$60 million back in 2017 state budget
Governor: Rebound in tax collections prompts move
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