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story.lead_photo.caption Gov. Asa Hutchinson acknowledges the applause Tuesday after his swearing-in ceremony in the House chamber. “Today, we have a budget that allows for tax cuts while investing in the future,” Hutchinson said in his State of the State address that followed. “We have demonstrated that we can do it, and we will do it again.” - Photo by Mitchell PE Masilun

Gov. Asa Hutchinson on Tuesday pitched to lawmakers what he called his "growth agenda" for lowering income taxes, reorganizing state government, developing a highway funding plan and raising starting teacher salaries by repeatedly saying, "It can be done."

"Remember, the voters supported and gave us approval for a growth agenda. We cannot let them down," the Republican governor said in his State of the State address after state Supreme Court Chief Justice Dan Kemp swore him in for a second four-year term.

"Let's not let this moment in history pass us by, but let us work together for success," Hutchinson told the 92nd General Assembly, which began meeting Monday.

Hutchinson said his growth agenda includes more and better-paying jobs; increased attainment levels in higher education; a strong, diversified economy; and competitive tax rates.

"That is why the third phase of tax cuts is planned for this session," he said. Hutchinson wants to cut the state's top individual income tax rate from 6.9 percent to 5.9 percent; it would be his third income tax cut plan as governor.

Democratic legislative leaders later suggested that lawmakers should consider funding other state needs before cutting the top individual income tax rate, and they announced their own plans for an earned income tax credit for low-income Arkansans.

[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]

In 2015 and 2017, Hutchinson signed into law measures to reduce individual income tax rates for people with taxable income up to $75,000 a year. State officials projected those cuts will reduce state tax revenue by about $150 million a year.

"At this point, 90 percent of all Arkansas taxpayers have received a tax cut, but we have more to accomplish," the governor said.

He said he applauds the work and recommendations of the Arkansas Tax Reform and Relief Legislative Task Force, co-chaired by Senate President Pro Tempore Jim Hendren, R-Sulphur Springs, and a Joint Budget Committee co-chairman, Rep. Lane Jean, R-Magnolia.

"While I wanted to simply flatten the rate for all taxpayers to 5.9 percent over the next four years, the task force wisely said we should also simplify the rate structure and to raise the standard deduction for all taxpayers," Hutchinson said. "The result is a plan that we call the '2-4-5.9' plan. It will set Arkansas on a path to be competitive with our surrounding states, to attract new investments and talent in our state, and to continue our vigorous economic growth.

"We will work with you to make sure that this plan reduces taxes and that we'll hold everyone harmless so that no taxpayer will see any tax increase," he said.

Hutchinson and state officials refer to his plan as the "2-4-5.9" plan because of the rates that ultimately would be charged at different income levels. People with taxable income up to $8,000 would pay a 2 percent rate; those with between $8,001 and $18,000 in taxable income would pay 4 percent; and those making $18,001 and up would pay 5.9 percent.

The current top rate of 6.9 percent applies to people making at least $79,300 in 2018 taxable income, according to Scott Hardin, a spokesman for the state Department of Finance and Administration.

The governor's proposal would require the votes of at least three-fourths of lawmakers -- 75 representatives in the 100-member House and at least 27 senators in the 35-member Senate -- because it would increase income tax rates for some taxpayers, state officials have said. The House is composed of 76 Republicans and 24 Democrats and the Senate will be made up of 26 Republicans and nine Democrats.

Gallery: Governor Asa Hutchinson Swearing in Ceremony

"When we ponder the requirement of a three-fourths vote for lowering and simplifying our income tax rates in Arkansas, it can be done," Hutchinson told lawmakers on Tuesday.

In August, finance department officials said any tax bill increases that some taxpayers might see from changing the rates would be offset by increasing the standard deduction for single taxpayers from $2,200 to $6,800 and for married taxpayers from $4,400 to $13,600 a year. They estimated that the proposal would reduce tax revenue by nearly $192 million a year.

WORKING ON FIXES

But last week, Hardin said the department's latest analysis of the plan indicates about 197,000 taxpayers who itemize their deductions would experience a net tax increase of $33.3 million if the state conforms to the federal income tax code, and about 220,000 taxpayers who itemize their deductions would experience a net tax increase of $37.4 million if the state doesn't conform to the federal income tax code.

