Lawmakers, Gov. Hutchinson eye state budget surplus with caution

Arkansas ended its fiscal year on June 30 with a nearly $200 million surplus, but lawmakers and the Governor aren’t yet unified on how it should be spent.

Sen. Jake Files, R-Fort Smith, who chairs the Senate Revenue and Taxation committee, and Rep. Joe Jett, D-Success, who chairs the House Revenue and Taxation Committee, said the surplus amount was a good thing, but also requires patience in determining its distribution.

According to a report from the Department of Finance and Administration, the state collected nearly $6.5 billion in gross tax collections during the fiscal year that ended June 30. Individual income tax revenues, sales tax and corporate tax revenues all were up during the year, the report noted. Gross tax revenues were up nearly 4% over FY 2014 and about 1% above forecast, officials said in the report.

Of the $6.5 billion, nearly $5.25 billion in collections were in net general revenues. Of that amount, net general revenues were up about 4.5% compared to the year before.

The surplus was $191.6 million, with nearly $65 million of it coming from one-time funds from the Attorney General’s office and the Arkansas Insurance Department. The Arkansas Insurance Department moved $51 million to the state budget, while the state received $14.4 million from a lawsuit settlement received from the Attorney General’s office. The one-time revenue totaled $65.5 million. The surplus would have been $126.1 million without such revenue.

FILES: EASY TO TALK TAX CUTS
Files said the surplus was in part due to conservative budgeting in the last budget done by the legislature and former Gov. Mike Beebe. But, there seems to be a push by state government to “ensure that all of the money is spent,” Files said.

That being said, Files said state officials must work to rein in spending.

“It is easy to talk about and campaign about,” Files said of the debate on the issue. “But when you start talking about it, you talk about someone’s livelihood.”

Citing an example, Files said lawmakers during the session this winter had questions about contracts issued by state government. Those questions brought up in media reports over contracts with the Department of Human Services, which have included millions of dollars, have put the issue at the forefront.

“It has not had much to do with impropriety, but simply not knowing where the money went,” Files said, noting he believes there will be a lot more oversight over state contracts and spending by the legislature.

As for taxes, Files said he is a “champion for tax cuts involving job growth and creation.” Files said there is a “finite” amount of dollars to be applied to tax cuts and officials have to look for ways to get the best bang for the buck.

Files also said he does not believe Arkansas will be in the same predicament as other states, like Kansas, that are now dealing with deficits.

JETT CALLS FOR A DEEP BREATH
Rep. Jett said state officials will face a number of issues in looking at the surplus.

“Everyone needs to take a deep breath,” Jett said of the discussion of how to spend the surplus.

Jett said the state must address several key funding issues, including highways, prisons and the Private Option. On highways, Jett said he believes Arkansas may be on its own to help deal with projects in light of the debate over a highway bill in Congress.

“We cannot rely on the feds. We may have to rely on ourselves,” Jett said, citing that other states like Nebraska have increased taxes to pay for roads. “Eventually, Arkansas will have to do something.”

Jett, who represents a rural, agricultural district in Northeast Arkansas, said the highway issue has an impact on agriculture.

“Agriculture is one-third of Arkansas’ GDP and we need infrastructure …. Whether you do poultry, row crop or timber,” Jett said.

Commodity prices have dropped in the past year, Jett said, with small, agricultural towns facing tough times. However, one possible bright spot in the region is the construction of PECO Foods. The project in Clay and Randolph counties is expected to create around 1,500 jobs, both direct at the plant and indirect with truck drivers, Jett said.

Any highway construction project is also likely to “translate to immediate jobs,” Jett said.

The next step regarding the surplus involves budget hearings this fall and the state’s fiscal session next April.

GOVERNOR: TOO EARLY TO TELL
In a statement Tuesday morning, Gov. Asa Hutchinson said budget plans, spending and future tax cuts will face a lot of scrutiny and receive ample debate.

“It’s too early to tell. We’re a long way from the fiscal session. A lot of needs will have to be addressed between now and then,” Hutchinson said.

His former staff budget director, Duncan Baird – now budget director at the Department of Finance and Administration – said one-time funds, by state law, go to capital projects and one-time needs. The money in the past has gone to fill Medicaid gaps, Baird said. The income and sales tax revenues were “pretty solid” in the past year, Baird noted.

As for spending, Baird said there are definitely areas of needs. However, he said there has been a push by the Hutchinson administration to do things better in an efficient manner, not to mention taking a look at spending tax dollars.

As for highways, Baird chairs the Governor’s Working Group on Highway Spending. He said each state is struggling with funding for projects. The group is expected to come up with options by December of this year.