Arkansas Budget Surplus: How It’s Calculated and Where It Goes

Arkansas has posted a budget surplus every fiscal year since 2022, starting with a record $1.628 billion that year and shrinking to a projected $334.4 million for fiscal year 2026. The surplus is whatever general revenue remains after the state fully funds its priority-ranked spending plan, and recent surpluses have gone into reserve accounts, four rounds of income tax cuts, and prison construction.

Surplus by Fiscal Year, 2022 Through 2026

Arkansas’s fiscal year runs July 1 through June 30. Here are the surplus totals since the current streak began:

Each year’s number is smaller than the last. For FY 2026, the state projects roughly $6.83 billion in net available revenue, with about $6.49 billion allocated through the budget and $334.4 million left over.3Arkansas Department of Finance and Administration. Official General Revenue Forecast FY 2026-2027

How the Surplus Is Calculated

Arkansas budgets through the Revenue Stabilization Act, codified in Arkansas Code Title 19, Chapter 5. The Act splits planned spending into priority tiers. Category A, which covers essential state functions, gets funded first. Category B comes next. Agencies and programs in A receive their full allocation before any dollar flows to B, and if revenue falls short, lower-priority items are cut before higher-priority ones lose anything.

When actual collections exceed the total needed to fund every category in full, the leftover amount is classified as surplus general revenue. In FY 2024, net available general revenues reached $6.90 billion, fully funding both Category A and Category B, which produced the $698.4 million surplus.1Arkansas Department of Finance and Administration. General Revenue Report for June FY 2024 Because the state’s revenue forecasters build in conservative projections by design, strong economic years produce large gaps between what was budgeted and what came in. That is how FY 2022 and FY 2023 generated billion-dollar surpluses on the back of post-pandemic wage growth and consumer spending.

Where the Money Goes

Surplus dollars move through two channels: statutory reserve accounts and one-time legislative appropriations.

Catastrophic Reserve Fund

This fund exists to cover revenue shortfalls during downturns. If the state’s chief fiscal officer determines that projected gross general revenue will grow less than three percent over the previous year due to changing economic conditions, the officer can authorize transfers out to keep operations running.4Justia Law. Arkansas Code 19-6-486 – Catastrophic Reserve Fund The fund held roughly $1.9 billion as of early 2025. Contributions come from whatever the General Assembly directs into it; there is no fixed statutory percentage.

Restricted Reserve Fund

The Restricted Reserve Fund is a more flexible account. It can receive transfers from the Rainy Day Fund, interagency transfers, and other revenue the legislature directs into it. The chief fiscal officer can then move money out to general revenue operating accounts, the Department of Transportation for highway matching funds, the Development and Enhancement Fund, or any other purpose the legislature authorizes. Releases require approval from three-fifths of the Legislative Council quorum or, when the legislature is in session, the Joint Budget Committee.5Justia Law. Arkansas Code 19-5-1263 – Restricted Reserve Fund

Income Tax Cuts

Four rounds of income tax reductions between 2022 and 2024 were enabled by the large surpluses. The most recent round brought the top individual income tax rate down to 3.9 percent and the top corporate rate to 4.3 percent.6Arkansas Department of Finance and Administration. Income Tax Withholding Tables Adjusted Due to Most Recent Tax Cut Those rates remain in effect for 2025. The 3.9 percent top individual rate applies to income above $25,700 for filers earning $92,300 or less, and to all income above $4,600 for higher earners.7Arkansas Economic Development Commission. Personal Income Tax Rates in Arkansas The 4.3 percent corporate rate applies to taxable income above $11,000.8Arkansas Economic Development Commission. Corporate Income Tax Rates in Arkansas

Prison Construction

Corrections has been the other major destination. The legislature set aside $75 million in 2022 and $330 million in 2023 for prison expansion. In 2025, lawmakers advanced a $750 million appropriation for a new 3,000-bed prison in western Arkansas. That single appropriation exceeds the entire projected FY 2026 surplus.

A Dedicated Reserve From the 2023 Surplus

After the $1.16 billion FY 2023 surplus, the legislature created a new reserve account holding roughly $710 million that remained unallocated. State officials described it as an insurance policy against economic downturns and unforeseen costs, and emphasized that one-time surplus dollars were not being used to pay for the permanent tax cuts.

Why the Surplus Keeps Shrinking

The slide from $1.628 billion in FY 2022 to a projected $334 million in FY 2026 is not accidental. Tax rate cuts are permanent; the surpluses that paid for them are not. Each round of cuts lowered the revenue baseline going forward, while spending through the Revenue Stabilization Act has grown with inflation and program costs. Lower rates meeting steady or rising obligations narrows the gap between collections and the budget every year.

Arkansas still projects a surplus for FY 2026, just a far smaller one than the windfalls of 2022 and 2023.3Arkansas Department of Finance and Administration. Official General Revenue Forecast FY 2026-2027 The Catastrophic Reserve Fund’s roughly $1.9 billion balance provides a cushion if revenue drops sharply, but that money is reserved for emergencies rather than everyday operations. Whether revenue growth at the current, lower rates can keep producing surpluses alongside the existing spending plan is the open question for coming budget cycles.