The economic slow-down, caused by the ongoing coronavirus pandemic, is leaving the state of Arkansas with a significant budget shortfall.
Gov. Asa Hutchinson announced that the state would be facing more than $350 million in budget shortfalls between now and the end of the 2020 fiscal year, which ends June 30. He attributed part of the budget shortfall to the drop off in business activity in the state (as well as at the national and global level). This lack of economic activity has cost the state $168 million in revenue.
The second source of the budget shortfall is the decision to shift the individual tax deadline to July 15. Hutchinson told reporters that the state individual tax filing deadline was moved back to relieve taxpayers who lost their jobs or were feeling strain because of the COVID-19 crisis.
“All of this strains the individual families, and the federal government gave relief for tax filers through July 15. I’ve worked with the Senate and House leadership, and we have an announcement for Arkansas as far as what we should do,” he said. “The individual tax filing and payment deadline is extended until July 15. This mirrors the same deadline as the federal government, which makes it the easiest for the individual filers. This should provide relief and consistency for individual Arkansas tax payers.”
This decision comes after the federal government’s announcement that it would push the its tax filing deadline to July 15. Hutchinson noted that corporate taxes and estimated payments for next year would still be due on April 15.
Moving the tax deadline to July is expected to have a $185 million impact on the state’s budget. Arkansas Department of Finance & Administration Secretary Larry Walther has changed revised the state’s official revenue forecast to reflect a total budget shortfall of $353.1 million by the end of the current fiscal year.
“With moving the revenue stream into July 15 – part of the revenue stream – that leaves us a larger gap this year,” Hutchinson said. “We’re not the federal government – we can’t print money and we have the balance the budget each year. Our deadline for balancing the budget is June 30, even though many of the payments are going to be extended for individuals until July 15.”
As a result of these actions, officials will be required to dip into the state’s budget surplus. According to Walther, the surplus currently stands at $173 million. In addition, Walther noted that there is $43 million in the state’s restricted reserve and $150 million in the long-term reserve.
According to Hutchinson, the surplus funds will be used to fill in the gaps in the budget left by the shortfalls. Most of the surplus funds will be allocated to departments actively involved in combating the coronavirus crisis, including the Department of Health.
“When we lower the revenue forecast by $353 million, that impacts the Department of Health, that impacts every agency of state government under our balanced budget procedures. We have to utilize our $173 million reserve, which is the unallocated surplus from last year. We will utilize that to fill the gaps to make sure the Department of Health can carry out their mission without being reduced in their budget. We want make sure ADEM has it resources in this emergency time,” Hutchinson said. “We will utilize and manage the unallocated surplus to accomplish the broader mission of state government even though it’s going to be serious belt tightening time for all of state budget except for those on the front lines of the current crisis. We will utilize our surplus to make sure those needs are met.”
However, Hutchinson said that there will be surplus funds that will be reserved for “quick responses,” such as purchasing respirators, ventilators, and personal protective equipment as needed.
In order to begin making these decisions, Hutchinson is calling a special session of the Arkansas General Assembly. While he did not specify when the session would be called, Hutchinson said it would need to be “soon.”
The legislature was already set to meet for the fiscal session, which is scheduled to begin April 8.