Arkansas ended its fiscal year with a $295.4 million budget surplus -- the second-highest in the past decade -- bolstered by higher-than-expected individual and corporate income tax collections, the state Department of Finance and Administration reported Tuesday.

A quarter of the surplus, about $73.8 million, will be transferred to the Arkansas Department of Transportation for road maintenance and construction, under state law, and the remaining amount will be split between two state reserve funds.

In fiscal 2019, which ended Sunday, Arkansas' gross general revenue eclipsed $7.1 billion -- a 6.2% increase from the previous fiscal year.

State finance officials attributed the growth to a strong economy, several one-time income tax collections unique to the state and a change in taxpayer behavior in response to federal tax changes. They added that the stock market's positive trends likely strengthened capital gains tax collections.

Graphs showing Arkansas sources of general revenue.

The surplus is the largest since Gov. Asa Hutchinson took office in 2015. The Republican governor was pleased with the state's financial standing.

"Due to the surplus, more than $73 million is available as needed for transportation funding and ensures the state will fulfill its commitment under our short-term highway plan," Hutchinson said in a statement Tuesday. "As a result of a disciplined approach to spending and a growing economy, we enter next year with substantial reserve funds. The current budget surplus affirms that we are achieving the right balance in lowering taxes; supporting education and health care; and transforming state agencies in the delivery of services."

In addition to the state having its highest surplus since fiscal 2013, the $7.1 billion in gross collections was the most for a fiscal year in Arkansas history.

Fiscal 2019's general revenue budget was $5.63 billion, which was $172.8 million more than the previous fiscal year's budget.

Tax refunds and some special state expenditures come off the top of total revenue, leaving the amount that state agencies may spend.

Of the surplus, $48 million was built into the budget by Hutchinson for the restricted reserve account, with another $16 million going to the Transportation Department. The remainder of the surplus was to be split with 75% going to the General Revenue Allotment Reserve Fund and 25% for the highway transfer fund.

Of the roughly $73.8 million in surplus funds flowing to the Transportation Department, spokesman Danny Straessle said Tuesday, $50 million will be used as matching funds for federal highway dollars.

"The remaining will go toward general highway maintenance, including repairs to those impacted by the recent flooding," Straessle said.

Earlier this year, the General Assembly approved Hutchinson's plan to raise more than $300 million annually for state highways. His plan taps gambling tax receipts, increases fuel taxes and raises annual registration fees for electric and hybrid cars. The Legislature also referred a constitutional amendment to the November 2020 ballot that would make permanent an existing half-percent sales tax for road construction and maintenance.

In total, individual income tax collections -- the largest source of state revenue -- increased 4.8% from fiscal 2018, and corporate tax receipts grew by more than 40% to $570.2 million.

John Shelnutt, the state's chief economic forecaster, said the steep growth in corporate tax receipts in large part was due to some one-time collections that were unique to Arkansas and likely won't be repeated in future years. He said he couldn't be more specific because of tax-privacy laws.

However, he said that corporate tax receipts showed strong growth even with those one-time payments factored out. The adjusted growth rate for income tax collections, Shelnutt said, is about 20%, which matches the rates in about 28 other states.

While income-tax collections were strong last year, sales and use taxes grew by only 2% from fiscal 2018, falling 1.3% below the projected amount.

Shelnutt attributed that shortfall to lagging collections in the information and utility sectors and to weaker-than-expected car sales.

Still, Shelnutt said that the state's revenue growth was well beyond what he and other state finance officials would ever project. He said he believes that new taxpayer strategies benefited state tax receipts.

Many taxpayers, he said, adjusted their strategies to ensure maximum benefit from the revamped federal income tax code. He said Arkansas' and other states' coffers benefited from the changes in approach.

"The forecast assumed moderate growth in the economy, and that's what we got plus a lot of this one-time and taxpayer strategy factors thrown on top," Shelnutt said.

"We grew $426.5 million [in net general revenue] compared to a year ago for a percentage growth rate of 7.8%. Frankly, we would've never forecasted a growth rate like that. That goes beyond our conservative approach."

In June, the state's gross general revenue collections increased by $84 million over the same month a year before, to $743 million.

Monthly individual and corporate income tax collections exceeded expectations by 2.9% and 15.5%, respectively.

However, June's sales and use taxes declined 0.9% from the same month a year before, missing the projected amount by $5.2 million, or 2.4%.

While collections in the information and utility sectors were in decline for most of fiscal 2019, Shelnutt said June also saw declines in retail spending.

"The inclusion of retail is a bigger issue because that's a huge sector of consumer spending," he said.

June's totals also benefited from a large transfer from the Arkansas Insurance Department. Shelnutt said the Insurance Department every two years turns back a significant sum of money made up of excess operating funds and insurance premium revenue, but the amount in fiscal 2019 exceeded expectations by more than $17 million.

The state also benefited from a decline in corporate and individual income tax refunds. Individual taxpayers filed for $11.4 million less than was forecast for tax refunds, and businesses filed for $2 million less.

A Section on 07/03/2019