House backs tax cuts, goes against Beebe

LITTLE ROCK — The Arkansas House of Representatives passed three tax-cut bills Wednesday, and the Senate approved ethics legislation for legislators.

The largest tax cut would exempt from the income tax certain capital gains and carries an estimated state revenue loss of $44 million. House Bill 1002 passed with 53 yes votes, 43 no votes, one voting present, and one not voting. It now goes to the Senate for consideration.

It passed after its sponsor, Rep. Ed Garner, RMaumelle, said “threats” perhaps had been made by opponents he didn’t name.

Gov. Mike Beebe, a Democrat, opposes HB1002 because he fears that it won’t produce jobs and will hurt the state’s ability to fund education, prisons and other core programs.

House Republican Leader John Burris of Harrison told colleagues that any revenue lost from the capital gains tax cut would only reduce the growth in the state’s budget as proposed by Beebe.

“Anybody that tells you there are going to be cuts, any college that tells you they are going to lose their funding, any agency that tells you they won’t survive, they won’t be cut,” Burris said. “Zero cuts. Anybody that says it’s going to create cuts should be ashamed of themselves. It’s not true.”

Beebe told reporters later that it’s his job to keep the budget balanced.

“If anybody’s whining because I’m exerting influence, they need to get a different job because my job is to exert influence and not to abdicate my responsibility,” Beebe said. “Not a single threat was made by me, and if anybody was threatened by my staff, I need to know who it was and what they said. Now I don't count it as a threat if you tell somebody this is going to adversely impact X, Y and Z budgets. That’s a fact. My people are not only authorized to say that but they better have said that. They better tell the truth.”

HB1002 would exempt all capital gains from the proceeds of a sale of Arkansas property acquired after July 1, 2011, and owned for at least one year. The bill defines “Arkansas property” as real estate, tangible property, and investments in a company with its primary headquarters in Arkansas.

Debate on the bill began with Rep. Mike Patterson, DPiggott, proposing an amendment to remove 18 legislators’ names as sponsors of the bill. If adopted the amendment would have delayed consideration of the bill by one day.

Burris called the motion a “bad way to do business” and said any sponsor could be removed from the bill later.

Garner called it a “tactic designed to kill the bill” and asked for his bill to be considered by the House without delay.

“There may have been threats made,” Garner said. “I have no time to counter those threats.”

Rep. Hank Wilkins, D-Pine Bluff, said he was one of the sponsors who wanted off the bill.

“You do realize a person can change their mind and it has nothing to do with a threat?” Wilkins said.

“Oh, absolutely,” Garner said. “Some have received that. But perhaps you have not. So forgive the total generalization.”

Rep. Davy Carter, R-Cabot, chairman of the House Revenue and Taxation Committee, opposed the motion. “Something’s not right. I don’t know what’s going on here.”

Rep. Walls McCrary, D-Lonoke, said he wanted off the bill because when he signed on to the bill, he thought it would only reduce revenue by $10 million or $12 million a year, not the $44 million predicted by the state Department of Finance and Administration.

The motion failed, getting only 40 votes, 11 short of passage.

Garner, when explaining the bill, appeared to choke up and hold back tears.

“You’re going to have to bear with me,” he said, adding that his bill is about the “future of Arkansas.”

He then told colleagues that the finance department’s revenue-loss estimate is “fantasy.” He said only about $13 million a year would be lost. He emphasized that no revenue would be lost until fiscal 2013, so the fiscal 2012 budget would be unaffected.

“How many jobs will be created by this bill?” asked Rep. John Walker, D-Little Rock.

“This does not guarantee a single job,” Garner said. “It simply creates an environment where [investors] are likely to come here and look at the benefits of being in Arkansas.”

Rep. Jim Nickels, D-North Little Rock, said Republican President Abraham Lincoln said “labor should come before capital.” He said the bill would shift the overall tax burden to poor people.

Rep. David Sanders, RLittle Rock, said that Democratic President Bill Clinton cut federal capital gains taxes in 1997.

The vote on HB1002 was mostly along party lines. No Republican voted against it. Eight Democrats voted for it, meaning it wouldn’t have passed without them.

