Medicaid, tax reform top issues in 2013 General Assembly

Every legislative session has its own identity. Often, the predictable issues known in advance give way to a unique distinction in the session’s aftermath.

In 2013, the 89th General Assembly will tackle some once-in-a-lifetime choices and could chart a new direction for state policy on the health care, tax, education and economic development fronts.

The irony would be that Gov. Mike Beebe, Democratic governor with nearly three decades of public service in the legislative arena, would oversee these tumultuous changes. Beebe, who has presided over the state in a calm and steady demeanor, has been among the most knowledgeable governors of the legislative process to ever serve Arkansas. He has also been a guardian of the status quo to a degree.

That’s not a criticism. It was part of his appeal to voters and a conservative business community who trust his sensibilities when it comes to making executive branch decisions. No major scandal has wrecked his governorship despite more than 6 years of influence.

For his final regular legislative session – he’ll still be governor during the 2014 budget session – Beebe finds himself in a position of role reversal. He’s the Democratic governor under a Republican-controlled legislature. It’s the opposite of his hey-day in the late ‘90’s and early 2000’s when he steered the Democratic-controlled legislature under the eye of a popular Republican governor, Mike Huckabee.

Beebe, however, has a way of winning – even on the legislative front when he’s not in the legislature.  His decades of experience and unparalleled expertise of the budgeting process has also been an advantage over less powerful legislators in this era of term limits and turnover.

He has had the upper hand during his gubernatorial tenure in part due to solid Democratic majorities in both chambers.  Tax hikes, tax cuts, budget maneuvers, policy efforts – Beebe has had an easy time when you get right down to it.

But, the Arkansas GOP took control of both chambers of the capitol with historic gains in the 2012 elections. With a 21-14 margin in the State Senate, Republicans should be able to control all policy matters. Democrats still hold enough clout to block budget bills that might cause controversy.

In the House of Representatives, the GOP margin is razor-thin – just 51 votes in the 100-member chamber. With party discipline, the Republicans can control policy, but budgeting will require a big bipartisan effort.

Still, Beebe walks into the 2013 session with a lot of good cards in his hand – including the friendliness and camaraderie of the two Republicans who will lead the General Assembly’s two chambers.

State Senator Michael Lamoureux, R-Russellville, a pragmatist and well-liked lawmaker on both sides of the aisle, is unlikely to attempt to run rough-shod over the governor on key issues. His centrist politics and team-building management style is more likely to lead to consensus not confrontation.

In the House, State Rep. Davy Carter, R-Cabot, surprised the would-be GOP leader, Rep. Terry Rice, R-Waldron, when he mounted a post-election, last-minute campaign for Speaker and won. Carter owes his Speakership to the swing votes of a big chunk of the 48 Democrats in that chamber. He’ll have to repair and enlarge his trust with his base of Republican members. It will be a tricky tightwire act for Carter, who has already shown he will be extremely bi-partisan in his leadership approach.

Lamoureux and Carter are lawyers, like Beebe, and that will likely lead to higher-level policy discussions about the impact of legislation on the state constitution and previous precedents.

Which issues are likely to rise to the forefront of attention in the 2013 General Assembly? Talk Business Arkansas’ political team offers an examination.

Medicaid and Health Care
“We have two issues as I stand here today; everything else is inherently secondary. We have Medicaid issues and we have tax reform. And those are going to at some point collide. That will likely be the heart of the session so we have got to get those two issues resolved,” Speaker-elect Carter said shortly after his election.

The projected Medicaid deficit of around $300 million will be perhaps the stickiest issue the new legislature has to tackle. Legislators have indicated they’re willing to go further in tapping surplus funds and growth revenue to shore up Medicaid funding, particularly to reverse proposed nursing home cuts.

In what might seem counterintuitive, the governor has proposed to fix the deficit by expanding Medicaid in addition to cutting some services.  In short, expanding the Medicaid program to 138 % over the poverty line would be funded by provisions of the new federal health care legislation, commonly known as ObamaCare.

However, the expansion of the Medicaid program is one of the few areas that the U.S. Supreme Court has ruled is not required to be enacted by the states. As such, Republicans elected under the promise to fight ObamaCare in every way possible see refusing to expand as one of the few options to fight the new law’s enactment. Prior to the session’s start, there seems to be an open dialogue on finding a way to move incrementally on this issue in order to accomplish two goals: covering political bases for those opposed and receiving money that will immediately help rural health care providers. Federal approval may prove to be as complicated as a state solution, if one materializes.

