Lawmakers wrap-up key bills of special session after long debate on $103 million contingency fund

Three bills at the center of Gov. Asa Hutchinson’s agenda for the ongoing special session moved one step closer to becoming law on Tuesday following marathon committee and floor debates at the State Capitol that left many lawmakers in a hurry to close out the three-day assembly.

Still, lawmakers are now hoping to wrap up the First Extraordinary Session of the 91st General Assembly on Wednesday (May 3), although fierce debate on further reforms of the state’s Medicaid and health programs, as well as the creation of a $103 million “rainy day” fund to bolster Arkansas’ current credit rating, could slow those good intentions.

In fact, discussion in the Joint Budget Committee to create a new $103 million contingency fund ventured off debate into long speeches about state tax policy, disputes over separation of powers between the executive and legislative branches of state government, and the lack of “trust” between so-called “insiders” and other lawmakers of both chambers.

On Monday, after Gov. Hutchinson gave his opening speech ahead of the three-day session, Sen. Jim Hendren, R-Gravette, introduced Senate Bill 5 that would transfer funds of $105 million from the Arkansas Health Century Trust Fund to the newly created Long Term Reserve Fund.

After an earlier version of the bill failed to get a do-pass recommendation by the joint panel on Monday, Hendren introduced an amended version of the legislation that would allow the transfer of the funds by a two-thirds vote by both chambers of the entire General Assembly instead of a simple majority approval by the Arkansas Legislative Council (ALC), which represents the full body when lawmakers are not in session.

“So the purpose of this is when the state rolls into a recession that there is a process that we can access these funds,” Hendren said. “Even at that, the governor has to submit documentation … saying there is no other place to get the funds certifying the economic conditions that have caused the downturn, then it has to be approved by Legislative Council or the Joint Budget Committee.”

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 have 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 again in interest to fund programs mostly related to health concerns.

STATE LAWMAKERS SEEK AAA BOND RATING
During the nearly five hours of debate wrapped around House and Senate chamber meetings, much of the discussion focused on whether the long-term contingency reserve would help the state achieve S&P Global’s “AAA” bond rating, the highest possible score.

Hendren and Republican Sens. Jason Rapert and Jeremy Hutchinson of Bigelow and Little Rock, respectively, along with DF&A officials and Arkansas Development Finance Authority President Aaron Burkes, made the argument 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. Under S&P’s bond rating system, AA+ and AAA are the highest and most desireable investment ratings.

“So that’s what we’ve been trying to do. There are, obviously, a number of factors that affect the credit rating, but some of those are difficult for us to achieve,” Burkes said, citing economic factors such as Gross State Product growth, worker productivity, low unemployment and higher wages. “In the short run, the things that we can do are the creation of a long-term reserve fund … and another one is addressing our unfunded fiscal liabilities.”

Sen. Bryan King, R-Green Forest, and other lawmakers vehemently argued against the proposal, saying the state is not building up enough surplus funds because of poor budget policy and overspending. King, who also proposed a failed amendment to create the $103 million reserve fund by a full vote of the entire legislature, argued that other factors equally play into the state’s bond rating.

“I tried to warn people two years ago that we were spending too much money. If we cut our spending down in the (budget) process over the last three or four years in line with GDP growth, we would have a several million-dollar surplus right now,” King said. “I have no doubt what Mr. Burkes is saying is correct, but I would just like verification. We ain’t got that today.”

Besides King, other lawmakers expressed concerns that the $103 million reserve fund would be used in the future to cover budget shortfalls and to fund superprojects and other economic development ventures. Sen. Alan Clark, R-Lonsdale, said he was skeptical that a “formal reserve” fund was needed to achieve a top credit rating.

“Are you telling me that the bond companies have stated that they are going to look at whether (legislative) council does it or the whole legislature does it?” Clark asked Burkes. The ADFA President and former state representative replied: “No sir. They are not that specific. Every state is different.”

Other debate in the marathon committee hearing centered around if the timing of the reserve fund bill was tied to plans to cut the fiscal year budget by $70 million, or other potential financial woes on the horizon. Last week, Hutchinson announced cuts in state Category B funding, which will not affect state services or result in government job cuts, he said.

Sen. Gary Stubblefield, R-Branch, said disbursement of Tobacco Settlement funds was approved by voters in 2000 for health-related programs only. “Why have we waited all these years to put so much emphasis on our bond rating unless we are in some kind of serious financial situation,” he said.

After long debate on the $103 million rainy day fund, SB 5 received a do-pass recommendation. It was easily approved later in the afternoon by the Senate in a vote of 27-7. The House will take up the bill tomorrow at 9 a.m., most likely the last major item of the special session.

HOUSE, SENATE APPROVE ARKANSAS WORK WAIVERS
In other business, lawmakers also passed the Senate and House versions of legislation authorizing state policymakers to reduce income eligibility limits from 138% to 100% of the federal poverty level for using federal Medicaid dollars to purchase private health insurance for Arkansans.

Under SB3 and HB1003, state Department of Human Service officials will seek waivers from the Trump administration under the Affordable Care Act that would require healthy Arkansans under 50 years old without children to have a job in order to access state healthcare services. Other requirements for which the state is seeking a federal waiver includes enrollment in a drug or alcohol addiction programs or involvement in worker training, an educational program or community services.

In the morning session of the full body, the House quickly passed HB1003 by a vote of 71-23 and five present. However, the companion SB 3 stalled for nearly an hour on the Senate floor as Sen. King took 45 minutes to speak against the bill. It eventually passed by a vote of 23-9 and two present. King did not vote.

In his speech to the legislature on Monday, Gov. Hutchinson said to achieve his goal, 60,000 of the approximately 320,000 that are now enrolled in public health care through the private option will be moved from the Medicaid portion to the federal healthcare marketplace.

The private option, now known as Arkansas Works, is the state program that uses federal Medicaid dollars to purchase private health insurance for Arkansans with incomes up to 138% of the federal poverty level. It was created after the U.S. Supreme Court ruled states could choose whether or not to expand Medicaid coverage under the Affordable Care Act, also known as Obamacare. Arkansas obtained a waiver from the federal Centers for Medicare and Medicaid Services (CMS) in order to purchase private insurance rather than simply expand Medicaid.

The federal government is paying virtually all of the Medicaid expansion costs. But starting in 2017, the state is responsible for 5%, a number that increases to 10% by 2020. By transferring 60,000 Arkansans to the federal marketplace, Hutchinson said the state will save more than $66 million over four years.

Hutchinson argued that his proposal was not a “cost shift” for taxpayers, but said it would allow Arkansas workers to move into employer-sponsored healthcare programs that preserve both federal and state tax dollars. The House and Senate are expected to take up the other chambers’ bill tomorrow following approvals by their respective committees late Tuesday afternoon.

Lawmakers also approved other technical bills that clean-up language in the state’s new medical marijuana rules and other laws enacted during the regular session.