$60 mil­lion back in 2017 state bud­get

Gov­er­nor: Re­bound in tax col­lec­tions prompts move

Northwest Arkansas Democrat-Gazette - - NORTHWEST ARKANSAS - MICHAEL R. WICKLINE

On Fri­day, the last day of the fis­cal year, Gov. Asa Hutchin­son’s ad­min­is­tra­tion re­stored all but $10 mil­lion of a gen­eral-rev­enue bud­get cut made just two months ago.

The bud­get for fis­cal 2017 now stands at $5.32 bil­lion, after $60 mil­lion was added back to it be­cause of re­bound­ing tax col­lec­tion.

In late April, the state cut the bud­get by $70 mil­lion. The bud­get orig­i­nally was $5.33 bil­lion.

In fis­cal 2017, dif­fer­ent cat­e­gories of gen­eral-rev­enue tax col­lec­tion of­ten var­ied widely com­pared with state pro­jec­tions. The fi­nal rev­enue re­port for the year comes out Wed­nes­day.

Asked if he made a mis­take in cut­ting the bud­get by $70 mil­lion two months ago, Hutchin­son said that “no mis­take was made in the bud­get­ing process.”

“This is sim­ply how you re­spon­si­bly man­age a state’s bud­get and how you avoid prob­lems and con­trol costs. That’s what we’re do­ing. By re­vis­ing the fore­cast, this al­lows us to re­plen­ish the Med­i­caid Trust Fund,” the Repub­li­can gov­er­nor said in a writ­ten state­ment.

In late April, Hutchin­son cited lower-than-pro­jected sales tax and cor­po­rate in­come tax col­lec­tion and higher-than-ex­pected in­di­vid­ual in­come tax re­funds in an­nounc­ing the $70 mil­lion bud­get cut. Days later, he

also sliced $43 mil­lion from the state’s $5.49 bil­lion gen­eral-rev­enue bud­get for fis­cal 2018, which starts to­day.

The state pro­jected that the 2015 Leg­is­la­ture’s de­ci­sion to en­act Hutchin­son’s plan to cut in­di­vid­ual in­come taxes for Arkansans with tax­able in­come be­tween $21,000 and $75,000 a year would re­duce gen­eral rev­enue by about $100 mil­lion in fis­cal 2017.

State Depart­ment of Fi­nance and Ad­min­is­tra­tion Di­rec­tor Larry Walther said the $60 mil­lion in­crease in net gen­eral rev­enue avail­able to state agen­cies “is made pos­si­ble be­cause of a sig­nif­i­cant re­bound in rev­enue col­lec­tions and much lower than ex­pected in­come tax re­funds com­pared to the fore­cast re­leased on May 2nd of this year.”

“The re­vi­sion in the fore­cast pro­vides the op­por­tu­nity to trans­fer funds to the Med­i­caid Trust Fund,” Walther said in a let­ter to the co-chair­men of the Joint Com­mit­tee for Eco­nomic and Tax Pol­icy, Rep. Lau­rie Rush­ing, R-Hot Springs, and Sen. Ed­die Joe Wil­liams, R-Cabot.

Walther said $43 mil­lion of the ad­di­tional $60 mil­lion will go to the Med­i­caid trust fund.

“We’ve had an un­usual year in many re­gards,” Walther said in a writ­ten state­ment. “Sales taxes were down for much of the year and be­hind our ex­pec­ta­tions. How­ever, that changed for the bet­ter over the last two months.”

Ad­di­tional in­for­ma­tion on rev­enue for June and fis­cal 2017 will be re­leased Wed­nes­day, Walther said.

Two months ago, Hutchin­son an­nounced a cut of 55 per­cent in Cat­e­gory B of the Rev­enue Sta­bi­liza­tion Act for fis­cal 2017. The lower-pri­or­ity spend­ing cat­e­gory has a $127.9 mil­lion al­lo­ca­tion.

Walther said that with Fri­day’s in­crease, Cat­e­gory B now has enough to fund 92.19 per­cent of the al­lo­ca­tion.

Cat­e­gory B has: a Med­i­caid al­lo­ca­tion of $88 mil­lion; $23.7 mil­lion for the Depart­ment of Ed­u­ca­tion; $5.2 mil­lion for the merit ad­just­ment fund; $4 mil­lion for the Depart­ment of Cor­rec­tion; $3.5 mil­lion for the Depart­ment of Hu­man Ser­vices’ Be­hav­ioral Ser­vices Di­vi­sion; $2 mil­lion for the Depart­ment of Higher Ed­u­ca­tion; and $1.5 mil­lion for the Ar­kan­sas Eco­nomic De­vel­op­ment Com­mis­sion.

The fi­nance depart­ment no­ti­fied the me­dia about the fore­cast change shortly be­fore 5 p.m. Fri­day, the start of what is a long hol­i­day week­end for some. The an­nounce­ment came out at that hour be­cause “we re­leased the state­ment not long after the let­ter was sent to leg­isla­tive lead­ers,” said depart­ment spokesman Jake Bleed.

“The de­ci­sion to re­vise the fore­cast was not made un­til ear­lier this af­ter­noon after we were able to re­view the lat­est rev­enue re­ports,” Bleed said.

Hutchin­son spokesman J.R. Davis said the gov­er­nor made the de­ci­sion to in­crease the gen­eral-rev­enue fore­cast dur­ing a meet­ing with fi­nance depart­ment of­fi­cials Fri­day af­ter­noon, after re­view­ing June’s tax col­lec­tions.

Se­nate Pres­i­dent Pro Tem­pore Jonathan Dis­mang, R-Searcy, on Fri­day night de­fended the gov­er­nor’s de­ci­sion to cut the bud­get by $70 mil­lion two months ago, in light of his de­ci­sion to in­crease the fore­cast by $60 mil­lion.

“Ev­i­dently, it has been a pretty vi­o­lent tax col­lec­tion year,” Dis­mang said. It was pru­dent for the gov­er­nor to ear­lier cut the bud­get based on lag­ging tax col­lec­tions at that time, he said.

As far as in­creas­ing the fore­cast by $60 mil­lion on the last day of fis­cal 2017, Dis­mang said, “I have got to get some un­der­stand­ing why this makes sense. … I am sure there is a rea­son for it,” Dis­mang said.

The House Rev­enue and Tax­a­tion Com­mit­tee chair­man, Rep. Joe Jett, R-Suc­cess, said he’s not sur­prised about the gov­er­nor’s de­ci­sion Fri­day, based on ad­vice that gen­eral-rev­enue col­lec­tions would re­bound and not to panic from Richard Wil­son, an as­sis­tant di­rec­tor of re­search for the Bureau of Leg­isla­tive Re­search.

“Time proved him right,” Jett said of Wil­son.

“The gov­er­nor was proac­tive in manag­ing the bud­get in­stead of re­ac­tive and I ap­pre­ci­ate that as well,” Jett said.

But Sen. Bryan King, R-Green For­est, said Hutchin­son should have been cut­ting the bud­get ear­lier, be­cause there isn’t go­ing to be any sur­plus for the year.

“I’m still try­ing to fig­ure out how he doesn’t think he has a spend­ing prob­lem,” King said. Two months ago, Hutchin­son said the state had a rev­enue prob­lem — not a spend­ing prob­lem.

“We’ve had an un­usual year in many re­gards. Sales taxes were down for much of the year and be­hind our ex­pec­ta­tions. How­ever, that changed for the bet­ter over the last two months.”

— Larry Walther, state Depart­ment of Fi­nance and Ad­min­is­tra­tion di­rec­tor

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