Beebe Suggests Desegregation Money May Be Key To More Food Tax Cuts

A slow economic recovery, flatline revenue growth, and potential federal funding cuts have Gov. Mike Beebe (D) convinced that he won’t try to reduce the state’s grocery tax in his next budget.

But, Beebe suggested that future desegregation money — if long-standing litigation is resolved — could be used to further cut the sales tax on groceries, a signature legislative achievement during his gubernatorial tenure.

“We won’t do it in the fiscal session,” Beebe said in reference to further cutting the food tax.  He has successfully reduced the six-cent sales tax on food and food ingredients by four-and-a-half cents during his five years in office. “I’d like to cut it in the next [regular] session, but what I’ve always said is its going to be dependent on making sure we can do it in a sensible manner that doesn’t adversely impact central services…. I’m hopeful that we resolve the desegreation money in a way and the first place you could take care of what happens there is we could get rid of the rest of the grocery tax.”

The state’s decades-long involvement in a Pulaski County desegregation case peels about $70 million annually from the state to local school districts in the county. Parties involved in the case at the local, state and federal level have stepped up efforts to resolve the issue in recent months — a move that could ultimately slow or stop state funding to the Pulaski County schools.

On Thursday (Dec. 1), state finance officials will present their formal revenue forecast to Arkansas lawmakers. The forecast is used to construct the state’s balanced budget, which Beebe is required to submit for consideration by mid-January in advance of the February 2012 fiscal session.

Beebe told reporters that tomorrow’s projected revenue forecast for next year will show “flatline” revenue growth, which he called “good news” compared to other states and the national economy.  He also warned that pending federal budget cuts that could go into effect with the failure of the Congressional “super committee” could hit the state hard.

“Agencies that rely more heavily on ongoing federal money will be more affected than those that don’t obviously,” Beebe said. He also said that federal revenue reductions coupled with new state tax cuts and mixed economic signals would likely allow for a small increase in educational adequacy, but limit any other state spending increases.

Beebe also argued that the revenue forecast reinforced his concern that Medicaid reform was necessary to control state spending.  The Governor has suggested the state could see an $87 million Medicaid shortfall by July 2012 and a $260 million deficit in 2013 without major changes to the current “fee-for-service” model.

“We’ll have to adjust,” Beebe said. “We have to take into consideration a more conservative approach with the economy, it has not recovered as fast… and all the prognostications are that it’s going to be a slower growth than what they anticipated a year ago.”

On Friday (Dec. 2), the Arkansas Department of Finance and Administration will release its November monthly revenue report.