Beebe has said that his proposed one-half percentage-point cut on the sales tax on groceries is the only tax cut that fits in his proposed $4.59 billion general-revenue state budget for fiscal 2012. He’s said other cuts could harm higher-education institutions, prisons or public schools.

The grocery-tax cut, Senate Bill 276, was to go before the Senate Revenue and Taxation Committee. The sponsor, Sen. Larry Teague, DNashville, the committee chairman, said Beebe asked him to delay consideration until Monday.

Teague said a bill supported by Sen. Gilbert Baker, R-Conway, to cut the sales tax on used vehicles will also come up that day.

Beebe has said that additional tax cuts, beyond the grocery tax, could lead to less state money for colleges, which would cause greater tuition increases.

University of Arkansas at Fayetteville Chancellor G. David Gearhart, speaking at the Capitol for “Razorback Day” activities, also warned about tax cuts.

“I can tell you that it will keep people from attending college because we’ll have no choice but to raise tuition,” he said.

OTHER TAX CUTS

Also passing the House were:

House Bill 1052 by Rep. Lane Jean, R-Magnolia, to reduce the state sales tax on energy used in manufacturing from 3.125 percent to 2.625 percent. The department estimates a revenue reduction of $4.2 million a year. It would take effect July 1.

Jean described it as a “jobs bill” that was a modest cut compared with what some other states have done with that tax. It passed with 88 yes votes, eight no votes, and two not voting.

House Bill1056 by Rep. Uvalde Lindsey, DFayetteville, to exempt from the state income tax low-income taxpayers who are heads of households and have two or more dependents, taking effect for tax year 2011. The department estimates a revenue loss of $3.8 million a year.

Lindsey said the bill is meant as a correction of an error in the drafting of a bill regarding a 2007 law. HB1056 passed with 93 yes votes and five not voting.

ETHICS

The Senate voted to send to the governor two bills to bar lawmakers from becoming lobbyists for a year after departing office and setting a limit on lawmakers’ travel reimbursements for attending out-of-state conferences.

The legislative ethics bills are Senate Bill 194 by Senate President Pro Tempore Paul Bookout, DJonesboro and House Bill 1284 by House Speaker Rep. Robert S. Moore Jr., D-Arkansas City.

The measures will apply to anyone elected to the General Assembly after the effective day of the legislation. The legislation would take effect 90 days after the Legislature adjourns.

The bills also require that the reimbursement to lawmakers who travel to out-of-state conferences be “the lesser rate of reasonable airfare or the established rate of private car mileage based on map mileage when driven.”

RETIREMENT

The Senate also unanimously passed a bill that would require that members of the Arkansas Teacher Retirement System pay the actual cost of state retirement benefits they can currently purchase at less than the real cost, sending the measure to the governor.

House Bill 1212 by Rep. Les Carnine, R-Rogers, will keep the system from spending about $4.6 million a year. Last fiscal year, employers (which get tax dollars) paid $389 million into the system,and system members paid $115 million.

Retirement system members sometimes purchase “years of service” and thus get credited for more years of service than they literally served. They get larger benefits as a result. According to a study of the costs to the system, the average system member pays about 45 percent of the actual cost of the benefit. The system and its other members pay the other 55 percent.

If the bill becomes law, the cost of a “year of service” will more than double. In fiscal 2009 the average cost was $4,415, and that will increase to about $9,852.

NO-PHONE ZONES

A measure to bar drivers of motor vehicles from using hand-held wireless telephones when passing a school building or school zone during school hours when children are present and outside the schools failed to clear the Senate.

The 13-9 vote on House Bill 1049 by Rep. Fred Allen, D-Little Rock, fell five votes short of the 18 required for approval. The Senate later expunged the vote to clear the way for another vote.

On Tuesday, the House voted to send a similar bill, Senate Bill 154 by Sen. Jerry Taylor, D-Pine Bluff, to Beebe. That bill would prohibit motorists from using hand-held mobile telephones while driving in a school zone or highway work zone.

A violator would have to be stopped for another offense before he could be ticketed.

The governor has signed the bill into law, and it is now Act 37.

Information for this article was contributed by Sarah D. Wire and Evie Blad of the Arkansas Democrat-Gazette.