Arkansas House blocks Treasurer’s Office $5.4 million budget over college savings amendment

The expected uneventful end of the Arkansas Legislature’s 2018 fiscal session hit a snag Wednesday (March 7) after the House of Representatives blocked an appropriations bill for the state Treasurer’s Office over a last-minute amendment added to the agency’s $5.4 million budget.

The issue that caused several House members pause on House Bill 1122 was a “special language” amendment inserted into the state Treasurer Department’s budget that would allow deductions for federal 529 accounts, a tax-sheltered savings plan originally designed by Congress to help families put money in escrow for future college expenses.

During 45 minutes of debate on the House floor, several supporters of HB 1122 testified that voting against the appropriations measure could possibly lead to a state government shutdown. That risk caused House Speaker Jeremy Gillam, R-Judsonia, to make a rare visit to the floor well to ask fellow lawmakers to fund the State Treasurer’s office and end the session.

Gillam reminded House members they were only voting to approve the Treasurer’s annual budget, not to debate the 529 program. He asked those opposing the measure to wait until the 2019 regular session to raise concerns on whether private schools should get tax breaks under the federal college savings program.

“What you have before you today is the Treasurer’s appropriation bill, which is extremely vital for the functioning of our state government,” Gillam said, arguing that the department was necessary to general revenue and public school fund transfers, disbursing monies to other state agencies and paying the state’s bills.

“All of those things come about because you have a treasurer. And that appropriation is important that it is passed, and we function and show the state we are capable of coming down here and doing our job,” said Gillam.

Following Gillam’s speech, Rep. Charles Blake, D-Little Rock, peppered the Republican House Speaker with several questions about what he later called the “backdoor legislative process” of inserting the special language amendment into the Treasurer’s budget without proper discussion in Joint Budget Committee (JBC), the panel that oversees all agency budget items before moving them to the House or Senate floor.

“Mr. Speaker, is there a process if there is an amendment on this bill that we don’t like …, we can go through to get this appropriation cleared in (JBC) and sent back to the House?” Blake asked.

Gillam replied affirmatively to Blake’s question, but also appealed to Blake and other opponents of HB 1122 that the Treasurer’s Office appropriations were necessary to finalize the state’s 2019 budget and sine die the session by week’s end.

Once the House Speaker left the well and returned to his post presiding over the chamber, several other House members continued the debate over changes made by Congress in the federal tax program. Most of the discussion of the federal savings account that offers families thousands of dollars in deductions or tax credits, veered into debate on whether the 529 amendment was a tax break for the wealthy or a “school choice” policy issue that should be debated by the full body.

Rep. Jana Della Rosa, R-Rogers, agreed with opponents of the bill that the normal process of approving the proposal became confusing after the legislature’s Special Language subcommittee added the tax adjustment into the Treasurer’s budget. But Della Rosa said she became a supporter of the measure after she talked with the Treasurer’s office and learned that the amendment was necessary to bring Arkansas into compliance with new federal tax rules concerning the 529 program.

“The Treasurer’s office doesn’t have a dog in this hunt. They really don’t care one way or the other if the 529 plan includes this disbursement or whatever. They just want their office to function,” said the Northwest Arkansas legislator. “This is not a school choice deal for them at all, whatsoever.”

After the debated ended, Gillam called for a vote on the measure. As lawmakers and onlookers watched as votes were tabulated on the House’s large overhead monitor, there was an audible gasp after Gillam said that HB 1122 had failed by a vote of 74-15. The 15 “nay” votes were all Democrats, except for Rep. Kim Hendren, R-Gravette. There were also five members who did not cast a vote and five members who voted present. Under legislative rules, 27 senators and 75 representatives must vote for all appropriations.

Immediately after the vote, the House took a 15-minute recess and several Republican House leaders and Treasury Department officials outside the chamber sought to rally the votes necessary to flip the bill on reconsideration. To revisit the bill, all House members must be present to cast a vote. Although HB 1122 fell one vote short, two House members whose votes were counted were absent from the proceedings.

State Treasurer Dennis Milligan, who was not in attendance in the House chamber, called the House vote on HB 1122 “unfortunate.” He said he was confident lawmakers would be able to pass an appropriations bill for his office before the end of the fiscal year, which ends June 30.

“It’s up to the legislature to decide if they want to align our state statute with recent changes in federal tax reform law. I’m confident the legislature can come to an agreement on the special language regarding 529s,” Milligan said in a statement. “If left unfunded, the results could be debilitating for state government. It would keep the treasurer’s office from doing our job, which is to supply funding to state agencies, cities, counties and local governments.”

Grant Wallace, spokesman for the Treasurer’s office, said more than 27,000 Arkansans will be impacted by changes to HB 1122. He said the average 529 account-holder in Arkansas holds about $15,000 in savings. Asked if Milligan would be fine if the 529 amendment was stripped from the Treasurer’s budget, Wallace said “sure.” But, he added, Arkansas lawmakers still need to find a “legislative fix” that brings Arkansas into compliance with federal IRS tax rules.

“It’s an issue for 529 account holders in Arkansas. They will be penalized on their state and federal taxes,” he said.

The House quickly approved SB30 — the Department of Human Services appropriation bill that contains Arkansas Works funding — without debate by a vote of 79-15. That appropriation bill for the DHS’s Division of Medical Services was approved Tuesday in the Senate with no votes to spare. The bill, a key part of Gov. Asa Hutchinson’s proposed budget, will fund the state’s Medicaid expansion program that added work requirements for able-bodied Arkansans to receive health insurance.

The House will reconvene at 11 a.m. Thursday. Late Wednesday afternoon, HB 1122 was back on the chamber’s agenda for reconsideration. If it fails again, it is the call of the Joint Budget chair to call a meeting to remove the 529 amendment and send the Treasurer’s budget proposal back to the full chamber.

Also, both chambers are expected to select a new Senate President Pro Tempore and Speaker of the House over the next few days.