Legislative leaders said Tuesday that they want more information on state tax collections and Gov. Asa Hutchinson's proposed general-revenue budget for fiscal 2018 before they weigh in on whether the state can afford a $50 million income tax cut.
House Speaker Jeremy Gillam, R-Judsonia, said administration officials "are going to have the opportunity to show the math on that.
"That's kind of why I am keeping an open mind right now because it's still so early in the process," Gillam said in an interview on the first day of the Legislative Council and Joint Budget Committee's budget hearings. The hearings are in advance of the regular legislative session that starts Jan. 9.
"Based on the things that I have seen, I am a little bit more hesitant that the growth will be there. But we have another quarter before we go into session, so I am open to let the process work itself out right now," Gillam said.
The Joint Budget Committee co-chairman, Sen. Larry Teague, D-Nashville, said affording a $50 million annual income tax cut would be easier than a $100 million tax cut.
"A lot will depend on what's happening in our economy," he said.
"I am optimistic that [in] the last few months of the year, revenue is going to pick up and that we'll be OK, but [there is a] lot to consider as we move forward," Teague said. "Legislative staff thinks that it [revenue] should pick up as we move forward deeper into the year, and I hope that's right."
During each of the first three months of the current fiscal 2017, general revenue hasn't met forecasts because corporate and sales tax collections have fallen short of projections.
For the first three months, Arkansas' general revenue totaled $1.52 billion, below forecast by $36.1 million, or 2.3 percent. Compared with the same period in fiscal 2016, tax collections are nearly flat, the state Department of Finance and Administration reported last week.
Earlier this year, the Republican-controlled Legislature and Republican governor passed a $5.33 billion general-revenue budget for fiscal 2017 that factors in a previous income tax cut of about $100 million, which was approved in the 2015 legislative session.
Most of a $142.7 million budget increase that was passed in this spring's fiscal legislative session goes to the state Department of Human Services and public schools under the Revenue Stabilization Act. Fiscal 2017 started July 1.
Hutchinson said Friday that he believes the state could conservatively afford a $50 million annual income tax cut, even amid some economic uncertainty, but he hasn't decided how large of a cut he'll ask the General Assembly to pass next year.
The governor said his goal is to unveil a proposed income tax cut plan on Nov. 9 -- the day after Election Day -- when his administration presents its general-revenue forecast and proposed budget for fiscal 2018 to the Legislative Council and Joint Budget Committee. The governor's plan would be for the tax cut to become effective Jan. 1, 2018, Hutchinson spokesman J.R. Davis said.
"We are still waiting to see his budget, and so that is something that he has that we don't at this point, and so he would be in a better position to say what would be acceptable or what the state could stand as far as tax cuts," Senate President Pro Tempore Jonathan Dismang, R-Searcy, said Tuesday. "So at this point, it is impossible to comment on this."
Hutchinson said last week that he's considering future income tax rate cuts for Arkansans who didn't receive any benefit from the tax cut that was passed in 2015. The 2015 cut reduced individual income tax rates from the previous 7 percent to the current 6 percent for those with taxable incomes between $35,100 and $75,000 a year, and from 6 percent to 5 percent on taxable income between $21,000 and $35,099.
House Revenue and Taxation Committee Chairman Joe Jett, D-Success, said he's open-minded about whether the state can afford another income tax cut.
"Until we kind of get our hands wrapped around the numbers for the budget, I'm just going to kind of sit tight," he said.
Jett said he's prepared to support creation of an earned income tax credit, like Rep. Warwick Sabin, D-Little Rock, has proposed, "if we have the money, and then work with the governor for income tax cuts" for others.
Rep. Charlie Collins, R-Fayetteville, said Tuesday that he wants to have at least a $100 million net income tax cut, and he plans plans to review existing tax exemptions and promote cost savings measures to cut income taxes as much as possible.
He said he favors using the approximately $70 million a year that the state will save from no longer making desegregation payments to Pulaski County school districts to cut income taxes more rather than using the money to cut the sales tax on groceries from 1.5 percent to 0.125 percent, as a 2013 law requires. The 0.125 sales tax goes for conservation programs under the Arkansas Constitution.
Asked about using the desegregation money to cut income taxes more rather than reduce the grocery tax, Dismang, a member of the Senate Revenue and Taxation Committee, said, "I do not see that being likely at this point."
There may be some merit in reviewing sales tax exemptions "to make sure that they still have a benefit for the state and should be utilized," he said.
"But we also have to be mindful that it is going to take a lot of political will to remove exemptions," Dismang said.
Meanwhile, Gillam said Tuesday that he decided early last week -- without any prompting from the governor's office -- to ask the House and Senate Education committees to expunge their Oct. 3 recommendation to increase funding for the special-education "catastrophic fund" by $20 million a year as part of their educational-adequacy cost recommendations.
There's currently $11 million a year put in the fund, but it has about $30 million a year in eligible expenses. It provides for students who have severe disabilities.
"That was all me," Gillam said of the expunge request.
"I wasn't able to be at the meeting that they did that, and they weren't supposed to take any votes on any of the dollar amounts until we had everybody there. They moved too quick, so I am trying to get us back in that neutral [place] in that process because there were a whole bunch of us that day ... that weren't able to be there that wanted to be in on some of these discussions," Gillam said.
He said his decision "had nothing to do" with helping fund a future income tax cut.
Sen. Uvalde Lindsey, D-Fayetteville, said he hasn't had any conversation with the governor's office about an effort to expunge the House and Senate committees' recommendation. He had made the motion to increase the funding.
Davis said, "Legislative leadership was aware of the governor's concerns, but there was no request by the governor to take any specific action. The $20 million recommendation is a dramatic shift in funds, and it seems the issue wasn't fully considered.
"On the funding for Special Education Catastrophic Occurrences, it is important to point out that this funding is a reimbursement to districts for high-cost special-education students. The additional funding will not add or eliminate services for students," Davis said. Instead more of the cost would shift to "the state instead of the district. These high-cost students are paid for with a mix of local, state, and federal funds," Davis said.
Dismang said he's not lobbying the House and Senate Education committees to expunge their recommendation on the special-education funding. But he said, "I do have some concerns about what we are writing into the adequacy report.
"It's been my viewpoint and -- I am not an Education Committee member, though -- that adequacy should be as narrowly defined as possible, and then we have the ability outside of the adequacy report to make policy recommendations.
"So I think there [are] multiple areas [for which] we are trying to make actual policy recommendations in the report, and my encouragement would be that we need to do what we need to do in regards to adequacy, and we [can] have those discussions when we actually get into session."
A Section on 10/12/2016