Gov. Asa Hutchinson said Wednesday that he won't put a teacher salary increase on the call for the special session that he intends to call during the second week of August to consider tax cuts because of the lack of support in the Legislature for a teacher pay increase in the special session.
The Republican governor said "the core of the special session, the reason it is called, is to provide the tax relief" after state government collected its largest general revenue surplus ever totaling $1.628 billion in fiscal 2022 that ended June 30.
Hutchinson said school safety and providing services to support alternatives to abortion are two other potential items for the special session.
"In terms of the increase in teacher salary, there is not support in the Legislature for it, so I'm not putting it on the agenda," he told reporters after he announced his appointment of businessman Bill Jones of Pine Bluff to the Arkansas Game and Fish Commission.
"They want to wait till down the road to consider it, so that is not on the table because of that lack of support," he said. "It is not uniform, but it takes a consensus."
Hutchinson said he wanted to be able to provide a teacher pay raise for this fall in Arkansas to make salaries more competitive with their peers in other states.
"It is a disappointment," he said.
About a month ago, Hutchinson initially proposed raising teacher salaries to a minimum of $46,000 and implementing at least a $4,000 salary increase. Under Act 170 of 2019, the minimum teacher salary is $34,900 in the 2021-2022 school year and will increase to $36,000 in the 2022-2023 school year.
Department of Education Secretary Johnny Key has pointed out that going into the 2022-23 school year, base salaries in Oklahoma, Missouri, Tennessee, and Mississippi are all higher than Arkansas, and Mississippi just increased its base salary to $41,500 along with an approximately $5,000 salary increase for every teacher
Last month, Senate President Pro Tempore Jimmy Hickey, R-Texarkana, said that Hutchinson's proposal would cost about $333 million to implement and "I don't see we get anywhere close to that."
Hutchinson subsequently trimmed his initial proposal to increase the minimum teacher salary to $42,000 a year and provide a $4,000 increase to every teacher for the 2022-2023 school year.
The proposal's total cost of $150 million for fiscal 2023 that started Friday and ends June 30, 2023, would come out of the fiscal 2022 surplus, according to Key. For fiscal 2024, the public school fund would need $140 million in ongoing general revenue under this proposal and the $60 million in additional needed funds would come from combined growth in the educational adequacy fund, educational excellence trust fund, and uniform rate of tax, he said.
Hickey said Wednesday that Hutchinson advised him on Monday that he doesn't intend to put a teacher salary increase on the call for the special session.
"I think members are in agreement that this is a discussion which will take place during the regular session beginning in January," he said in a text message.
Senate Education Committee Chairwoman Missy Irvin, R-Mountain View, said Tuesday that "We have an [educational] adequacy study that we are currently conducting.
"I believe all taxpayers in Arkansas should be considered through income tax cuts during these rough economic times," she said in a written statement. "With a recession pending, we must be fiscally responsible for our state as we are ordered to operate under a balanced budget per the Arkansas constitution."
House Education Committee Chairman Bruce Cozart, R-Hot Springs, said Wednesday that Hutchinson made "a wise choice" not to place a teacher pay increase on the call for the special session.
Most House Republicans didn't support considering a teacher pay raise during the special session because "they didn't think it was wise to start handing out money without any guidelines," he said.
"We raise teachers pay every biennium in the [educational] adequacy process," Cozart said, referring to the House and Senate education committees' recommendations to the Legislature and the governor.
The state House and state Senate education committees haven't yet started discussing teacher salaries as part of their educational adequacy review and their report is due Nov. 1, Cozart said.
But House Democratic leader Tippi McCullough of Little Rock said Wednesday that House Democrats "fully support the teacher raises." That would be a way to lift morale among teachers and make it a state priority to support teachers "in real tangible way," she said.
McCullough said that "there are no guarantees" teacher raises will result from the House and Senate Education Committee's educational adequacy review.
Mike Hernandez, executive director of the Arkansas Association of Educational Administrators, said Wednesday it's disappointing that addressing teacher salaries has not made the initial list for the special session.
"Still, I am hopeful it will be added to the final call and addressed formally through the adequacy review process," he said in a written statement.
"I know that almost every state leader I have spoken with understands that there is an issue with recruiting and retaining staff in our state," Hernandez said.
