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Arkansas Fiscal Year 2014 Budget Expectations Lowered

State Department of Finance and Administration downgrades revenue forecast by 0.3 percent.
LITTLE ROCK, AR - The State of Arkansas is not expected to rake in as much revenue in 2014 as was first forecast.

The Arkansas Department of Finance and Administration (DF&A) has revised the FY 2014 budget forecast downward by 0.3 percent.

In a letter sent Sunday to the Arkansas Legislative Council, DF&A leaders said net available general revenues are now expected to be down 1.7 percent from FY 2013. 

Year-to-date revenues have been about $38 million above forecast, but changing income tax policy will lead to a reduction in revenue collections this fiscal year, according to DF&A.

The full report is below:

State and National Economic and Revenue Forecasts
The following sections summarize the economic outlook for the nation and Arkansas for FY 2015 with comments updating current year conditions.

The revenue forecasts are conditionally based on the expected economic conditions in the state and nation as of October 2013. The U.S. and state economic forecasts were compiled from simulations representing structural economic modeling systems at IHS Global Insight, Inc., a national forecast provider. The Office of Economic Analysis and Tax Research, Office of the Director, DFA, prepared the general revenue forecast.

Summary of Economic and Revenue Estimates for FY 2014
FY 2014 U.S. Gross Domestic Product (Real Output). This summary is based on the October 2013 baseline forecast of IHS Global Insight, Inc. During FY 2014, the United States economy is expected to produce final goods and services valued in inflation-adjusted dollars at $15.8 billion, an increase of $294.3 billion or 1.9 percent. Two general measures of inflation indicate limited price pressures during the year. The Consumer Price Index is expected to increase 1.5 percent and the GDP price deflator is also expected to rise by 1.5 percent.

U.S. gross domestic product in current dollars is estimated at $17 billion, an increase of $557.1 billion or 3.4 percent over FY 2013.

Average annual U.S. oil prices are estimated at $103 per barrel (domestic crude for refiners) in FY 2014. Offsetting effects of improvement in domestic and international macroeconomic conditions on the demand side and encouraging domestic oil supply gains will result in net change of moderate price declines across the second half of FY 2014 and the following fiscal year. Weekly and monthly price swings could vary widely around the annual averages. Potential for more rapid supply gains and greater price decline of domestic crude is limited to the optimistic forecast case at this time.

FY 2014 state nonfarm personal income is estimated at $107.54 billion (current dollars), an increase of $3.53 billion or 3.4 percent over FY 2013.

FY 2014 state wage and salary disbursements are estimated at $49.96 billion, an increase of $1.48 billion or 3.0 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 2014 state total payroll employment is expected to reach a level of 1.193 million jobs, an increase of approximately 12,800 jobs or 1.1 percent. Private sector employment growth is expected to gain 1.3 percent.

FY 2014 Gross General Revenues
Gross general revenues are estimated at $6.2 billion, a decrease from FY 2013 of $10.5 million, or -0.2 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, $290.5 million is estimated to be distributed (net) in FY 2014.

FY 2014 Net Available General Revenues
Net available revenues collected are estimated at $4.9 billion, a decrease of $83.2 million or -1.7 percent compared to FY 2013.

FY 2014 allocations: The forecast is expected to fully fund 100% of “A” + “B” + “C” + $18.9 million Rainy Day Fund set-aside.

FY 2014 Selected Special Revenues:
FY 2014 Educational Adequacy Fund: Act 107 of the Second Extraordinary Session of 2003 increased the state sales and use tax rate from 5.125 percent to 6.0 percent, 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 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 2014: $452.8 million.

FY 2014 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, $26.4 million is estimated to be distributed in FY 2014.

FY 2014 Soft Drink Excise Tax (Medicaid Program Trust Fund). In FY 2014, the soft drink excise tax is forecast at $43.3 million, representing a -2.8 percent decrease compared to FY 2013 collections.

Summary of Economic and Revenue Estimates for FY 2015
FY 2015 U.S. Gross Domestic Product (Real Output). During FY 2015, the United States economy is expected to produce final goods and services valued at $16.4 trillion in inflation-adjusted dollars, an increase of $476.9 billion or 3.0 percent. The two inflation measures of consumer price index (CPI) and GDP price deflator are expected to gradually move up in response to recovery in the overall economy. The consumer price index (CPI) is expected to increase 1.7 percent and the GDP price deflator is expected to increase 1.8 percent in FY 2015.

U.S. gross domestic product in current dollars is estimated at $17.9 trillion for FY 2015, an increase of $826.8 billion or 4.8 percent.

Average annual U.S. oil prices are estimated at $98.30 per barrel (domestic crude for refiners price) in FY 2015. Oil prices are expected to gradually decline over the forecast period. Weekly and monthly price swings could vary widely around the annual averages.

FY 2015 state nonfarm personal income will reach $113 trillion (current dollars), an increase of $5.13 billion or 4.8 percent over FY 2014. Nonfarm income is expected to expand gradually in a low-inflation economic environment and with limited national growth acceleration.

FY 2015 state wage and salary disbursements are estimated at $52 trillion, an increase of $2.48 billion or 5.0 percent.

FY 2015 state total payroll employment is expected to reach a level of 1.214 million jobs, an increase of approximately 20,490 jobs or 1.7 percent in FY 2015.

Private sector employment is expected to gain 1.9 percent.

FY 2015 Gross General Revenues
The forecast for gross general revenues in FY 2015 is $6.3 billion, an increase of $129.9 million or 2.1 percent over FY 2014. The total fee deducted from general revenue for funding of the State Central Services Fund and Constitutional Officers Fund for FY 2015 is assumed to remain at 3.3 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, an estimated $298.7 million may be distributed (net) in FY 2015.

FY 2015 Net Available General Revenues
For FY 2015, net available general revenues are estimated at $5 billion, an increase of $96.9 million or 2.0 percent over FY 2014. The results include the effects of $85.2 million in tax policy changes enacted and scheduled to effect FY 2015 collected revenue.

FY 2015 Selected Special Revenues:
FY 2015 Educational Adequacy Fund: Act 107 of the Second Extraordinary Session of 2003 increased the state sales and use tax rate from 5.125 percent to 6.0 percent, 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 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.

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