Tax reduction, medicaid and prisons part of Beebe’s 2011 plans

Editor’s note: This is the last of three stories resulting from a July 12 interview with Gov. Mike Beebe. Link here for the first story, and here for the second.

Morril Harriman, chief of staff for Gov. Mike Beebe, moved effortlessly, if not instinctively, to pull a decorative book from a coffee table to place his shoe heel on instead of directly on a piece of furniture in an area in the Governor’s offices.

It’s an action that may be a perfect analogy for an administration appearing comfortable while also thinking of almost every way to move without damaging their political surroundings.

And so it may be with Gov. Beebe’s plans for the 2011 Arkansas General Assembly. From prison and medicaid funding, a continued push to reduce the sales tax on groceries, to an aversion to raising taxes, Beebe said his broad goal with the 2011 session is to simply patch a few budget holes and otherwise mind the store during a tepid — if not worse — economic recovery.

SECOND-TERM GOALS
Beebe is not counting a second-term as a sure thing. Polls place him anywhere from nine to more than 20 points ahead of GOP challenger Jim Keet. But he was willing to talk about what he sees as issues and objectives in his next term — primarily because the biggest issue in a second term will be the big issue of his first term.

What’s to continue, if he is elected, is a governing policy mixed with a continued focus on the marriage of education (K-12 and higher education) and economic development. It’s the only sure-fire way for short- and long-term economic growth, Beebe says with the same confidence he’d use to say the Sun comes up in the east.

“I can’t think of anything any Governor could do any better than to provide a quality of life for their people that create options for their children and grandchildren to stay and make a great living near them,” he explained.

Part of Beebe’s economic development push includes a $50 million quick action closing fund the Legislature authorized and appropriated for his use. It’s been considered such a success that Republican Jake Files, who will be Fort Smith’s new State Senator in the 2011 session, is open to renewing it.

“I can’t speak for the other Legislators, but I think it has been a great tool to encourage and incentivize companies to move to Arkansas. In Fort Smith, it has made a difference, and I would hope we find a way to continue to spur, sponsor, and encourage economic development; whether it be the quick action fund or some other equally effective measure,” Files said.

The other big issues will be medicaid funding and prison funding and overcrowding.

Potentially the biggest issue is that the new federal health care bill “doesn’t at all touch” a funding gap states will see in their medicaid program, Beebe said. The federal health care bill also will create a greater demand for doctors that state funding won’t be able to support. Beebe said Democrats and Republicans in Washington did not fix the problem with funding medicaid and medicare.

“They have not addressed the underlying issue. I said this six months ago. I said it 8 months ago. I said it long before they passed the bill. They didn’t address the underlying cost-containment issues that have to be addressed in healthcare,” Beebe said.

The Beebe administration is working to bring together Arkansas and federal officials to come up with some possible solutions.

“I expect in January you’re going to see something about it, if I’m here,” Beebe predicted.

The roughly 15,000 people in Arkansas’ prison system is another problem, with Beebe saying there are too many non-violent offenders in prison beds. He says drug court programs reduce the non-violent number using state resources, but the state must find more ways save beds for violent criminals and punish the non-violent using less expensive methods.

“Now, I think those (non-violent) people ought to be punished. I think they ought to be paying fines. I think they ought to be picking up trash on our highways. I think they ought to be working for the city and the county two days a week so that they get a regular job supporting them and their family,” Beebe explained. “They ought to be doing something constructive that is in the form of not only unpleasant for them but helpful to the taxpayers and a deterrent to that kind of conduct going forward. But I don’t think they ought to be sitting in a rapist’s jail and us to have to let somebody else out of jail.”

TAX POLICY
As to tax policy, Beebe remains consistent with his plan to cut the sales tax on groceries. His administration has successfully pushed the removal of 4% from what was originally an almost 6% sales tax rate on groceries.

“I will not vary from my stance all along. I want to continue to reduce the grocery tax until we get it removed. … But only in a responsible manner after fully first meeting the reasonable essential services of our state,” Beebe explained during a recent interview with The City Wire. “When we could afford to do more we did 3 cents. When we could afford to do a lot less we, did 1 cent. If we can afford to do nothing, we will wait until we can afford to do it.”

He is nervous about the wait, admitting a “significant concern” that if the full 6% is not removed in his first or second term, it won’t get done. If Beebe does remove the entire 6%, he will likely go down as the Arkansas governor responsible for the biggest tax cut in state history — an interesting potential distinction for a Democrat.

The remaining 2 cents may not get cut in the 2011 session. Total state revenue of $5.43 billion in fiscal year 2010 was 2.4% below the previous fiscal year and marked the second consecutive year of revenue decline, according to a report released July 2 by the Arkansas Department of Finance & Administration.

“The decline in Net Available funds in FY 2010 and FY 2009 marks an unusual period of back-to-back annual declines in revenue. Prior recessions were limited to single year impacts and with few resulting in zero or negative annual change. In recent years, the only other annual decline in revenues occurred in FY 2002,” explained the DFA memo.

Files hopes he can help Beebe cut taxes and shares Beebe’s concerns about cutting taxes in this economic environment. He sees another side to the budget equation, however.

“I do believe that we have to be responsible in tax cuts, but the way to be responsible is to look for ways to cut spending as well, and that has to be a priority,” Files explained.

As for any tax increases, Beebe interrupted the question to say, “No.” He added that this “is the last time in the world” to talk about raising taxes or fees in any significant way.

BALANCED BUDGET
Beebe is not too keen to allow the interview to long remain on the state’s budget problems. He says there are 49 states that would love to have Arkansas’ budget. And don’t suggest to Beebe that the state is in good fiscal shape because of its balanced budget rules.

“Forty-nine states have a balanced budget requirement. That’s all garbage that, ‘Well, we got what we got because we got a requirement of a balanced budget,’” Beebe said, adding that the state’s relatively stable budget is the result of conservative management by his administration and legislative leaders. “(A)lmost every one of these other Governors would love to be sitting where we are, and they talk about it all the time.”

“They all got their balanced budget requirements” but find ways to skirt the rules that aren’t favored in Arkansas, Beebe continued. The subject sparks the quiet Harriman, who says other states “go offline, off budget” a lot easier than allowed in Arkansas.

Although Arkansas faces what may be a $300 million-plus IOU to the federal government for unemployment benefit payments. The debt is a political hot potato that is, for the moment, off budget.

“We’re not having to raise taxes or slash services” to respond to the economic downturn, Beebe reminds.

Files hopes raising taxes is not part of anyone’s agenda in 2011, although he’s already heard from a few groups proposing tax or fee increases.

“If taxes are raised, others may need to be cut to achieve some balance during the session,” Files said.

HIGHWAY FUNDING
A blue ribbon panel investigating new ways to fund Arkansas’ highway program has suggested a list of tax or fee increases. Beebe and Files are less than enthused with the panel’s recommendations.

Beebe is unsure as to the best answer to address a more than $19 billion shortfall in a 10-year plan by the Arkansas Highway & Transportation Department. That plan includes constructions of Interstates 49 and 69.

“That’s an area I do not have a foreseeable revenue source answer for,” he said, adding that the existing tax on fuel as a revenue source is unsustainable because more fuel efficient vehicles result in fewer federal and state dollars for highway construction and maintenance.

Files was put off by a blue ribbon panel member who suggested Arkansans need to learn to support new taxes for highways.

“People are skeptical because they are being taxed at every turn, and in many cases, they are saying enough is enough,” Files said.

Beebe is confident the economy will recover just enough to fix the holes left from 2010 budget cuts. But that’s about it.

“I wouldn’t expect much more than that,” he advised.