That led Hutchinson and key lawmakers to explore options for changing the "2-4-5.9" plan to ensure that no taxpayer would be hit with a net tax increase.

"I think there is a growing consensus that the hold-harmless provision that I outlined is probably a good fix, so I think the legislation is being worked on right now for that hold-harmless provision," Hutchinson said in an interview after his remarks in his State of the State address.

Senate Revenue and Taxation Committee Chairman Jonathan Dismang, R-Searcy, said in an interview that he's working with others to find the best path to ensure no taxpayer pays more income taxes under the governor's proposal. The senator said he's expecting to sponsor the bill.

The additional cost to the governor's plan from adding a hold-harmless provision "is part of what we are trying to make sure that we understand," Dismang said.

During his State of the State address, Hutchinson defended his proposed tax cut against those who argue it needs to be larger as well as against those who contend it's unaffordable.

"For those who think we need to do more, I remind you that the '2-4-5.9' plan reduces revenue by $47.4 million in the first year," the governor told lawmakers, referring to fiscal 2020, which starts July 1.

"But everyone should also note that in the same year, we will reducing the grocery tax by $61 million and the low-income tax cut goes into effect for $50 million, so the total tax reductions will be around $158 million," Hutchinson said. The grocery tax cut was made possible by the savings from the end of desegregation payments to Pulaski County school districts under a 2013 law.

"For now, those who are concerned about the tax cuts and meeting the other needs of our state, please note in the last four years, we have cut taxes carefully and we continue to invest in education and prisons and public safety and even funding expanded Medicaid," he said. "We have set aside during that same time over $125 million in savings [in the state's Long-Term Reserve Fund]. Those commitments remain.

"Today, we have a budget that allows for tax cuts while investing in the future. We have demonstrated that we can do it, and we will do it again," Hutchinson said.

REVIEWING FIRST TERM

The governor spent some of his State of the State address recounting a wide range of accomplishments in his first four-year term, including overhauling the child welfare and criminal justice systems and fully deploying faster broadband Internet to each school.

"And when it comes to the disability waiting list, we did something about it and for the first time in decades, we provided help to those families and created a way to reduce the waiting list further," Hutchinson said. "This helps families and maximizes the lives of those with disabilities."

There were 3,076 people on the developmental disability waiver waiting list as of Dec. 31, according to a state spokesman.

"We have moved approximately 2,400 of those clients who already receive Medicaid State Plan services into a PASSE [Provider-led Arkansas Shared Savings Entity]," said Department of Human Services spokesman Marci Manley. "The PASSE system will make it possible for families who qualify for state plan services to receive an interim service package while on the waiver wait list."

Last year, Developmental Disabilities Services awarded waiver slots to 443 recipients, Manley said.

"Each year we have roughly 150 clients who move out of state, pass away, or other situations. We also have new applicants apply to receive waiver services each year," she said.

DEMOCRATS RESPOND

Senate Democratic leader Keith Ingram of West Memphis said Hutchinson "gave a great vision of where he wanted to head.

"I thought he took credit for everything but the Razorback football season. I guess he should," he said.

"I think the argument of saying that there are things that are well-funded is shallow in justifying tax cuts," Ingram said. "For instance, he mentioned the progress made in the [developmental disabilities] waiver list. That waiver list is over 10 years old. There were 3,000 who were on the list and the progress that has been made is maybe there have been 400 [taken] off ... so to say that we have fixed that is not nearly as much as could be done and should be considered in relationship to a tax cut."

House Democratic leader Charles Blake of Little Rock said House Democrats want to enact legislation to create a state earned-income tax credit that is similar to a proposal put forward in 2017 by then-Rep. Warwick Sabin, D-Little Rock. Sabin's proposal would have led to an estimated $40 million reduction to state revenue. Earned-income tax credits are typically targeted toward low-income workers.

J.R. Davis, a spokesman for the governor, said the proposal for an earned-income tax credit as an alternative to the governor's high-income tax cut was a nonstarter.

"This has been a process with tax cuts," Davis said. "Everyone has known this is coming, and the goal of the governor the whole time has been to get the top marginal rate down."

