Senate Majority Leader Hendren says tax reform, highway funding linked

Senate Majority Leader Jim Hendren, R-Gravette, says tax reform will likely be done before a long-term highway funding plan can be set and he predicts a short and smooth special session on healthcare in early May.

Appearing on Sunday’s edition of Talk Business & Politics, Hendren said he’s hoping to have an active role in setting long overdue tax reform at the state level when a blue ribbon panel on taxes gets to work later this spring.

“I hope we’ll bring to the general assembly two years from now, a plan that completely changes and updates our tax code to make us more competitive with other states,” he said. “I think that this is a very, perhaps once in a lifetime opportunity. To do a top-to-bottom scrub of our tax code and reform it. We tend to piecemeal things. We tend to look at one exemption at a time. Whichever special interest tends to have the most influence at the time gets a break. Over the years, it’s resulted in a tax code that is hard to understand, multiple brackets, property taxes uneven from one part of the state to the other, sales tax exemptions that don’t make sense.”

Against the backdrop of the task force’s work, Arkansas lawmakers will be closely watching state revenues, which have been underperforming against expectations by about $65 million at the nine-month mark in the current fiscal year. Hendren said don’t expect to reverse any tax cuts; he’ll let the spending category priorities take effect.

“Well, to restore tax break in Republican talk is a tax increase. I don’t see a lot of appetite to do that in Little Rock,” Hendren said when asked if tax cuts could be repealed versus cutting state services. “There’s no question that $300 million in tax cuts over the past four years is showing up in the revenue. For those of us who ran on less taxes, this is what you would expect.”

He added that tight budgeting has led to far less money for a budget surplus and for general improvement funds, which are currently the subject of a federal criminal case.

“[It] took care of the general improvement fund debacle that we’ve had. I don’t know that we would have ever done that if the dollars had been sitting there. So it made it much easier to get rid of the general improvement funds from a practical matter. And the other thing is it makes us start looking at doing the hard things about cutting government,” Hendren said . “So I think it’s not necessary that we tax the taxpayers to the point where we plan on a $200 million surplus. I think we’re in a good position. And we also have plenty of flexibility. We have over $100 million in category B. That if we need to make some cuts, we’ve already decided where they will be. So I think we’re fine.”

Arkansas lawmakers failed to pass a significant highway funding plan in the most recent regular session and growing state highway and infrastructure needs will force more attention and a solution in the near future. Hendren believes that the work of the tax reform task force can aid in that funding challenge.

“There may be some streams that we want to align with the highway program that will grow with the demand for highways. That’s part of the problem we have right now, is our revenue stream does not grow as the demand grows,” he said. “I think part of our tax task force challenge will be making sure that revenue streams are properly aligned to the needs that they have out there. I think again, while we’re not a highway task force, there’s no question that part of what will be on our mind is, what possible revenue streams can we find and can we divert to funding highways. I think it’s important that we will look at the tax code first.”

Legislators are expected to “sine die,” or officially adjourn from the regular session on May 1. Gov. Asa Hutchinson may quickly call members back for a special session on health care to approve expected federal waivers to the state’s Medicaid expansion program known as Arkansas Works. Will it be a contentious or non-controversial special session?

“There will be some other reforms that I think will be broadly supported. It won’t be 100%, but I think the support will be there. I would anticipate a short, somewhat uneventful special session. Now as soon as I say that it’ll all implode. But that’s what I would expect right now,” he said.

Watch Sen. Hendren’s full interview in the video below, including his thoughts on the guns on campus debate and more on potential budget constraints.