Senate President Pro Tempore Jim Hendren and several other lawmakers are irked about state officials asking four legislative leaders a week ago to approve an agency spending up to $165 million in federal coronavirus relief funds just before a deadline to avoid an unemployment insurance tax increase on employers in Arkansas next year.
On Sept. 25, the co-chairmen of the Legislative Council, and the Performance Evaluation and Expenditure Review Subcommittee signed off on granting the spending authority to the state Department of Commerce's Division of Workforce Services, according to Bureau of Legislative Research records.
The council co-chairmen are Sen. Cecile Bledsoe, R-Rogers, and Rep. Jeff Wardlaw, R-Hermitage. The subcommittee co-chairmen are Sen. Bruce Maloch, D-Magnolia, and Rep. DeAnn Vaught, R-Horatio.
Earlier that day, the state's 15-member steering committee -- appointed by Gov. Asa Hutchinson to recommend the best uses of $1.25 billion in funds provided by the federal Coronavirus Aid, Relief, and Economic Security Act -- called for using the money to shore up the state's unemployment insurance trust fund. The fund is used to pay benefits.
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Adding the funds would avoid raising unemployment insurance taxes on employers by a projected $10 million next year.
The stabilization tax rates of taxable wages for employers for the next calendar year are based on the balance in the unemployment benefit trust fund on Sept. 30 each year.
The tax rate now is 0.2%, and without "these extra funds, it would have increased to 0.3% for Calendar Year 2021," according to Department of Commerce spokeswoman Alisha Curtis.
During the Legislative Council's special meeting Thursday, division Director Charisse Childers said the initial estimate in June was that $350 million would be needed to shore up the trust fund and avoid the tax increase.
"On June 8 was the first time that we brought this information to the attention" of Department of Commerce Secretary Mike Preston and the steering committee chairwoman, Elizabeth Smith, Childers said.
Childers said that on the morning of Sept. 23, she submitted a pared request to Preston, but he was unable to get it on the agenda for that day's steering committee meeting.
The steering committee met two days later, on Sept. 25, to consider the $165 million request.
Childers said the trust fund had a balance of $795 million as of Wednesday.
MEETING CALLED
Hendren, a Republican from Sulphur Springs whose uncle is Hutchinson, said he asked Bledsoe to call Thursday's special meeting of the Legislative Council.
Hendren referred to a comment that Preston made Sept. 25 to the steering committee.
The commerce secretary, at the time, said, "I'll apologize if this (request) is rushed," but he thought more people knew of the need to shore up the trust fund and that he first called the issue to the steering committee's attention in June.
"That upset me more than a little bit," Hendren told his fellow lawmakers Thursday.
"I have seen two Democratic, two Republican administrations," he said. "This is the biggest screw-up I think I have ever seen, and that's why I asked that you come down here and get some answers."
Hendren said Sens. Jonathan Dismang, R-Searcy, and Kent Ingram, D-West Memphis; and then-House Speaker Davy Carter, R-Cabot, worked hard to get the trust fund to a place where it was solvent, rather than the state relying on federal loans to pay unemployment benefits.
"Then, as we began this discussion about CARES Act funds and whether or not we were going to shore that up because it had begun to drop from $800 [million] or $900 million down towards to the $600 [million] or $700 million range, there was never any discussion about ... we are going to have an automatic tax increase [in January]," Hendren said.
There were discussions that if there were leftover federal funds after meeting needs such as buying personal protective equipment and helping schools and struggling businesses, the state could look into putting "funds in that [unemployment insurance trust fund] account to where we don't have to raise the taxes," he said.
"I think that was really the feeling of most of the people in the Legislature is we knew there was a diminishing trust fund account," Hendren said. "But when you have been down to $300 [million] or $400 million in the negative, I got to tell you that a $670 million fund balance doesn't seem like something we should fall apart about, and that's what we have done here.
"We put these two chairmen in an awful position because of the failure to figure out what is going on with this trust fund," he said. "They were in a position where they had to decide whether they were going to sign a $165 million appropriation, probably the biggest one that has ever been asked to be signed under emergency rules, or make taxes go up."
