Gov. Hutchinson: Special session needed to deal with estimated $353 million budget shortfall

The impact of reduced economic activity because of COVID-19 is estimated to result in a $353.1 million hit to state revenue by June 30, Gov. Asa Hutchinson said Monday (March 23), adding that he will call a special session to respond to the shortfall.

The timing of that special session could be as early as the end of this week, according to legislative leaders.

COVID-19 cases in Arkansas rose from 165 on Sunday to 197 on Monday. As of early Monday afternoon, there were 41,708 U.S. cases and 573 deaths. Globally, there were around 367,500 cases and more than 16,100 deaths.

Arkansas Secretary of Health Dr. Nate Smith said one reason for just nine new cases – there were only nine new cases at the time of the press conference – was because testing was focused on staff and residents at Apple Creek Nursing and Rehab in Centerton, The Villages of General Baptist West in Pine Bluff and Briarwood Nursing Home and Rehab in Little Rock. The three nursing homes in recent days had an outbreak of COVID-19. Smith said there was only one new case among the three homes.

“That’s very ,very good news. … We’re very encouraged by the large number of negative results,” Smith said during Monday’s press conference.

What is not good news is the hit to the state budget. And the problem is two-fold.

First, the economic impact will result in an estimated $160 million reduction in state revenue between now and the end of the fiscal year which ends June 30.

Second, Gov. Hutchinson said he and leaders in the Arkansas House and Senate have agreed to extend the individual income tax filing and payment deadline to July 15, which corresponds with the recently announced federal extension. Corporate taxes are still due on April 15. The loss of the individual tax revenue will push the fiscal year loss to an estimated $353.1 million.

Individual income tax represents a large portion of the state’s budget. For example, in the February report, individual income tax revenue for the fiscal year-to-date was $2.225 billion, which was 49% of the year-to-date gross general tax revenue of $4.531 billion.

Gov. Hutchinson said he has not set a date for the special session. A fiscal session is slated to begin April 8. However, Senate President Jim Hendren, R-Gravette, tells Talk Business & Politics the special session could happen as early as the end of this week.

“It really is an extraordinary circumstance,” Hendren said. “My preference would be to combine it with the fiscal session, but because of the timing, we’re looking at whether or not we can do something at the end of this week. If not, maybe early next week.”

Hendren said meeting will require significant rule changes for the legislature. In the 35-member State Senate, he said there will be limits on the number of senators on the floor, they may utilize technology to allow proxy voting, and perhaps even station some senators in the public gallery in order to keep CDC-compliant spacing between members.

The state has a $173 million reserve fund – and some smaller funds – to fill the gap, but Gov. Hutchinson said not all of that should be used to adjust for the lost revenue. He said some will be needed to support the Arkansas Department of Health, the Arkansas Department of Emergency Management and other state agencies on the frontline of the COVID-19 response. He said some of the reserve fund may also be set aside for emergency purchases of personal protective equipment, ventilators and other critical medical supplies.

The governor said state department heads were notified Monday morning of the estimated shortfall and have been asked to look at their budgets.

“It’s going to be a serious belt-tightening time for all of state government. … We’ll manage through this. I’m optimistic, but it will be a challenge for the next few months,” Gov. Hutchinson said.

Hendren said he believes lawmakers will be able to find the money needed for the current fiscal year through reserve funds and the surplus; however, he’s worried about next year’s budget.

“This is why good management matters in times like these,” Hendren said. “I’m not worried about the next 30, 60, 90 days – we’ll finish the fiscal year. I’m worried if this continues into the fall, the budget won’t look like this year’s budget.”

According to the Arkansas Department of Finance and Administration, the state has the following balances in its key short-term and long-term reserve and discretionary funds.
• General Revenue Allotment Reserve Fund – $173.61 million
• Restricted Reserve Fund- $42.27 million
• Long Term Reserve – $152.58 million
• Quick Action Closing Fund – $90.99 million

It was also announced at Monday’s press conference that the state is ordering barber shops, beauty salons, massage parlors, tattoo shops and other similar personal care businesses to close indefinitely.

Talk Business & Politics CEO Roby Brock contributed to this report.