drink Excise Tax (Medicaid Program Trust Fund). In FY 2019 the forecast is $40.1 million, representing a -8.1 percent decrease compared to FY 2018.
Office of the Director, Economic Analysis and Tax Research, Department of Finance and Administration Dec 1, 2017
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OFFICIAL GENERAL REVENUE FORECAST 2017 - 2019 Biennium Millions of Dollars Actual INDIVIDUAL INCOME
FY 17 Increase
% CH
12/01/17 Estimate
FY 18 Increase
% CH
12/01/17 FY 19 Estimate Increase % CH
3,214.7
66.5
2.1
3,323.1
108.4
3.4
3,428.8
105.7
3.2
433.8
-52.9
-10.9
465.7
31.9
7.3
482.3
16.6
3.6
2,337.9
48.0
2.1
2,418.9
81.0
3.5
2,487.7
68.8
2.8
57.5
0.7
1.3
57.8
0.3
0.6
58.8
1.0
1.7
TOBACCO
221.6
-1.9
-0.9
213.0
-8.6
-3.9
208.5
-4.5
-2.1
INSURANCE
141.9
40.0
39.3
114.4
-27.5
-19.4
132.7
18.3
16.0
2.4
-0.1
-3.4
2.3
-0.1
-4.3
2.3
0.0
0.0
60.3
4.4
7.9
62.3
2.0
3.4
65.3
3.0
4.8
SEVERANCE
8.9
0.2
2.2
7.0
-1.9
-21.5
7.3
0.3
4.3
CORPORATE FRANCHISE
8.0
0.0
0.0
8.0
0.0
0.0
8.0
0.0
0.0
REAL ESTATE TRANSFER
2.6
0.0
0.0
2.6
0.0
-0.3
2.6
0.0
0.0
62.2
-4.5
-6.8
59.7
-2.5
-4.1
57.7
-2.0
-3.4
6,551.8
100.4
1.6
6,734.8
183.0
2.8
6,942.0
207.2
3.1
208.6 447.0 67.4 0.0 13.0 16.0 5.3 14.8 23.2 0.9 313.4 65.8 27.7
2.3 80.1 -1.5 0.0 3.6 16.0 5.3 0.0 0.0 -0.2 12.6 0.0 1.1
1.1 21.8 -2.1 0.0 37.7 0.0 0.0 0.0 0.0 -15.2 4.2 0.0 4.2
208.8 485.1 78.9 10.0 23.4 16.0 5.3 14.8 24.0 0.9 320.3 65.8 28.3
0.2 38.1 11.5 10.0 10.4 0.0 0.0 0.0 0.8 0.0 6.9 0.0 0.6
0.1 8.5 17.1 0.0 80.3 0.0 0.2 0.0 3.4 1.4 2.2 0.0 2.1
215.2 504.6 70.4 10.0 23.4 22.5 5.3 14.8 24.0 0.9 331.4 0.0 29.3
6.4 19.5 -8.5 0.0 0.0 6.5 0.0 0.0 0.0 0.0 11.1 -65.8 1.0
3.1 4.0 -10.8 0.0 0.0 40.6 0.0 0.0 0.0 0.0 3.5 -100.0 3.5
NET AVAILABLE
5,348.8
-19.0
-0.4
5,453.2
104.4
2.0
5,690.2
237.0
4.3
LESS: SURPLUS
15.7 142.7
2.7
5,453.2
120.1
2.3
5,690.2
237.0
4.3
CORPORATE INCOME SALES AND USE ALCOHOLIC BEVERAGE
RACING GAMES OF SKILL
MISCELLANEOUS TOTAL GROSS LESS: SCS/COF INDIVIDUAL REFUNDS CORP REFUNDS CLAIMS RESERVE ECON DEV INCENTIVE RECYCLING EQUIP CREDIT AMENDMENT 82 BOND WATER/SEWER BONDS COLL SAVINGS BONDS MLA CITY/CO TOURIST EDUC EXCEL TRUST DESEGREGATION EDUCATIONAL ADQCY
NET AVAILABLE DISTRIBUTION
5,333.1
Prepared by Economic Analysis and Tax Research, DFA Net Available Estimate for FY18: 100% of A, Rainy Day Fund, Medicaid Program Trust Fund, and 67.26% of B.
