A final slash to tax on groceries central to Beebe’s budget

Step would hinge on other obligations

Arkansas Department of Finance and Administration director Richard Weiss testified before the Joint Budget Committee at the state Capitol in Little Rock on Thursday.
Arkansas Department of Finance and Administration director Richard Weiss testified before the Joint Budget Committee at the state Capitol in Little Rock on Thursday.

— Gov. Mike Beebe on Thursday proposed a reduction in the state’s tax on groceries that, if approved, wouldn’t go into effect until some outstanding debts or obligations are satisfied.

Beebe has been the architect of a gradual decline in the state’s sales tax on groceries, a promise he made as a candidate for governor in 2005 when the tax was 6 percent. The tax is now 1.5 percent. The 2013 legislative session will be Beebe’s last full session as governor.

Beebe’s $4.9 billion general-revenue budget was presented Thursday to members of the Arkansas Legislative Council and the Joint Budget Committee. It also includes a 2 percent cost-ofliving increase for most state employees.

The budgeting process will last until the end of the 2013 legislative session. The governor’s budget recommends $4.9 billion in spending for fiscal 2014, which starts July 1, 2013, and $5.1 billion in spending for fiscal 2015, which begins July 1, 2014.

The state collects revenue from several sources, including individual and corporate income taxes, tobacco taxes, sales taxes and severance taxes. Those collections, called gross revenue, are forecast to be $6.2 billion in fiscal year 2014 and $6.4 billion in fiscal 2015.

Before the state can allocate the revenue, it has to pay other obligations off the top, such as individual and corporate tax refunds.

The money left over is the “net” amount available for the state to spend.

Beebe’s proposal to cut the grocery tax depends on some of those obligations ending or declining. If the state’s chief fiscal officer determines that those obligations have dropped by $35 million or more for six consecutive months, he could trigger the end of the grocery sales tax.

The obligations include:

Payments for bonds issued under the Arkansas Water, Water Disposal, and Pollution Abatement Facilities Financing Act of 2007.

Payments for Arkansas College Savings Bonds.

Payments for bonds issued under the Arkansas Higher Education Technology and Facility Improvement Act of 2005.

Payments from the City-County Tourist Facilities Aid Fund.

Disbursements made by the state Department of Education for a decades-old desegregation settlement agreement with the Little Rock, North Little Rock and Pulaski County Special school districts.

Beebe said that he is confident the desegregation payments will end at some point, whether this year or sometime in the future.

“[The obligation] is going to end as soon as a federal judge says it’s going to end,” Beebe said. “When that ceases to be an obligation of the state — that comes off the top — we ought to give it back to the people in the form of getting rid of the most onerous tax we’ve got.”

State Department of Finance and Administration Director Richard Weiss, the state’s chief fiscal officer, said after the meeting that he is confident some of those obligations would end in fiscal 2014.

Weiss said the Legislature would have to deal with the grocery-tax cut separately from the budget. Beebe spokesman Matt De-Cample said there has been no discussion about which lawmaker would sponsor that legislation.

A one-eighth percent tax on groceries would not be removed through Beebe’s plan because it is required by Amendment 75 of the state constitution for conservation matters such as the Game and Fish Commission.

Many lawmakers campaigned on cutting the state’s individual, corporate or other tax rates, but Beebe said he doesn’t see any room to cut other taxes within his budget.

“If there’s not room for sales tax on groceries immediately, if it has to be triggered, then the same would apply on income tax,” Beebe said. “I don’t see the road to do that right now.”

Sen. Michael Lamoureux, R-Russellville, who will be the Senate’s leader in 2013 and 2014, said he doesn’t know which taxes members plan to target in the session.

“I don’t know if the income tax is the one they’re going to go after or not, but I know they don’t plan on just going away and not asking for any tax relief,” he said.

Complicating efforts to cut other taxes is a $200 million shortfall expected to hit the state’s Medicaid program in fiscal 2014.

Earlier in the week, state Department of Human Services Director John Selig laid out how the executive branch plans to use a general-revenue increase, some surplus money and service cuts to address the shortfall.

For nearly a year, state officials have warned that the trust fund that helps pay for the state’s Medicaid program will be depleted by next summer and recipients will face significant cuts in services if additional revenue isn’t found. About 780,000 Arkansans are enrolled in the state’s $4.6 billion Medicaid program.

