Gov. Sanders proposes budget that includes $167 million in new spending

Gov. Sarah Sanders proposed Thursday (Nov. 21) a balanced state budget that included new money for a state employee pay plan, more funding for her LEARNS Act voucher program, an increase in prison spending, and set aside money for Medicaid.

The governor’s $6.49 billion budget proposal is for fiscal year 2026, which starts July 1, 2025. The proposed budget for FY26 offers net new spending of $167.38 million and $190 million in set-aside funding from a projected $299.5 million tax revenue surplus.

“After cutting income taxes three times and still recording healthy surpluses during my first two years, this balanced budget proposes to raise spending by only 2.89%. This added funding is directed toward areas I’ve made clear are my priorities: education, maternal health, public safety, and government efficiency,” Sanders said in a letter to the co-chairs of the Arkansas Legislative Council.

Sanders earmarked an additional $90 million for Education Freedom Accounts (EFAs), her school voucher program, and asked lawmakers to set aside an additional $90 million from a potential surplus in a fiscal reserve fund for the program’s future. The state budgeted $97.4 million for EFAs in the current budget cycle.

She also asked for $100 million in set-aside funding from a potential surplus for “Medicaid sustainability” as well as $13 million in new Medicaid funding for proposals to address the state’s maternal health crisis.

Last week, Sanders unveiled a state employee pay plan that will require $102 million to implement. She contends the funding will come from existing streams of revenue, but she did ask for $3.15 million in new funding for pay raises for some workers.

Other requests in Gov. Sanders’ budget proposal included:

• $50.2 million for a variety of corrections-related services;
• $6.5 million for higher education institutions; and
• $4.3 million for the Division of Youth Services.

While the governor’s recommended budget proposes a 2.89% increase in spending, the current budget in operation reflected a 1.76% increase from the previous year when Sanders took office.

Sen. Jonathan Dismang, R-Searcy, co-chair of the Joint Budget Committee, offered initial support for the governor’s proposal.

“This is a carefully considered budget that reflects the priorities we’ve outlined in recent discussions. The targeted and strategic increases will strengthen legislative backing. I’m also pleased to see provisions for potential needs related to Medicaid and the LEARNS Act. These set-asides serve as important placeholders for revenue as we work toward future tax cuts,” said Dismang.

The governor’s proposal did not include any new tax cuts although those will likely be considered after the state’s fiscal year closes next June. In previous years, the governor and legislature have waited until after the regular session and passed tax cuts in a short special session.

The Arkansas Department of Finance and Administration is projecting a roughly $280 million budget surplus for the current fiscal year – far less than seen in previous years – and a $299.5 million surplus in the following fiscal year. Arkansas’ top rate for personal income taxes is 3.9% and the top rate for corporate income taxes is 4.3%.

You can access the governor’s proposed budget at this link.