Lawmakers ended the First Extraordinary Session of 2017 on Wednesday with a familiar and long floor debate on a proposal backed by Gov. Asa Hutchinson that would create a recession-ready contingency fund to help the state improve its current bond rating.
In the end, the Arkansas House of Representatives approved Senate Bill 5 by a vote of 70-24, and four present before members cleaned their desks and headed back to their hometowns, albeit after a 90-minute detour on the House floor to approve a resolution to establish rules for impeachment proceedings – an event the state has not undertaken since the current Constitution of 1874 was approved. Several lawmakers have declared that Pulaski County Circuit Judge Wendell Griffen should be impeached and removed from office for his participation in an anti-death penalty rally on the same day he issued a court ruling to halt state executions.
Rep. Joe Jett, R-Success, made the session-ending pitch for SB5 on the House floor, asking fellow House members to transfer $105 million from the voter-approved Arkansas Healthy Century Trust Fund to the newly created Long Term Reserve Fund.
In a repeat from nearly five hours of debate on Tuesday in the Joint Budget Committee, Jett said the reserve fund could potentially help the state improve its current “AA” credit rating by S&P Global for over $1.5 billion in general obligation debt. Under S&P’s credit rating system, “AA+” and “AAA” are highest available credit scores for states and municipalities.
“What that will potentially do is raise our credit rating up to ‘AAA’ from ‘AA’ to save $1.5 million to $1.8 million in interest (annually),” Jett said. “Right now, we have about $1.5 billion in bonds out there. Those bonds are education, highway and Amendment 82 bonds and things of that nature.”
According to S&P officials, 13 states have a AAA credit rating, which indicates “extremely strong capacity to meet financial commitments.” Fifteen states are ranked “excellent” or AA+, while Arkansas and 15 other states have AA credit rating. Historically, only Missouri, North Carolina, Virginia, and Utah have held their AAA credit rating for 46 years or more.
Jett credited Rep. Michelle Gray, R-Melbourne, for successfully coming up with a compromise amendment to SB5 allowing the transfer of the funds by a two-thirds vote by both chambers of the legislature instead of a simple majority approval by the Arkansas Legislative Council (ALC), which represents the full body when the legislature is not in session.
Through an initiated act campaign in 2000, Arkansas voters passed the Tobacco Settlement Proceeds Act that funded the Arkansas Tobacco Settlement Commission and other programs, including tobacco control and cessation activities, expanded Medicaid services, and development of the Minority Health Commission.
According to Arkansas Department of Finance and Administration officials, monies from the tobacco settlement provided core funding for the Arkansas Healthy Century Trust Fund, which has been gaining in interest for nearly 17 years. Today, there is more than $102.8 million in the account, with lawmakers’ having accessed more than $30 million in interest to fund programs related to health initiatives.
Arkansas Development Finance Authority President Aaron Burkes made the argument before the joint committee that a long-term, reserve fund would increase the likelihood of a higher bond rating. Burkes said he, several top lawmakers, state budget officials and policymakers met with Gov. Hutchinson late last year to discuss ways to lift the state’s bond rating, which has held at S&P’s AA or lower for 51 years.
GOVERNOR SAYS CONTINGENCY FUND NECESSARY TO APPEASE WALL STREET BOND RATERS
During a media availability with reporters on Wednesday afternoon, Hutchinson said he began contemplating creating a reserve fund after that meeting with Burkes. The Wall Street bond raters stressed the state needed a reserve fund as one of the major areas necessary to improve Arkansas’ investment credit grade, he said.
“Obviously, they have to look at how sizable it is and how long the reserve will last in downturns of the economy, but this is a very significant start for that and that would put us at the stage of having more conversations with our bond raters and hoping over time it will be successful (raising the bond rating),” the governor said.
But the focus on the investment grade rating from S&P, Moody’s and the state’s budget advisers rankled several members who said the governor could raid the fund for large economic development projects and other budget holes that emerge due to revenue shortfalls and overspending.
Rep. Kim Hendren, R-Gravette, warned fellow lawmakers that by allowing the ALC or the Joint Budget Committee to have access to the fund by a two-thirds vote, the legislature was relinquishing its duty to keep a promise to voters made during the 2000 referendum to protect the trust fund for health-related initiatives.
“The citizens of this state gave you this (responsibility) with the initiated act that we are amending here. But with this vote you are giving it away,” Hendren said. “There is something they want to do with this money – $105 million. They’ve already siphoned off $30 million without any of us knowing. You didn’t know it and I didn’t know it and I’ve been around here a long time … This time they’re getting the whole wagon.”
Citing a Bible scripture, Hendren added: “We ought all to ask Pontus Pilate, let us borrow your basin here so we can wash our hands. Bad bill.”
Still, Jett, Gray and other SB5 supporters argued that the fund could only be accessed when certain “triggers” are met. According to language in the measure, transfers from the fund can only be made after the state’s chief financial officer certifies that a “revenue shortfall” exists when collections are forecasted to increase less than 3% “over and above” gross revenue collections from the previous year.
In addition, the state’s chief fiscal officer can transfer funds from the long term fund for “super projects” as defined by Amendment 82, which allows for general obligation bonds of the state to be issued to finance infrastructure or other needs to attract large economic development projects.
If any or all of the funds from the reserve fund are used for any of the purposes under the newly approved legislation, the state may replenish the balance by transferring no more than 50% of the balance from general revenue reserve collections in the following fiscal year.
In other business on the session’s final day, the House and Senate also approved two bills that would expand work requirements in the state’s Arkansas Works private insurance program and request waivers from the Trump administration that will require healthy Arkansans under 50 years old without children to either get a job, enroll in a drug or alcohol addiction program, or be involved in worker training, an educational program or community services before accessing state welfare services.
House Bill 1003 was approved by the Senate in a vote 19-7 with six non-voting members and two present. In the House, lawmakers there approved SB3 by a vote of 69-21, with 8 non-voting members and two present.
Hutchinson said he was pleased with the strong legislative support for his key priorities to continue reform efforts of Arkansas Works and Medicaid and create a new reserve fund during the special session. He also thanked the lawmakers for completing the task in three days.
“My goal was that we come in and leave within three days and we’ve accomplished that purpose,” Hutchinson said. “I’m pleased that we had bipartisan support for much of the legislation. It’s good to work across the aisle to accomplish this. We didn’t always have uniformity in that, but we did have significant bipartisan support for the legislation that I brought forth.”
All of the bills passed during the special session, including several technical bills that codify the state’s medical marijuana into the state constitution, will immediately be sent to the governor’s office. Hutchinson said he will sign them into law as soon as they reach his desk.