State Ends Fiscal Year with $131 Million Surplus

Executive Secretary of the Governor’s Cabinet and State Budget Director John Hicks testified this week before the joint Appropriations and Revenue Committee, closing out the 2025 fiscal year and preparing lawmakers for the upcoming budget writing session.  

The state ended FY 2025 with a General Fund surplus of $313 million, Hicks told lawmakers. Of that, $131 million came from revenue surplus, while another $132.7 million came from underspending. Additional gains came from $35 million in FEMA reimbursements and $14.2 million reduction in severance tax revenue sharing.  

Under the surplus expenditure plan in HB 6, this resulted in $62.1 million devoted to Necessary Government Expenses and $251.3 million deposited to the Budget Reserve Trust Fund (BRTF). HB 6 also appropriated $873 million in FY 25 to the BRTF.  The fund is now $3.76 billion. Budget Reserve Trust Fund is estimated to be 24% of General Fund Expenditures in FY 2026. 

Revenue Performance 

Despite the surplus, Hicks cautioned that General Fund growth was modest at only 0.8% above the FY 2025 estimate. This was due in part to significant shortfalls in two major tax categories: sales tax and individual income tax. 

Sales tax revenue was essentially flat (0.3% growth from the previous fiscal year). This is despite an estimated growth of 4% back in 2023 from the Consensus Forecasting Group (CFG), creating a $258.8 million shortfall. Individual income tax receipts dropped the largest since the data has been recorded back in 1979, with an 8.4% drop. Hicks attributed the decline to the tax rate reduction.  Although the rate declined by 11.1% from 4.5% to 4%, Hicks noted that withholding only dropped 4%, indicating that payroll continues to grow.  

Road Funding 

Hicks also broke down the FY 2025 Road Fund closeout. He said the motor fuels tax dropped by 7.7% which is in line with the drop in the state rate (30.1 cents per gallon to 27.8 cents per gallon). However, the motor vehicle usage sales tax on cars was the highest on record, primarily due to the sales tax on vehicles (increased by 48.5% from the prior year and was 69.4% above the estimated total). Road Fund grew 2.1% over the estimate for FY 2025 but decreased by 0.6% compared to FY 2024.  

The decline in motor fuels tax impacts revenue sharing (MRA payments). This decline equates to $12.8 million less being shared with cities and counties. The decline in the tax is an overall drop of 12% over the last two years, following a high of 30.1 cents in 2024. 

Looking Ahead 

The Consensus Forecasting Group will meet in September and December to set revenue projections for the upcoming biennium. These meetings will be pivotal, as their estimates will set the boundaries for what lawmakers can fund in the next two-year budget. With General Fund growth slowing and traditional revenue streams underperforming, legislators may find themselves balancing optimism about reserves with caution about sustainability.