HIGHWAYS, TEACHERS

During his State of the State address, Hutchinson also said, "When I worry about reaching agreement on a new highway funding plan, it can be done."

Afterward, Jean said Hutchinson struck the right note in his remarks.

He said the governor acknowledged the challenge of finding a consensus on a long-term plan to fund highway improvements and maintenance. While lots of ideas are being floated by lawmakers, a plan needs to be developed by the end of this regular session, he said.

"We are getting behind. We should've had it done last session [in 2017], but we couldn't get it done. I'm not blaming anybody. We're all to blame. But we've got to get something done for the maintenance of our highways," Jean said.

In this year's regular session, Hutchinson also aims to increase starting teachers' salaries as part of his plan to boost them from $31,800 to $36,000 a year in the next four years and to reduce the number of state agencies reporting to him from 42 to 15 in the most sweeping state government reorganization since 1971.

On Tuesday, the governor said he wants to create a private sector Technology and Innovation Council to bring industry leaders and technology entrepreneurs together to "create new energy and support for tomorrow's problem solvers" in software design, cybersecurity, data analytics and blockchain technology and other such fields.

INAUGURAL SPEECH

Hutchinson also spoke in an inaugural address just after noon on the front steps of the state Capitol before what the secretary of state's office estimated to be about 400 people.

"Sadly, we live in a time of division," the governor said.

"Our nation has differing views on seemingly everything. This is not historically unusual, but the shrillness of the division distracts us from getting things done," Hutchinson said. "Our response in Arkansas is to lead by example. We can sort through the differences and find the place of agreement to make a difference in life. That to me is the essence of public service and governing."

Arkansas Razorback superfan Canaan Sandy and his mom, Ginger Sandy, traveled from their Cave City home just to hear the governor speak.

Gov. Asa Hutchinson and his wife leave the House chamber after his swearing-in.
Gov. Asa Hutchinson and his wife leave the House chamber after his swearing-in.

"Perfect," Canaan said, grinning broadly, when asked how he rated Hutchinson's speech.

Ginger Sandy wiped tears from her eyes.

"You can see, it made me kind of emotional," she said. "We just love the governor. I have such beautiful faith in him, and I'm so proud he's ours. He's willing to reach out in so many different areas."

Canaan Sandy was an inductee to ESPN's 2013 Fan Hall of Fame. He and his mother travel the state and region watching Razorbacks football and basketball.

Beth Goodrich, the executive director for the Arkansas Coalition Against Domestic Violence, said she was encouraged by Hutchinson's focus on economic prosperity.

"I'm always looking for how that will affect our benefit programs for domestic violence victims," Goodrich said. "I feel hopeful for Arkansas."

Information for this article was contributed by Hunter Field and Jeannie Roberts of the Arkansas Democrat-Gazette.

Calendar

The calendar of public events of the 92nd General Assembly for today, the third day of the 2019 regular session.

COMMITTEES

10 a.m. House Agriculture, Forestry and Economic Development Committee, Room 138.

10 a.m. House Insurance and Commerce Committee, Room 149.

10 a.m. House State Agencies and Governmental Affairs Committee, Room 151.

10 a.m. Senate Judiciary Committee, Room 171.

10 a.m. Senate Public Health, Welfare and Labor Committee, Room 272.

5 minutes after adjournment of the Senate, Senate Transportation, Technology and Legislative Affairs Committee, Room 309.

Upon adjournment of the Senate, Senate Rules, Resolutions and Memorials Committee, Room 207.

SENATE

11 a.m. Senate convenes.

HOUSE

1:30 p.m. House convenes.

Photo by Staton Breidenthal
Gov. Asa Hutchinson, joined by his wife, Susan, takes the oath of office Tuesday from state Supreme Court Chief Justice Dan Kemp.
Photo by Staton Breidenthal
After his State of the State address Tuesday, Gov. Asa Hutchinson greets Doug and Linda Miller of Springdale during a reception in the Capitol rotunda.
Photo by Staton Breidenthal
Democrat Reps. Megan Godfrey of Springdale and James Richardson of Fort Smith gave their party’s response Tuesday after Hutchinson’s speech.

A Section on 01/16/2019

Print Headline: Hutchinson takes oath, promotes 'growth agenda'

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