Well runs dry on GIF account

No money was appropriated to the Legislature’s General Improvement Fund account for the current biennium following the absence of a surplus for the fiscal year that ended June 30 and the federal indictments of two former legislators linked to a kickback scheme involving a private Christian college in northwest Arkansas.

The 89th and 90th general assemblies respectively appropriated $70 million and $20 million of surplus funds to the legislative GIF account, sending $39 million in fiscal years 2014 and 2015 and $13.2 million in fiscal years 2016 and 2017 to the state’s eight planning and development districts to award grants to projects legislators supported in their districts.

Garland County recipients include the Cutter Morning Star School District, $21,500 for renovations and repairs to the school’s gymnasium; the Garland County Detention Center, $30,000 for a law enforcement shooting range; the Hot Springs Documentary Film Institute, $10,000 for audio visual equipment; the West Central Arkansas Planning and Development District, $48,000 for improvements to the parking lot behind its office at

1000 Central Ave.; and Kimery Park,

$20,000 for field improvements. State Sen. Alan Clark, R-District

13, of Lonsdale, said volunteer fire departments, county fairgrounds, schools and local governments are some of the entities that rely on GIF money. Without it, they will have to find other funding sources, he said, noting home owners insurance premiums may increase to offset the GIF money no longer available for volunteer fire departments.

The premiums include an assessment for the Fire Protection Revolving Fund which supports the volunteer associations.

“Before I was elected, if you had told me about general improvement funds, I would’ve been against it,” Clark said. “But after serving my fifth year in the Legislature, I have very different feelings. There’s a local need for it.”

Clark and Sen. Bill Sample, R-District 14, of Hot Springs, said local projects such as the

$23,000 GIF grant that helped pay for a new roof at the Garland County Sheriff’s Department will not get funded without GIF money.

“You’re cutting money to senior centers, volunteer fire departments, county courthouses” Sample said. “Things like that will never get appropriations. That money helps take care of the needs in our districts.”

The legislative GIF account was allocated among the state’s

135 legislative districts during previous bienniums, but legislators didn’t directly control the funds. They submitted letters of support for projects to the planning and development districts’ boards of directors. The board for the West Central District in Hot Springs comprises 33 directors made up of mayors, county judges and other officials from the 10-county area who decided how the funds were disbursed.

Jacksonville attorney and former legislator Mike Wilson has called the practice a subversion of the 14th Amendment of the Arkansas Constitution. Adopted in 1927, the amendment prohibits the General Assembly from appropriating state funds for “local or special acts.”

Wilson is seeking a permanent injunction that would prevent the Central Arkansas Planning and Development District from disbursing GIF money. The complaint he filed last year in Pulaski County Circuit Court said the district’s board routinely approves the grants without discussion or debate.

“The funds are then sent to the grant applicants for public presentation accompanied by publicity photographs of the legislators claiming credit for granting the funds,” the complaint said. “In purpose and effect, (the district) simply acts as a money-laundering machine for individual legislators for the sole purpose of evading the force of the constitutional prohibitions and decisions of the Supreme Court.”

The suit was dismissed, but Wilson has filed an appeal. The state Supreme Court reversed a 2005 circuit court ruling in a lawsuit Wilson filed over several GIF appropriations he said violated the 14th Amendment. The high court sided with him, declaring a $400,000 appropriation for sewer and street improvements in Bigelow violated the state Constitution.

Medicaid or tax cuts

Clark said the legislative GIF account is the “first casualty” of the state’s funding obligation for the Medicaid expansion that extends coverage to people with income levels of up to 138 percent of the federal poverty level.

The Arkansas Department of Human Services said the state began paying 5 percent of the expansion costs July 1 and will pay 6 percent next year. The state’s projected share for the fiscal year that began July 1 is $100,090,395, with the federal government paying

$1,719,734,970.

DHS said the state is submitting a waiver to the U.S. Department of Health and Human Services that would lower the income threshold for Medicaid eligibility to 100 percent of the federal poverty level, which is $12,060 for individuals and

$24,600 for a family of four. DHS said it’s expecting the waiver to take effect at the start of next year. Arkansas is one of more than 30 states that expanded Medicaid eligibility through the Affordable Care Act. The federal government initially paid for 100 percent of the expansion, but states are now required to pick up a percentage of the costs.

Sample said cuts to the state income tax passed by the last two general assemblies have taken away revenue that could have otherwise went to the Legislature’s GIF account. A more than $50 million tax cut for wage earners making less than $21,000 a year was signed into law earlier this year, and a tax cut for the $21,000-$75,000 income bracket became law in 2015.

Sample said the tax cuts converged with reduced revenue to prevent a fiscal year 2017 surplus. The Bureau of Legislative Research said it is the first time the state hasn’t had a surplus since fiscal year 2010. The state cut the fiscal year 2017 budget by $70 million earlier this year to reconcile lagging receipts with expenses. The budget for the fiscal year that began July 1 was cut by $43 million.

“It was the perfect storm,” Sample said. “We cut taxes at the same time revenue went down. The revenue will come back up, but it appears we’ve cut taxes too much and haven’t taken into consideration the income that’s coming in to cover those tax cuts.”

Clark said budgets reflect priorities, and Medicaid expansion isn’t at the top of his priority list.

“Money is fungible,” he said. “You can make the argument that (the lack of funding for the legislative GIF account) came from tax cuts or from the Medicaid expansion. Both are true. Under our balanced budget act, we have to have a surplus. If not, we’re over budget. It comes down to choices: Medicaid expansion, highways or tax cuts.

“I would prioritize highways, tax cuts and then Medicaid expansion.” The rainy day fund the Legislature allocated the $239,453,060 in GIF money to for the current biennium includes $20 million in matching funds for federal highway money. The $226,500,000 allocated to state agencies leaves a $12,953,060 balance that the governor can allocate with legislative approval.

Kickback scheme

Former Rep. Micah Neal, R-District 89, of Springdale, pleaded guilty earlier this year in federal court to directing $200,000 in GIF money to Ecclesia College, a private Christian college in Springdale, in return for $18,000 in cash.

Former state Sen. Jon Woods, R-District 7, of Springdale, has also been implicated. Woods wrote the letters of support included in the grant application Ecclesia submitted to the West Central Arkansas Planning and Development District in Hot Springs. West Central’s board awarded the college a $100,000 GIF grant despite it being outside of its 10-county territory.

Woods and Ecclesia President Oren Paris III were both indicted on federal money laundering and fraud charges in March.

Sample said the scandal soured the Legislature and the public on allocating GIF money for local projects.

“We all get painted by the same brush whether we’ve done anything wrong or not,” he said. “I don’t want to say it’s a kneejerk reaction, but it’s a reaction the Legislature made. Just because two legislators are crooked doesn’t mean the rest of us are.”

Clark said the Ecclesia incident gave opponents of the previous GIF disbursement structure the justification to defund the legislative account.

“That was a terrible thing that happened, but they used it as an excuse for something they intended to do all along,” he said. “It gave them an excuse.”