Governor presents budget with record $550 million increase for education, $555 million surplus

Gov. Asa Hutchinson on Thursday (Nov. 10) presented his final biennial balanced budget to the Arkansas General Assembly. The governor’s recommendation, which outlines state government spending for the fiscal year that begins July 1, 2023 and July 1, 2024, is required by law and provides a starting point for legislative overview and final approval.

The governor’s overall $6.388 billion FY24 budget and $6.519 billion FY25 budget seeks increases for state spending of 5.21% and 2.86% respectively over the next two years.

“The state has never been in better financial condition,” Hutchinson told the Joint Budget Committee.

He cited a number of reserve fund balances totaling more than $2.7 billion. That money will act as a safeguard for a potential economic downturn, which budget forecasters factored into the plan.

“The forecast includes the phase down of stimulus funds and programs, assumes inflation slows down, and includes essentially a borderline U.S. recession next year. FY 25 is the normal growth coming back into the forecast,” said John Shelnutt, Department of Finance and Administration director of economic and tax research.

Shelnutt said he expected individual income taxes to decline as much as 2.8% and corporate tax collections to drop 22% over the next biennium.

Some highlights of the Governor’s balanced budget include:

• A $255 million surplus in FY 24 and a $300 million surplus in FY 25. That’s on top of an anticipated $600 million surplus in the current fiscal year.
• $550 million in new education funding over the biennium;
• $13.3 million in new funding to address foster care needs;
• $1.5 million in new spending for the State Police budget;
• $12.7 million in new funds for the Department of Corrections; and
• $40 million for a new state government employees’ pay plan.

State Sen. Jonathan Dismang, R-Beebe, who is co-chair of the Joint Budget Committee, quizzed representatives of the Department of Human Services who warned that a Medicaid trust fund balance of $642 million would be “exhausted” by the end of FY 2025 as the COVID-19 pandemic emergency is cancelled by federal officials. When the pandemic ends, as many as 20% of Arkansans on Medicaid will exit the rolls, and the funding stream for state Medicaid will change without as much federal assistance seen over the last few years.

Legislators also raised concerns about teacher pay and prison construction with state finance officials.

Sen. Joyce Elliott, D-Little Rock, who is term-limited, asked if the $555 million in new education funding included teacher pay increases. Finance officials said the money does allow legislators and the new governor to provide $4,000 pay increases to all Arkansas teachers and to raise the minimum starting teacher salary from $36,000 to $40,000, if they choose.

Rep. Jim Wooten, R-Beebe, expressed concern that the budget did not provide enough spending for public safety. The increase in spending for the Department of Corrections has more to do with accounting for inflation. There is no line-item in the budget for a new 1,000 bed prison or a new crime lab. It also does not provide additional funding above current levels for county jail reimbursements.

“Does the state not realize it’s their responsibility?” Wooten asked.

Finance officials said the prison and crime lab construction would need to come from one-time funds, not part of the balanced budget.

Sen. Linda Chesterfield, D-Little Rock, spoke for several lawmakers who wanted more detail on how much federal funding was supporting state government in the budgets for education, health and human services.

“How much in federal dollars are flowing directly to these agencies?” she asked.

State finance officials did not have the numbers on hand and said they would provide them at a later time.