FY2026 BUDGET PRIMER
The Arkansas 2026 fiscal year begins on July 1, bringing with it a new general revenue budget. As one of the final actions of the 2025 legislative session, Arkansas lawmakers passed Acts 1014 and 1018, which outline state revenues and priorities for the 2025-26 fiscal year. Lawmakers approved a $6.49 billion budget that largely mirrors the proposal outlined by Governor Sarah Huckabee Sanders in her State of the State address, representing a 2.89% increase in spending for the fiscal year beginning July 1.
Economic Conditions and Revenue Trends
The Arkansas Department of Finance and Administration’s 2025–2026 Official General Revenue Forecast, released on May 21, 2025, outlines state revenues and priorities amidst evolving economic conditions. The forecast summarizes the economic outlook for the fiscal years 2025 – 2027.
In FY2026, net available revenues are expected to grow by 2.3% to $6.679 billion, with an anticipated surplus of $185.1 million. While the FY2026 forecast projects a modest rebound in net revenue over the previous year, the surplus forecast is down from $214.8 million in FY2025 and $698 million in FY2024.
Key revenue changes include:
· Individual Income Tax revenues are expected to grow slightly by 0.7%, following a sharp decline in FY2025.
· Corporate Income Tax collections are forecast to rebound by 13.4%, though this only partially offsets the drop seen the previous year.
· Sales and Use Tax revenue is projected to increase by 1.8%, a sign of continued stability in consumer spending.
· Insurance Premium Taxes are expected to decline by 16.1% in FY2026 after a surge in FY2025, reflecting shifting patterns in fund transfers.
Notable Allocations in the FY2025–26 Budget
The state’s budget is guided by the Revenue Stabilization Act, which categorizes and prioritizes spending based on revenue projections. The 2025-26 allocations reflect a strong commitment to education, public safety, and health, while also incorporating new investments.
Public Schools: The Public School Fund remains the largest line item at $2.48 billion, unchanged from FY2024–25. General Education Fund allocations also remain steady, with small increases for the Schools for the Deaf and Blind, Division of Academic Facilities & Transportation, Educational Television, and the State Library.
Human Services: Funding for the Department of Human Services increased by $21.6 million for a total of $1.86 billion. The most notable increases went to the Division of Youth Services and the Division of Provider Services & Quality Assurance. The County Operations, Medical Services, and Behavioral Health Services divisions also received increases.
Higher Education: Overall support for four-year institutions remained flat, though some campuses will see modest reductions. UA-Little Rock’s funding dropped by $1.1 million. Arkansas Tech University, UA-Monticello, and UA-Pine Bluff saw decreases totaling less than $1 million. Some four-year institutions, including UA-Fayetteville and Southern Arkansas University, received small increases. Two-year and technical colleges experienced similarly mixed results. Black River Technical College received a notable increase of over $860,000.
Correctional Facilities: The FY2026 budget introduces a structural change to the Division of Correction’s budget, creating a standalone Correctional Medical Contract line item allocated $139.4 million. This is partially offset by a corresponding decrease in the general Division of Correction budget. The Division of Community Corrections received a $2.5 million increase.
New and Expanded Programs: Funding for the Educational Freedom Account Program doubled from $97.5 million to $187.5 million. In June, lawmakers approved an additional $90 million to meet EFA demand, bringing total FY2026 funding to over $277 million. The supplemental $90 million was drawn from the Restricted Reserve Fund. Additionally, the state introduced a new $3.15 million Performance Fund for state employee raises and allocated nearly $680,000 to the Manufacturing Extension Network under Workforce Services.