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ECONOMIC ASSUMPTIONS AND THE OFFICIAL GENERAL REVENUE FORECAST 2017 - 2019 Biennium
Millions of Dollars
Actual
FY17 12/01/17 FY18 12/01/17 FY19 Increase % CH Estimate Increase % CH Estimate Increase % CH
INDIVIDUAL INCOME TAX INDIVIDUAL REFUNDS
3,214.7 447.0
66.5 80.1
2.1 21.8
3,323.1 485.1
108.4 38.1
3.4 8.5
3,428.8 504.6
105.7 19.5
3.2 4.0
NET INDIVIDUAL INCOME
2,767.8
-13.7
-0.5
2,838.0
70.2
2.5
2,924.2
86.2
3.0
CORPORATE INCOME TAX CORPORATE REFUNDS
433.8 67.4
-52.9 -1.5
-10.9 -2.1
465.7 78.9
31.9 11.5
7.3 17.1
482.3 70.4
16.6 -8.5
3.6 -10.8
NET CORPORATE INCOME
366.5
-51.4
-12.3
386.8
20.3
5.5
411.9
25.1
6.5
SALES AND USE TAX
2,337.9
48.0
2.1
2,418.9
81.0
3.5
2,487.7
68.8
2.8
NET ECONOMIC TAX REVENUE OTHER TAX REVENUE
5,472.1 565.3
-17.1 38.8
-0.3 7.4
5,643.7 527.1
171.6 -38.2
3.1 -6.8
5,823.8 543.2
180.1 16.1
3.2 3.1
GROSS GENERAL REVENUES
6,551.8
100.4
1.6
6,734.8
183.0
2.8
6,942.0
207.2
3.1
LESS: SCS/COF INDIVIDUAL REFUNDS CORPORATE REFUNDS CLAIMS ECON DEVEL INCENTIVE FUND RECYCLING EQUIP CREDIT AMENDMENT 82 BOND WATER/SEWER BONDS MLA CITY/CO TOURIST DESEGREGATION SETTLEMENT EDUC EXCEL TRUST FUND COLLEGE SAVINGS BONDS EDUCATIONAL ADEQUACY NET AVAILABLE LESS: SURPLUS NET AVAILABLE DISTRIBUTION
208.6 447.0 67.4 0.0 13.0 16.0 5.3 14.8 0.9 65.8 313.4 23.2 27.7 5,348.8 15.7 5,333.1
2.3 80.1 -1.5 0.0 3.6 16.0 5.3 0.0 -0.2 0.0 12.6 0.0 1.1 -19.0
1.1 21.8 -2.1 0.0 37.7 0.0 0.0 0.0 -15.2 0.0 4.2 0.0 4.2 -0.4
208.8 485.1 78.9 10.0 23.4 16.0 5.3 14.8 0.9 65.8 320.3 24.0 28.3 5,453.2
0.2 38.1 11.5 10.0 10.4 0.0 0.0 0.0 0.0 0.0 6.9 0.8 0.6 104.4
0.1 8.5 17.1 0.0 80.3 0.0 0.2 0.0 1.4 0.0 2.2 3.4 2.1 2.0
215.2 504.6 70.4 10.0 23.4 22.5 5.3 14.8 0.9 0.0 331.4 24.0 29.3 5,690.2
6.4 19.5 -8.5 0.0 0.0 6.5 0.0 0.0 0.0 -65.8 11.1 0.0 1.0 237.0
3.1 4.0 -10.8 0.0 0.0 40.6 0.0 0.0 0.0 -100.0 3.5 0.0 3.5 4.3
142.7
2.7
5,453.2
120.1
2.3
5,690.2
237.0
4.3
ECONOMIC ASSUMPTIONS U.S. GDP Nominal (Billion $) U.S. GDP Real (Billions 2009$ Chain-Weight) U.S. GDP Deflator (Chain-Wt, 2009=100) U.S. CPI Price Index (1984=100) OIL - Avg. Dom. Crude to Refinery ($ per barrel) AR. Net General Revenue (Million $) AR. Net GR % of Non-Farm Personal Income AR. Non-Farm Personal Income (Million $) AR. Wage & Salary Disbursements (Million $) AR. Non-Farm Proprietor Income (Million $) AR. Per Capita Income ($) AR. GDP Nominal (Million $) AR. Employment Total Payroll (Thousands) AR. Employment Private Sector (Thousands) AR. Employment Manufacturing (Thousands) AR. New Car/Light Truck registrations (Thous.) AR. Retail Sales (Million $)
FY 2017 18,985.6 16,891.0 112.4 242.7 48.4 6,037.5 5.1 119,448.7 54,841.4 6,803.5 40,296.9 122,195.1 1,237.5 1,025.9 156.3 139.7 42,672.0
711.5 377.5 1.7 4.4 6.4 21.7 -0.2 5,119.3 1,095.4 -318.1 1,500.8 1,348.1 16.0 17.6 1.9 -0.1 2,652.6
FY 2018 3.5 1.9 1.6 1.9 15.2 0.4 -2.1 2.6 2.4 3.8 2.2 1.9 1.4 1.8 1.1 -0.1 4.5 11
19,816.6 17,314.1 114.5 247.1 49.6 6,170.8 5.0 123,662.9 57,364.2 7,056.7 41,431.0 127,573.9 1,261.5 1,050.0 160.3 136.4 44,001.9
831.1 423.1 2.0 4.4 1.2 133.3 -0.1 4,214.2 2,522.8 253.1 1,134.1 5,378.8 24.0 24.0 4.1 -3.3 1,329.8
FY 2019 4.4 2.5 1.8 1.8 2.4 2.2 -1.3 3.5 4.6 3.7 2.8 4.4 1.9 2.3 2.6 -2.3 3.1
20,704.5 17,706.1 116.9 252.0 51.9 6,367.0 4.9 129,227.4 60,078.0 7,348.2 43,077.0 132,856.2 1,274.6 1,061.6 163.5 133.7 45,365.7
887.9 392.1 2.5 4.9 2.3 196.2 -0.1 5,564.5 2,713.9 291.5 1,646.0 5,282.3 13.1 11.6 3.2 -2.7 1,363.8
4.5 2.3 2.2 2.0 4.6 3.2 -1.3 4.5 4.7 4.1 4.0 4.1 1.0 1.1 2.0 -2.0 3.1