"I believe our elected officials will study and take action on measures to help Arkansas educator compensation remain competitive with other states and fields."
The four-pronged tax cut package that Hutchinson said he reached consensus on with legislative leaders is projected to reduce state general revenue by $433.8 million in fiscal 2023, $166.6 more in fiscal 2024, $69.5 million more in fiscal 2025, $18.4 million more in fiscal 206 and $8.4 million more in fiscal 2027, according to the state Department of Finance and Administration.
The four prongs of the package include:
• Accelerating the implementation of cutting the state's top individual income tax rate from 5.5% to 4.9%, retroactive to Jan. 1, 2022.
The rate cut is part of the individual and corporate income tax rate cut package enacted in the Dec. 7-9 special legislative session. Supporters of that package said in that session that it would make the state's income tax rates more competitive with other states, while critics said the primary beneficiaries would be high-income earners.
The state's top individual income tax rate is scheduled to be cut to 5.3% on Jan. 1, 2023, to 5.1% on Jan. 1, 2024, and to 4.9% on Jan. 1, 2025, under current state law.
The finance department projects that accelerating the implementation of cutting the state's top individual income tax rate to 4.9%, retroactive to Jan. 1, 2022, would reduce state general revenue by $295.9 million in fiscal 2023, $114 million more in fiscal 2024 and $39.15 million more in fiscal 2025 to provide tax relief totaling $449 million.
The finance department estimates that 290,944 taxpayers with net income of more than $87,000 would get $408.6 million of that $449 million in tax relief and 420,348 taxpayers with net income between $40,000 and $87,000 would get $40.4 million of that tax relief.
• Temporarily axing the 2% tax rate on income ranges from $5,100 to $10,299 for those with net income of less than or equal to $87,000 for tax year 2023. It would amount to about $100 per qualifying individual and $200 for a dual earning couple to be received via withholding reduction and/or a tax refund.
The finance department projects it would reduce state general revenue by $90 million in fiscal 2023.
• Accelerating the reduction in the state's top corporate income tax rate to 5.3% on Jan. 1, 2023. Arkansas' top corporate income tax rate of 6.2% dropped to 5.9% on Jan. 1, 2022. The rate is scheduled to drop to 5.7% on Jan. 1, 2023, to 5.5% on Jan. 1, 2024, and to 5.3% on Jan. 1, 2025, under current state law.
The proposal is projected by the finance department to reduce state general revenue by $18.5 million in fiscal 2023, $27.8 million more in fiscal 2024, and $9.2 million more in fiscal 2025.
• Adopting the 2022 federal Section 179 depreciation schedule that allows businesses to deduct the entire purchase price of new or used equipment up to $1.08 million in 2022 rather than capitalizing and depreciating the asset over the designated useful life of the asset The $1.08 million deduction is reduced dollar for dollar if asset purchases exceed $2.7 million for 2022.
Arkansas previously adopted Section 179 as it existed Jan. 1, 2009, and the dollar limitation on the deduction is $25,000 and the dollar-for-dollar phase-out starts at $200,000, according to the finance department. The federal limitation is adjusted for inflation each year.
The finance department projects it would reduce state general revenue by $29.4 million in fiscal 2023, $24.8 million more in fiscal 2024, $21.1 million more in fiscal 2025, $18.4 million more in fiscal 2026 and $8.4 million more in fiscal 2027.
Hutchinson said one possible other issue for the special session "is looking at what more needs to be done in terms of providing alternatives to abortion because of the Roe v. Wade reversal." After the U.S. Supreme Court overturned its 1973 landmark ruling that legalized abortion June 24, Attorney General Leslie Rutledge signed a certificate implementing a 2019 law that bans abortions in Arkansas except to save the life of the mother in a medical emergency.
"That's come up in conversations," the governor said. "I've mentioned that need. ... What can we do more for maternal care? What can we do more for adoption services because of the increased number that's going to be demanding that. And so that is a potential issue, although I've learned that I'm going to be able to address a number of those issues within our existing Medicaid program, so just stayed tuned."
He said he has not presented any specific ideas to build a consensus around yet, but it's still a potential topic for the special session
School safety is another potential issue for the special session, Hutchinson said.
"That is a need that is there," he said. "But I am waiting for some more information from our School Safety Commission and want to have those conversations."