One other area of health care reform likely to surface in 2013 involves a state health insurance exchange. It was the battlefield of the fight in 2011 and with a looming 2014 deadline, Arkansas lawmakers will have to make some decisions on the matter, even if it is to fold completely under federal control on the subject.

Tax Reform
One of the main conflicts of the legislative session will be cutting taxes in an already tight state budget. The proposed budget from Gov. Mike Beebe – which will likely serve as the starting point – has a cut to the grocery tax of up to $69 million.  This would continue the grocery tax cut, which began in 2007 after Beebe was first elected.  The cut would take the grocery tax all the way down to 0.125% which essentially is a full reduction, but only if certain budgetary triggers are met.

However, there is no doubt that Republicans will desire more tax cuts or reform beyond that. Republican lawmakers have called for income tax reform which would create a middle income tax rate. Currently, the highest marginal state income tax rate of 7% begins at incomes over $32,600. Proposals include widening the 6% tax brackets and indexing tax brackets for inflation.

Other proposals could include reducing or eliminating taxes on in-state capital gains and the business community has identified some targeted reforms to sync state law with federal law on carry-forward losses, as well as manufacturing tax breaks aimed at keeping Arkansas competitive with sister states.

It is anticipated that the primary push back from the Governor will be to challenge tax cutters to find a way to offset any project revenue impact with spending cuts.

Economic Development
Always an A-1 priority, any legislation aimed at creating jobs moves to the front of the line for consideration. Some tax reform measures meet this criteria, but the state may also review new and old ideas from a pure policy point-of-view.

The Governor’s Quick Action Closing Fund has proven to be a boon for state economic development and Gov. Beebe has used it judiciously to seal job deals for the state. The funding amount and any potential controls on its spending may find its way on the legislative to-do list.

Beebe and economic development officials have also hinted that new incentives aimed at smaller, more knowledge-based entrepreneurial endeavors could be explored. And, supporters of university research are hoping that the Governor helps find a way to fund as much as $25 million into their efforts to support research projects with commercialization applications.

Finally, Beebe hinted in a recent interview with Talk Business that he expected to make a new proposal in his State of the State address aimed at economic development.

Education
General education funding for pre-Kindergarten through 12th grade accounts for the biggest percentage of state general revenue expenditures. With its tremendous impact, it always surfaces as a major topic of budgetary and policy discussion.

In the post-Lakeview era, most of the difficult issues of adequacy and equity have been worked out by previous legislatures since the court ruled the state education funding was unconstitutional in 2002. As such, it is unlikely this year’s legislature will depart from the recommendations of the adequacy study committee.

However, a recent ruling from the state Supreme Court could throw a twist as the ruling brings into question a major principle of the Lakeview case. Whether that topic garners a shift in policy remains to be seen, but it is unlikely lawmakers will revisit the funding formula in the current session for fear of being thrown back in court.

Desegregation funding – another hot topic of education debate – is also likely to find its way on the legislative agenda. As Pulaski County schools regain their “unitary status” with the federal courts, pressure will mount to scale back or eliminate up to $70 million a year in state payments to three school districts in central Arkansas.  Interestingly and duly noted, that dollar amount is pretty equal to the Governor’s trigger for eliminating the rest of the grocery tax.

Conservative groups will also push a variety of reforms they claim will increase accountability in schools and improve school choices. These proposals are aimed at making it easier to open charter schools and allow parents greater ability to choose where to send their children. There is little doubt that traditional education groups will strongly oppose most of these efforts.

Higher Education & The Lottery
The state’s colleges and universities often get the short-end of the stick when budgets are tight. In the 2013 session, funding for Arkansas’ higher education institutions will be a spotlighted focus.

Beebe has recommended about $10 million in new funding – which is better than the alternative – but comes nowhere close to meeting the needs that colleges have to meet his goal of doubling the number of graduates during the next decade.

Look for campus officials and lawmakers to debate the complicated higher education funding formula, particularly as it relates to retention and remediation – two sore spots with legislators.  The remediation debate could trickle into the general education debate as there is talk of potential partnerships between the two levels (K-12 and higher ed) to address the problem with long-term solutions.

The Arkansas Scholarship Lottery, now in operation for over three years, is seeing a leveling off of its revenues. The impact of declining lottery receipts on scholarship awards has been a contentious subject of discussion in interim hearings. Presently, first-year awards are set at $5,000 a year levels however current projections show the ability to only award amounts of $3,300 under the current funding distribution.

Because of this, legislators are considering revamping the scholarship formulas to a tiered system of distribution.  One could also expect another effort to force the state lottery to spend a higher percentage of its revenue on scholarships above the current 20% rate.

Link here for more details on issues likely to arise in the 2013 General Assembly.