Hendren said the council didn't have time to have an emergency meeting to consider the request because "if the money was not in the account by Monday afternoon, we just found this out, the taxes just automatically go up.
"So I get a call [last] Thursday afternoon from the administration giving me those facts that we have to get some emergency approval to prevent this automatic tax increase from going up," he said.
"Now, I know there is a lot of support for doing things to prevent businesses that are struggling from having a tax increase," Hendren said.
"But ... to say you are surprised that we didn't see this coming is a complete misunderstanding of the environment that we find ourselves in," he said. "Secretary Preston ... I believe the buck stops with you.
"How do we know that we are not going to have this happen again? How do we know that I am not going to get another call, the chairman of [Legislative Council] is not going to get another call saying, 'I need $165 million in three days or taxes automatically go up,'" Hendren said. "To me, that is the kind of surprise that is inexcusable. It is just not acceptable to put legislators in a position where they don't have time to convene before issuing a $165 million appropriation."
In response, Preston said, "We should have communicated this earlier."
He said the request should have been put on an earlier agenda for the steering committee, so the full Legislative Council would have time to discuss the committee's recommendation, but the necessary information arrived too late.
He said Childers has testified a number of times over several months to legislative committees on the status of the unemployment insurance trust fund.
"By transferring those funds and having the trust fund ... balance above $750 million, that keeps us at the [current tax] rate for an entire year," Preston said.
"I can tell you ... as the pro tempore I had no idea that we were looking at a Sept. 30 deadline for an automatic tax increase," Hendren said. "I don't know if I'm in the dark and should have known that. I didn't see it in the paper. I don't think many members have mentioned it to me."
"The information was out there," Childers said. "We could have done a better job of making sure that that date was out there in bold and that was the date that we were looking at."
Wardlaw asked why the Commerce Department couldn't have asked the Legislative Council for $200 million spending authority earlier this month and "then the Legislature would have been informed that was coming, and we would have gave you the appropriation ... so you are able to spend up to that amount.
"Then you could have come back to us in October and said we spent $165 million [and], we're returning the rest of this appropriation back to the CARES Act committee," he said.
"You could have made our life a whole lot easier by drafting an appropriation in excess and then moving this process," Wardlaw said.
Childers said she understand lawmakers' frustration and concerns.
"This was not done intentionally at the last minute to catch you off guard," she said. "That is not how I operate."
Dismang said there is "still probably a little bit of frustration" among lawmakers for how the Commerce Department's Arkansas Economic Development Commission handled the Ready for Business grant program and "some other issues.
"I think that is playing a part in the response that you're receiving from the members today," Dismang said.
The Commerce Department rolled out the Ready for Business Grant program on April 29 without legislative approval for its spending authority. The Legislative Council later directed Preston to pay up to $147.7 million in grants through the program.
Asked how much the Division of Workforce Services expects total unemployment insurance taxes to increase next year, the division "calculates employer rate adjustments in late October to early November," Curtis said in a written statement Thursday afternoon.
The taxable wage base for employers will increase from $7,000 to $10,000 a year per employee next year and is projected to increase regular unemployment insurance revenue next year by about $66 million and stabilization tax revenue by about $6 million, Curtis said.
The taxable wage base is used to calculate the maximum amount that an employer can be charged unemployment insurance contributions for an individual employee, said Zoe Calkins, a spokeswoman for the Division of Workforce Services. It is calculated each year based on the unemployment insurance rate, the balance in the trust fund and the amount of payments in the previous year, she said.
Hutchinson spokeswoman Katie Beck said Thursday night that "since March, the Governor's targeted response to COVID-19 has kept our economy from shutting down and thousands of Arkansans employed.
"The Governor took necessary action to provide funding to prevent tax increases on small businesses and assure the unemployment trust fund is sufficient to help those Arkansans who remain unemployed due to COVID-19," she said in a written statement.
Hutchinson said "every state is facing the challenges of a global pandemic and numerous states are using CARES funding to rebuild their unemployment trust funds.
"These are extraordinary times that often require swift action and the ability to adapt quickly," he said in a written statement. "The Legislature is an essential part of getting these funds to Arkansans and I hope they will continue taking necessary, expeditious action when needed."
