Task force picks tax consultant, panel recommends Philadelphia firm for overhaul job

The Legislature’s tax-overhaul task force on Thursday tapped an out-of-state consultant to look into the state’s tax structure.

Officials from PFM Group Inc., based in Philadelphia, touted their previous experience as state officials, saying they have provided services to about half of the state governments in the country.

“We’re the independent umpire that’s going to give you the unvarnished truth of what the strengths and weaknesses of your conditions are here in Arkansas and what our best advice is to you,” said John Cape, a managing director at PFM Group and former budget director for New York state. “Doesn’t mean you have to take it. Doesn’t mean we can’t work with direction after you get our recommendations.” Cape said the group does not lobby for clients and serves only governments. He joked that some New York lawmakers thought the state’s motto — “excelsior,” a Latin word meaning “ever upward” — should be the state’s tax policy.

Randall Bauer, a director at PFM Group, spoke about the group’s work analyzing economic development incentives in Oklahoma.

“We understand and in all of those evaluations recognize the importance of economic development and incentives,” he said. “At the same time, some incentives are more valuable than others.”

Based upon a recommendation from the group, Bauer said, Oklahoma lawmakers recently repealed a $120 million tax credit.

Five companies submitted bids to the Bureau of Legislative Research to be the consultant to the tax-overhaul task force.

The task force decided late last month that a proposal submitted by Postlethwaite & Netterville of Baton Rouge wasn’t responsive to the latest request for proposals. Rep. Lane Jean, R-Magnolia, who is co-chairman of the task force, said Quarles & Brady LLP of Washington, D.C., withdrew its bid and a representative couldn’t make Thursday’s meeting.

The other firms that presented Thursday — BKD LLP of Little Rock and WC Mitchell & Associates of North Little Rock — emphasized their local roots and expertise in dealing with Arkansas’ tax code.

The maximum bid, submitted by BKD, was $550,000, while PFM Group’s maximum was $312,750 and WC Mitchell & Associates’ was $217,550, according to the Bureau of Legislative Research.

At the end of the meeting, nine lawmakers said PFM was their first choice.

“Having someone who works exclusively with government entities and doesn’t have special interests … their record of working for state and city governments was what we needed to get a fair and unbiased decision of what we need to do,” Jean said in an interview.

After the meeting, Rep. Bob Johnson, D-Jacksonville, said he would have liked to have voted for BKD, but the firm’s bid was too high.

“They are in the trenches and they see the backwards side of what we do and I think their input would be good,” he said in an interview.

Senate President Pro Tempore Jonathan Dismang, R-Searcy, was the sole vote for BKD.

“They have Arkansasbased employees, which is probably No. 1, and they have an incredible reputation in the state of doing good work, being independent and acting with integrity,” he said in an interview.

The firm had provided assurances that while their maximum bid was higher, they would work to come in under budget, he said.

The 16-member Tax Reform and Relief Task Force was created under Acts 78 and 79 during this year’s regular session. In that same session, the Legislature approved Republican Gov. Asa Hutchinson’s plan to cut individual income taxes for Arkansans with less than $21,000 a year in taxable income. This plan is projected to reduce state general revenue by about $25 million when it takes effect in mid-fiscal 2019 and then by $50 million each year thereafter.

An earlier income tax cut, approved in 2015, reduces the rates for taxable income between $21,000 and $75,000 a year. That tax cut was expected to reduce general revenue by $100 million a year, starting in fiscal 2017, which ended June 30.

The task force was created in part because some lawmakers favor further income tax cuts, particularly for Arkansans with more than $75,000 a year in taxable income. Hutchinson has said he wants to continue cutting individual income tax rates.

The Arkansas Legislative Council will meet Sept. 15 and it must approve the tax-overhaul task force’s recommended hire.