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story.lead_photo.caption At a news conference Friday at the state Capitol, Gov. Asa Hutchinson explained why the state budget is being cut $70 million in this fiscal year, which ends June 30. - Photo by Staton Breidenthal

Gov. Asa Hutchinson announced Friday that he plans to cut the state's $5.33 billion general-revenue budget by $70 million in the current fiscal year because of lagging collections of sales and corporate income taxes and higher-than-expected individual income-tax refunds.

Photo by Staton Breidenthal
Larry Walther (left), director of the state Department of Finance and Administration, listens as Gov. Asa Hutchinson speaks Friday at a new conference about Monday’s special legislative session, budget cuts and the recent executions.

However, the Republican governor said the reduction "will be absorbed by the agencies and not impact the delivery of state services or the jobs of those who provide them," thanks to budget savings earlier in the year.

"I want to emphasize that the Arkansas economy is on track and has momentum," Hutchinson said during a news conference in the governor's conference room. "With a 3.6 percent unemployment rate and a workforce that is growing steadily, our economy is strong in the state of Arkansas."

The announcement was made during a news conference in which the governor also discussed a special legislative session he called to start Monday.

The last budget cut was in January 2010, when Gov. Mike Beebe, a Democrat, announced a $106 million reduction just a few months after another $100 million cut during an economic downturn.

Hutchinson said he's reviewed preliminary numbers of April tax collections with officials from the state Department of Finance and Administration. The month's revenue will meet the state's forecast, he said.

"That still leaves us with a shortfall for the forecast for the [fiscal] year. With two months to go, we've made the decision to adjust our forecast for the fiscal year ending June 30 and reduce state budget spending by $70 million for the year," Hutchinson said. State law forbids deficit spending.

The finance department will release April's figures Tuesday, state officials said.

The state is in fiscal 2017. From July 1 through the end of March, net general revenue available to state agencies totaled $3.77 billion, a decline of $49.7 million from the same period in fiscal 2016. The total also was $65.2 million below forecast, largely because of lagging sales- and corporate income-tax collections.

"Basically, we estimate that the forecast was off $70 million," Hutchinson said Friday. "It is a miss on revenue and not a miss on spending. We have controlled spending through the year. ... Controlling spending is what allows us to fully fund the services, even though the revenue is reduced on the forecast by $70 million."

The state hasn't made up for the shortfall in sales-tax collections from the first six months of fiscal 2017 and "that's a significant part of it," he said. Corporate collections still are "behind some," he said.

Individual income-tax collections aren't the problem, "even though now it is the increase in the refunds that I think is throwing off the forecast a little bit as well," Hutchinson said.

The 2015 Legislature enacted reductions in individual income rates for Arkansans with taxable income between $21,000 and $75,000 a year. This cut is projected to reduce revenue by about $100 million this fiscal year.

But Sen. Bryan King, R-Green Forest, said he disagrees with Hutchinson's assessment of the budget.

Hutchinson has spent too much money and should cut expenses for the state's Medicaid program, King said.

People always say there is a revenue shortfall instead of a spending problem "when they get into financial trouble," King said.

Seven years ago, King said, Beebe's budget cuts proved the governor was wrong to "expand government" and add new health programs.

In last year's fiscal session, the Legislature and Hutchinson enacted the fiscal-2017 budget with most of its $142.7 million increase targeted for the state Department of Human Services and public schools under the Revenue Stabilization Act. The act distributes general revenue to agencies and programs. Spending is put in Categories A and B, with B the lower priority.

Hutchinson said the $70 million cut will amount to about 55 percent of the $127.9 million allocated to Category B.

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.

Hutchinson said provider payments and payroll won't be reduced at the Human Services Department "because of constrained budget operations" and "savings we will have been able to achieve due to policy differences and changes."

Cindy Gillespie, human services director, said Friday in an email to employees, "I am sending this email to assure you that our goal is to absorb the cut with NO impact on employees' positions, providers or beneficiaries.

"Though we won't know for sure how much of a budget cut DHS will face until closer to the end of the fiscal year, we anticipate receiving about $50 million less than we had expected," Gillespie wrote in her email. "We believe DHS will be able to handle that cut and still take care of the needs of Arkansans who turn to us for assistance."

Kimberly Friedman, a spokesman for the state Department of Education, said Friday when asked that it's "too soon to tell" how the department will cut its budget.

"We will review the budget thoroughly and make necessary adjustments in areas that do not impact educational adequacy. We do know, however, that per pupil foundation funding will not be affected, and categorical funding ... will not be affected," she said.

Scott Hardin, a spokesman for the Arkansas Economic Development Commission, said Friday that the agency "is prepared to absorb Category B funding cuts with no changes to any of our programs across the state.

"Thanks to the fiscal accountability of this organization and work and planning by our budget team we will be able to handle the budget cuts with little impact due to the funds we have saved through efficiencies," he said.

Hutchinson said his call for the special session includes changing Initiated Act 1 of 2000 -- which is a law on tobacco settlement proceeds -- to authorize the transfer of about $105 million now in the Healthy Century Trust Fund to the state's Long-Term Reserve Fund.

"This is important because it is necessary to enhance our bond rating in the state, and it's also necessary to make sure that we have the reserve funds and rainy-day funds available for any unforeseen emergencies in the future as well as appropriate safeguards," the governor said.

Jake Bleed, a spokesman for the finance department, said in an email, "Our current bond rating is AA/Stable, as measured by S&P Global.

"S&P reviewed our bond rating last year, and in the review, was critical of the state's lack of significant rainy day or reserve funds. Creating and increasing those funds through measures like that proposed by the governor today would help the State improve its bond rating, which in turn will allow the state to issue bonds for future projects at less cost," Bleed said after the governor's news conference.

In the governor's call for the special session, he also included:

• Reducing the income eligibility limits of the Medicaid expansion called Arkansas Works. The upper limit is now 138 percent of the federal poverty level. The governor proposes to reduce the upper limit to 100 percent of the federal poverty level. He also wants to impose work requirements on certain participants in the program.

• Requiring the Legislative Council to oversee the Arkansas Health Insurance Marketplace, prohibiting the development of technology for a state-based platform for the individual health insurance marketplace, making a state-based small-business exchange optional and studying the future direction of the marketplace.

• Making "technical corrections" to ethics and medical-marijuana laws enacted in this year's regular session.

• Confirming gubernatorial appointees.

Hutchinson said he hasn't decided whether to cut the revenue forecast and $5.49 billion budget for fiscal 2018, which starts July 1.

Earlier this month, the Legislature gave final approval to the fiscal-2018 budget. It's a $163 million increase over the fiscal-2017 budget. Most of the increased state assistance would go to the Department of Human Services.

A Section on 04/29/2017

Print Headline: State to cut budget $70M


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  • nbipad
    April 29, 2017 at 9:25 a.m.

    What are the Category B funding accounts with the Arkansas Department of Education?