Governor proposes $89M budget bump
Fiscal ’21 spending would go up 1.5%
Gov. Asa Hutchinson on Wednesday proposed an $88.9 million increase in the state’s general revenue budget to $5.83 billion in the fiscal year starting July 1, with most of the increase going to human-services programs.
The state Department of Human Services’ general revenue budget would increase by $67.8 million in fiscal 2021, to $1.8 billion, under the Republican governor’s proposal.
Hutchinson said his budget would increase general revenue spending by 1.5% in fiscal 2021 and that would be state government’s lowest rate of growth in such spending since the recession that began in December 2007.
The growth in spending has steadily declined from 3.1% in fiscal 2018 to 2.2% in fiscal 2020, he noted. Fiscal 2020 ends June 30.
In addition, the governor said he wants to set aside $54 million as surplus funds next fiscal year and distribute $40.5 million of these funds to the restricted reserve account “to be used for future tax cuts or other budget needs we see come across our desk.”
The money in the restricted reserve account could be tapped only with the approval of the General Assembly, he said.
Hutchinson said the other $13.5 million in surplus
funds would go to the highway transfer fund. The governor’s highway plan enacted in 2016 requires that 25% of general revenue surpluses go to highway funding to help match federal highway funds.
“We live in uncertain times and we govern in uncertain times from the coronavirus and its economic repercussions to the challenge of natural disasters, such as historic floods and global trade wars, both of which we experienced last year,” the governor told the Joint Budget Committee on the first day of the committee’s budget hearings. The hearings are held in advance of the Legislature’s fiscal session that starts April 8.
“Our budget should reflect this reality and plan for a future that is somewhat unpredictable and in which we have to compete for jobs, for capital and for talent,” Hutchinson said.
During the committee’s meeting, Sen. Bruce Maloch, D-Magnolia, later asked the state’s chief economic forecaster, John Shelnutt, about the potential impact of the coronavirus on the state’s economy.
“It could manifest as a type of shock to the economy, but I think it would be less of a shock than past oil shocks, for example, that had immediate impact on businesses and consumers, so this one will play out over time and we’ll track it,” Shelnutt said.
“We watch and see what it does to the supply chain, to consumer behavior, but at this time we have no data to indicate a problem,” he said.
RESERVE FUND
Hutchinson told lawmakers the long-term reserve fund that was created in 2016 has increased from $103.1 million in fiscal 2016 to $152.5 million in fiscal 2019 that ended last June. But that fund is still inadequate, based on today’s standards, with the risks associated with state government, he said.
“My goal and our goal is to increase this fund significantly within the next three years,” Hutchinson said, without citing a particular goal for the fund.
State government has an unallocated surplus of about $170 million, he said.
“It … is my hope that a significant portion of that unallocated surplus can go to strengthen our long-term reserve fund, so that we will have reserves that will last us longer in the state and we will be better in terms of our bond ratings, but also being recognized as a prudent state in terms of our savings,” Hutchinson said.
He said he also wants to work with lawmakers to figure out how much of the current unallocated surplus should be devoted to rural broadband and workforce training.
Arkansas continues to have low unemployment with more people working now than at any other time in the state’s history, plus workers have higher wage rates, Hutchinson said. The state’s Medicaid program has 50,000 fewer recipients than there were three years ago, he said.
He said the Legislature has collectively enacted more than $250 million a year in individual income tax cuts since 2015.
“Because these have been phased in over time and carefully, we have been able to increase funding simultaneously in education and public safety,” Hutchinson said.
MEDICAID FUNDING
Under the governor’s proposal, the Department of Human Services’ general revenue grants budget for the Medicaid program would increase by $65.3 million to $1.37 billion in fiscal 2021. The department’s Youth Services Division’s budget would increase by $2.5 million to $51.3 million under his plan.
The governor said his proposal reflects a 4.98% increase in general revenue funding for Medicaid in fiscal 2021.
“The General Assembly in the last session directed the Department of Human Services to review the provider reimbursement agreements … because of the increase in the minimum wage rates mandated by the voters of Arkansas and the fact that the provider rates had not been raised for some time,” Hutchinson said.
