Departing Gov. Asa Hutchinson on Thursday proposed a $314 million increase in the state's general revenue budget to $6.33 billion in the next fiscal year, with $200 million of increased general revenue earmarked for the public schools to help boost teachers' salaries.
The Republican governor said his proposed general revenue budget for fiscal 2024, starting July 1, 2023, would represent a 5.2% increase over the current budget of $6.02 billion, leaving a projected general revenue surplus of $254.9 million at the end of fiscal 2024.
Considering that inflation is more than 8% this year, limiting the growth of the state's general revenue budget to 5.2% reflects conservative budgeting in these challenging times, Hutchinson said.
"The budget is now in your hands and in the hands of the next administration," the governor told members of the Legislative Council and Joint Budget Committee.
"I know you will work to adopt a final budget that improves education, public safety and the services of state government," Hutchinson said as he presented his last proposed budget to state lawmakers before his eight-year stint as governor ends in January.
"It has been the highest honor of my public life to serve as governor of this state," he said.
With $2.7 billion in reserve funds, Hutchinson said he's confident the state has never been in better financial shape.
Afterward, Sen. Jonathan Dismang, R-Searcy, said he appreciates Hutchinson's willingness to focus on matters that lawmakers have been talking about for a while and incorporate them into into his proposed budget.
"There is a lot of an unknown, in particular how much of our reserve accounts would need to be utilized to make some of that [proposed budget] a reality," he said.
Gov.-elect Sarah Huckabee Sanders and many new lawmakers will take office in January, and "lots of things are set to change," said Dismang, who is a co-chair of the Joint Budget Committee.
Sanders spokesman Judd Deere said Thursday in a written statement that "Governor-elect Sanders looks forward to continued conversations with the Governor and her legislative partners during the transition as she works to develop a budget that makes government lean and efficient, cuts taxes and prioritizes the promises she made to Arkansans to make our state one of the best to live, work, and raise a family."
The state Department of Finance and Administration on Thursday revised its May 18 forecast for fiscal 2023 that ends June 30 and now projects a $598 million general revenue surplus at the end of fiscal 2023 after fully funding the state's general revenue budget of $6.02 billion.
In its May 18 forecast, the finance department projected a $914 million surplus at the end of fiscal 2023.
In its revised forecast, the finance department said Thursday that "inclusion of $500 million in tax reductions from acceleration of income tax rate reductions and other changes lowered the expected surplus level for fiscal year end, but higher inflation and underlying real growth served to raise the surplus estimate in the forecast revision."
In the Aug. 9-11 special session, the Legislature and Hutchinson enacted a four-pronged tax cut package that the finance department projected would reduce state general revenue by $500.1 million in fiscal 2023, by $166.6 million more in fiscal 2024, by $69.5 million more in fiscal 2025, by $18.4 million more in fiscal 2026 and by $8.4 million more in fiscal 2027.
In fiscal 2024, the finance department projects the state's net available revenues will reach $6.59 billion, a decrease of $29 million or 0.4% below fiscal 2023.
"A borderline, shallow recession" in the United States' forecasts for calendar year 2023 and a limited recovery in calendar year 2024 impacts state fiscal year 2024 growth and to a lesser extent the expansion indicated afterward, the finance department said in its forecast.
In fiscal 2025 starting July 1, 2024, the fiance department projects the state's net available general revenues will reach $6.82 billion, an increase of $235.8 million or 3.6% above fiscal 2024.
A return to normal growth will be evident after four years of pandemic-related volatility and federal stimulus programs, the finance department said in its forecast.
For fiscal 2025, Hutchinson proposed increasing the state's general revenue budget by $181 million or 2.9% to $6.51 billion, leaving a projected general revenue surplus of $309.3 million.
Under Hutchinson's proposed budget for fiscal 2024, the general revenue budget for the public school fund would increase by $200 million over fiscal 2023 to $2.52 billion. In fiscal 2025, he proposed a $150 million increase in general revenue over fiscal 2024 for the public school fund to $2.67 billion.
Hutchinson said his proposed budget would allow Sanders' administration and state lawmakers the maximum flexibility in terms of raising teacher salaries and raising the outcomes for education in the state.
He said his proposal represents the largest increase in general revenue funding for the public school fund in about a decade, and it's needed for the public schools to be competitive.
State Budget Director Robert Brech said the governor's proposed general budget would provide flexibility to at least raise the minimum teacher salary from $36,000 to $40,000 a year, and there is leeway in the proposal to increase that salary threshold.
The proposed budget would provide all teachers with a $4,000 raise, he said.
Asked afterward whether the proposed budget is based on the educational adequacy recommendations of the House Education Committee or the Senate Education Committee, Brech said in a written statement that "The Department of Education blended the House and Senate recommendations.
"Whether it meets the adequacy recommendations of both House and Senate committees will ultimately have to be determined by the House and Senate," he said.
In fiscal 2024, the governor proposed a $14.5 million increase in general revenue over fiscal 2023 for the state Department of Human Services to $1.84 billion, including a $6.6 million increase to $138.6 million for the Division of Children and Family Services, and a $5.7 million increase to $54.7 million for the Division of Youth Services.
Hutchinson said his proposal includes an increase in payments for foster families and offers monthly payments to provisional foster parents, and provides treatment and resources for at-risk teenagers and children.
He said he isn't proposing an increase in the general revenue budget for the Medicaid program until fiscal 2025. He said the state has more than $600 million in the Medicaid trust fund, and he expects the state to draw down that trust fund in the next couple of years.
In fiscal 2025, the governor proposed a $39.8 million increase in the Department of Human Services' general revenue budget over fiscal 2024 to $1.87 billion, including a $25 million increase to $1.42 billion for the Medicaid program.
Department of Human Services Secretary Mark White said the department expects a majority of the Medicaid trust fund to be drawn down during the next biennium.
Hutchinson said he set aside $41 million in the general revenue budget for fiscal 2024 for the next administration and state lawmakers to consider implementing a new pay plan for state employees.
He proposed a $5.4 million increase over fiscal 2023 to $399.8 million for the state Division of Correction in fiscal 2024 and a $2.9 million increase over fiscal 2024 to $402.7 million. He proposed a $5.5 million increase over fiscal 2023 to $109.4 million for the Division of Community Correction and a increase of more than $500,000 over fiscal 2024 to $110 million.
Hutchinson said in a letter to lawmakers the state must make sure it has the facilities and tools to effectively manage inmates and parolees and that's why he proposed the increases in the budgets for the Division of Correction and Division of Community Correction.
Gov. Asa Hutchinson presents his budget to the Joint Budget Committee on Thursday at the state Capitol in Little Rock. (Arkansas Democrat-Gazette/Thomas Metthe)