Grocery tax plan’s in-effect date hazy

— Gov. Mike Beebe’s plan to cut the state sales tax on groceries is dependent on bond obligations that won’t end for years or the resolution of a decades-old lawsuit that requires the state to pay millions for desegregation efforts.

Beebe has been the force behind a gradual decline in the state’s sales tax on groceries since promising to eliminate it while he was a candidate for governor in 2005. Since then, the tax has been lowered from 6 percent to 1.5 percent. The 2013 legislative session will be Beebe’s last full session as governor.

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.

Department of Finance and Administration Director Richard Weiss presented the governor’s general-revenue budget to members of the Arkansas Legislative Council and the Joint Budget Committee on Thursday.

It 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 2014 and $6.4 billion in fiscal 2015.

But, the state has certain bills that it has to pay before it can allocate the revenue for state services, such as individual and corporate income tax returns. The money left over is the “net” amount available for the state to spend.

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

For that to happen, either more than one type of the $53.76 million in bond payments would have to end or a federal judge would have to stop the $70 million in yearly desegregation-related payments to some school districts.

Based on the payment schedules of the bonds, by fiscal 2017 the payments will have only dropped by $17.7 million. By fiscal 2018, two of the bonds will have ended, but the payment for a third will have jumped to $70.7 million per year.

Payments for Arkansas College Savings Bonds and payments for bonds issued under the Arkansas Higher Education Technology and Facility Improvement Act of 2005 are scheduled to be complete by fiscal 2017, according to the Arkansas treasurer’s office. The outlays drop steadily from $28.36 million in fiscal 2013to the last payment in fiscal 2017 of $16.6 million.

Payments from the City-County Tourist Facilities Aid Fund to the Little Rock Statehouse Convention Center, and Arkansas Livestock Show will continue at about $2.8 million yearly until fiscal 2016.

Payments for bonds issued under the Arkansas Water, Water Disposal, and Pollution Abatement Facilities Financing Act of 2007 will gradually decrease from $22.6 million in fiscal 2013 to $18.5 million in fiscal 2017. But, between fiscal 2018 and fiscal 2022 the payment jumps to $70.7 million. Those payments will decline to under $35 million in fiscal 2028 and will be paid off in fiscal 2044, Chief Deputy Treasurer Debbie Rogers said.

Beebe spokesman Matt DeCample said the governor wants the mechanisms to make the cut in place before he leaves office in January 2015.

“He recognizes that this might not happen until he’s out of office,” DeCample said. “There’s no harm in having them in there. It gives us additional options down the line.”

Beebe has tied his plans for a more speedy reduction of the tax to the end of disbursements from 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.

Several aspects of the case are still pending.

The 8th U.S. Circuit Court of Appeals ruled last December that the state needed to file a formal motion for release and await a court hearing on the evidence before it could be released from many of its desegregation funding obligations from the 1989 Settlement Agreement.In March the state filed a motion for release and requested a hearing on that motion in May, attorney general spokesman Aaron Sadler said. Neither have been ruled on, he said.

DeCample said the governor was encouraged about the possibility that the approximately $70 million annual payments could end.

“He thinks that the [desegregation] payments might be the most likely things we’ll see in the nearest future,” DeCample said. “The atmosphere of it all seems to be moving toward an end sooner rather than later. The governor’s confident this is going to happen, we just don’t know the specific date.”

Some Republicans called Beebe’s plan smart but said they want to see how it would work within the Legislature’s priorities. Some lawmakers campaigned on a desire for corporate and individual income-tax cuts.

“I appreciate that he’s put the trigger in effect ... we’re just going to have to take a look at it,” said Sen. Jonathan Dismang, R-Searcy.

Sen. Michael Lamoureux, R-Russellville, who will be the Senate’s leader in 2013 and 2014, called the method interesting.

“I think it reflects his view that the budget is tight,” Lamoureux said. “He’s a crafty budgeter, so I think he just thought it was his best option.”

Beebe recommended a 4.4 percent increase in general revenue spending for fiscal 2014. About $2.9 billion of the $4.9 billion in general revenue he has proposed is for education and Medicaid, both of which will see more funding this year.

But some other areas of the budget will also see an increase.

He proposed a $35.2 million increase for the General Government Fund to $570.27 million.

It includes the Department of Correction ($313.69 million total), Department of Community Correction ($76.9 million), Department of Higher Education grants ($34.9 million), Department of Parks and Tourism ($23.7 million) and others.

Beebe recommended a $9.75 million increase in the Other Funds category for a total of $239.76 million.

Other Funds includes the Department of Health ($91.57 million total), State Police ($66.9 million), Municipal Aid ($29.37 million), County Aid ($21.6 million), Child Support Enforcement ($13 million), County Jail Reimbursement ($9.45 million) and others.

Beebe recommended a $10 million, or 1.4 percent increase, in higher-education spending to $739.6 million. That is split among the state’s four-year, two-year and technical institutions.

Officials for Arkansas colleges and universities had requested $136.9 million more for fiscal 2014 but acknowledged that they don’t expect the money to materialize and said tuition increases could result.

“To have any recommendation for new funding is something I know the institutions are very pleased to see,” Department of Higher Education interim Director Shane Broadway said Friday. But “it’s not going to make the discussion about tuition increases go away.”

For four-year universities, Beebe proposed a $6.9 million increase to $594 million. Arkansas State University and the University of Arkansas at Fayetteville would each get a 2.6 percent funding increase. Arkansas Tech University would receive a 1.3 percent increase and the University of Arkansas for Medical Sciences would get 1 percent more. The other institutions would receive either no increase or less than 1 percent more.

Some of the state’s two year institutions would split a 2.2 percent increase for a total of $111.6 million.

The largest portion is $1 million to fund the Arkansas Delta Training and Education Consortium through Mid-South Community College.

The consortium was created in 1995 by colleges in the Delta to train workers in skills needed by businesses in the region.

Northwest Arkansas Community College would receive $534,639 or a 5.3 percent increase and the University of Arkansas Community College at Morrilton would receive an additional $235,145, or a 4.9 percent increase.

Three of Arkansas’ five technical colleges would split a 2.7 percent increase, or $882,242.

Black River Technical College would receive $64,112, or 1.1 percent, more; Ozarka Technical College would get $137,781, or 4.6 percent, more; and Pulaski Technical College would receive $680,349, or 4.7 percent, more.

Front Section, Pages 1 on 11/17/2012

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