The department asked for $358 million more general revenue for Medicaid in fiscal 2014, for a total of $1.16 billion, and $467.2 million for fiscal 2015, for a total of $1.27 billion.

But the executive branch recommended only a general-revenue increase of $96.8 million in fiscal 2014, for a total of $892.8 million, and $229 million in fiscal 2015, for a total of $1 billion.

That leaves a gap of $278 million for fiscal 2014 and $256 million in fiscal 2015, which Beebe and Selig have suggested filling with $70 million in surplus each year and the approximately $48.5 million expected to be put into the Medicaid trust fund from the 2-cent soft drink tax. Selig also anticipates savings from slower-thananticipated growth in Medicaid enrollment, a higher federal match rate than budgeted and savings from the state’s payment-improvement initiative, which will reward doctors based on the average cost and quality of the care they provide.

Beebe has been reluctant to spend one-time surplus money on ongoing problems in the past, but he said Thursday that this is an emergency situation.

He said he hopes the state will be able to provide more general revenue for the program by fiscal 2016 and fiscal 2017. Beebe said the Legislature could ease the financial shortfall by agreeing to expand Medicaid eligibility to 250,000 Arkansans, a move that would make the state eligible for more federal funds.

Republican lawmakers, who control the House and Senate, have said they are wary of expanding the rolls because the state will be required to pay a portion of the additional cost for those enrollees starting in 2017. Legislators from both parties have objected to what Medicaid cuts have been proposed by state officials, such as an elimination for nursing care for about 15,000 seniors.

Beebe said the rest of the surplus will be used to quickly recruit new businesses, pay for state capital improvements like school building repairs, and address needs identified by lawmakers.

Lamoureux said members appreciate that the governor didn’t spend all of the surplus.

“It’s definitely a good starting point,” Lamoureux said. “At least he’s not saying, spend all extra money on my priorities.”

Beebe’s budget also increased public education spending by 2.5 percent, or $49 million, to $2 billion. Weiss said all but half a percent of the increase is for school funding required by state law for an “adequate” education.

The House and Senate education committees recommended a spending increase of between 1.8 percent and 2.5 percent to keep up with the estimated rate of inflation. The recommendation followed a monthslong “adequacy study” of the Arkansas education system that looked at transportation, technology, utilities, teachers’ salaries and other expenses to determine what per pupil amount of funding is sufficient. The study is required by Arkansas law.

“It was fair, in the middle and consistent with both those people who wanted to go to the low end and people who wanted to go to the high end and was something I though met the adequacy needs,” Beebe said.

Rep. Stephen Meeks, RGreenbrier, questioned why the governor would recommend anything above the lowest rate allowed by the study or would support funding increases for other agencies given the funding gap for Medicaid and the potential cuts to patients and providers.

“I’m just wondering about how our priorities are set up. These little amounts add up,” Meeks said. “If it’s a decision between [the Medicaid cuts] and having more books for the library, I think we need to be taking care of our senior citizens.”

Sen. Jonathan Dismang, R-Beebe, said the budgets of all agencies should be considered for possible cuts to reduce harm to Medicaid patients.

“We’ll do everything we can to prioritize for the state and make sure that definitely our most needy are taken care of, and we’ll do what we can for our taxpayers back home,” Dismang said.

Beebe said most of the state’s money goes to schools or the Department of Human Services. Cutting the remaining state programs won’t be enough to fill the Medicaid gap, he added.

“Nibbling like a duck at a problem is something you can do if you’ve got enough room to nibble,” he said. “We could cut out money from state libraries, but it wouldn’t even begin to touch what you’re talking about with Medicaid in terms of the total amount of money.”

As part of the recommendation Thursday, Weiss also announced the state’ fiscal 2013 revenue forecast had been revised higher by 2.1 percent than the previous forecast, or $99.5 million, because actual growth in the first four months of the fiscal year was greater than expected.

Weiss pointed to better than expected collections in income tax, tobacco and gambling revenues.

The additional $99.5 million in new surplus funds brings the expected surplus to nearly $300 million.

Front Section, Pages 1 on 11/16/2012

Upcoming Events