“As a result of this directive, I expect the traditional Medicaid fee-for-service part of the budget to increase this year and next year,” he said. “We are watching it closely, but don’t be surprised as next year comes around, and the Medicaid budget increases significantly, and we need to be prepared for that as we develop the budget for this year and our savings plan as well.”
State funding of $2.5 million for three crisis stabilization units is included in the governor’s proposed budget for human services, Hutchinson said.
Afterward, state budget administrator Jake Bleed said officials project the matching funds for the Arkansas Works program to be between $190 million and $200 million in fiscal 2021.
Arkansas Works provides health care coverage to about 250,000 low-income Arkansans. This year, the state is required to provide a 10% match for the federal funds.
A federal appeals court, in affirming a lower court order, ruled last month that the Trump administration unlawfully allowed Arkansas to impose a work requirement on recipients of coverage under the Medicaid expansion program. Hutchinson has said he hopes the U.S. Supreme Court reviews the ruling.
EDUCATION SPENDING
Hutchinson told lawmakers that public school funds will increase to meet the educational adequacy recommendations from the General Assembly, with help from the educational adequacy trust fund and general revenue.
The governor proposed increasing the general revenue budget for the public school fund by $9.7 million to $2.2 billion in fiscal 2021.
He said the Succeed Scholarship program is budgeted for $3 million a year and will be financed by one-time state funds in fiscal 2021, and then be added to the base general revenue budget in fiscal 2022. The program allows students with disabilities and foster children to use public funds to attend eligible private schools.
For public four-year colleges and universities, the governor proposed an increase of $5.4 million, to $604.7 million.
For two-year schools, the governor’s increase would be $464,314, to a total $117.7 million, but he also proposed trimming the budget for technical colleges by $498,567, to $32.7 million.
He said the productivity funding model has given higher-education institutions the incentive to focus on graduation rates and progression and “deserves your continued support.”
PRISON FUNDING
Hutchinson proposed increasing the budget for the Division of Community Correction by $2.7 million, to $96.2 million, and increasing the budget for the Division of Correction by $1.8 million, to $362.8 million.
Counties have expressed concern about jail overcrowding because of a backlog of state inmates, he said, so he wants to increase the Division of Community Correction’s budget to allow for 175 new beds in facilities in Texarkana and West Memphis and continued funding for 62 beds already in operation. That will allow the state to handle technical violations or other minor violations of parole violators instead of putting them back in the prison system, he said.
He also proposed increasing the county jail reimbursement by $1.1 million to $19.3 million.
Hutchinson said the reimbursement rate was increased four years ago from $28 to $30 per day for counties holding state inmates, and he recommends increasing the rate to $32 per day.
TRANSFORMATION
For fiscal 2021, “there is no increase in funding requested to implement transformation,” the governor said, referring to the reorganization of state government’s executive branch from 42 departments into 15 Cabinet-level agencies effective last July 1.
The transformation of the executive branch has resulted in savings, efficiencies and improved management, Hutchinson said.
For example, the governor said the proposed increase in the budget for employees’ performance-based raises was trimmed from $15 million to $5 million for fiscal 2021; the $10 million difference will be covered by savings from not filling vacancies.
“That just means that we won’t be taking as much from the fund because they have created savings through transformation of different agencies,” and the savings will be used to pay for these raises, he explained afterward.
Hutchinson has said he expects his reorganization of state government to save at least $15 million a year, starting in fiscal 2021.
Sen. Trent Garner, R-El Dorado, told Bleed he wants to see more details about the savings from transformation.
Some lawmakers said they want to increase general revenue funding for senior citizens centers. Others said they favor increasing funding for higher-education institutions.
Afterward, a Joint Budget Committee co-chairman, Rep. Lane Jean, R-Magnolia, said, “There is always going to be [lawmakers who] want $1 million for this or that.”
The other committee co-chairman, Sen. Larry Teague, D-Nashville, added: “I don’t think there is much in [the governor’s proposal] that will need to be changed.”