The Legislature's tax overhaul task force Monday voted to terminate a contract with its Pennsylvania-based consultant after one of the panel's leaders said the task force will "go in a different direction" and rely on government staffs.
The Bureau of Legislative Research has a contract with PFM Consulting Group based in Philadelphia for up to $312,750. The contract started Sept. 14, 2017, and ends Dec. 31, 2018. The contract includes a provision allowing either party to terminate the agreement by giving 10 days prior written notice, said Jill Thayer, legal counsel to bureau Director Marty Garrity.
Through November, the bureau paid PFM $88,532.50, said Thayer. There will be some subsequent billing by the firm to the bureau, said a task force co-chairman, Sen. Jim Hendren, R-Sulphur Springs.
PFM helped the task force produce an 180-page interim report last month that summarizes its research on the state's sales and use taxes and excise taxes as well as property taxes and gives numerous possible changes. PFM project manager Randall Bauer presented a report Monday morning to the task force on the state's individual income taxes and corporate income taxes.
But Monday afternoon, in a voice vote with no audible dissenters, the Tax Reform and Relief Legislative Task Force approved a motion by Rep. Jim Dotson, R-Bentonville, to authorize the bureau to terminate the contract with PFM.
The task force is required under state law to make recommendations to the Republican-controlled Legislature and Republican Gov. Asa Hutchinson by Sept. 1. Hutchinson has repeatedly said he wants to further cut individual income tax rates after the 2015 and 2017 Legislature approved his plans for a total of $150 million in individual income tax rate cuts.
"PFM ... has done a great job of laying the groundwork with regard to educating us on tax policy, where our revenue stream goes [and] getting us through our interim report," Hendren told fellow task force members.
"But I think right now there is a feeling among the task force that it's time to go in a different direction," he said.
"It's really primarily because we think we have the resources in-house to do much of what lays ahead of us, which is taking a lot of this data that we have been given and formulating it into a path forward, so we are going to be dependent upon BLR, on DF&A and lots of other groups that we'll ask to come forward and share their perspective and they will be sharing their opinions and their recommendations," Hendren said. BLR is the Bureau of Legislative Research. DF&A is the state Department of Finance and Administration.
"The chairs will strive to make these balanced presentations so we hear from some on the right and some on the left, and it will be up to us at the end to make the final recommendations. We will begin that process after the fiscal session [that starts Feb. 12] working through the spring," Hendren said. The fiscal session is limited to a maximum of 45 days by the Arkansas Constitution and is for considering appropriations bills.
Rep. Lane Jean, R-Magnolia, is the task force's other co-chairman.
After the meeting, Bauer of PFM -- who served as budget director from 1998-2005 under then-Iowa Gov. Tom Vilsack, a Democrat -- said in an email to this newspaper that "PFM appreciates the opportunity to have worked with the task force toward meaningful tax reform.
"Further, we are gratified that through the work with us to date, members of the task force feel they have developed a strong foundation on the tax code and state tax efforts and are able to independently manage the initiative going forward. We will continue to be available if the task force determines it needs further assistance toward reaching its goals," Bauer wrote in his email.
During the Monday morning meeting, Hendren asked Bauer to include an upcoming $50 million-a-year tax rate cut into Bauer's written report on individual income taxes. Bauer said he would do so.
That cut -- for Arkansans with taxable income below $21,000 a year -- was enacted in 2017 and goes into effect Jan. 1, 2019. It is projected to reduce state general revenue by $25 million in fiscal 2019, which starts July 1, and then $50 million each fiscal year.
Afterward, Hendren said part of Bauer's report Monday included that individual income tax cut and part of it didn't.
Bauer said in his email that "the analysis on effective tax rates was done by filling out actual state tax returns -- which would be current taxes, not anything in the future.
"That was what was used for Arkansas and each of the other states as well," Bauer said.
Hendren said in an interview that the exclusion of the 2017-approved tax cut from part of Bauer's report on individual incomes taxes had nothing to do with the decision to terminate PFM.
"There was no specific thing that triggered this. It was just a feeling from a lot of the task force members that we have the ability to do what we need to do moving forward, so this firm has really been useful for providing the educational framework," he said.
"But I think a lot of us felt like they really weren't what we needed to help us through the recommendation phase," Hendren said.
During the task force's six-minute discussion about terminating the contract, Sen. Joyce Elliott, D-Little Rock, said, "We will be getting information from [the bureau] that will be nonpartisan, that will be straight ahead what we ask for."
"Another thing I want our task force to be mindful of and [the bureau] to be mindful of is I don't want [the bureau staff] to think you have to come and say what we want to hear," she said. "I think that is very, very important for DF&A and anybody else.
"While I agree with this motion that we have gone as far as we can go and should with these consultants, but I am not looking for somebody to say to Joyce Elliott what you think I want to hear because this is too important ... and for there to be no sense of fear or sense of obligation to us that any of our folks who are going to be testifying have to make us feel good or feel bad for that matter," Elliott said.
Hendren said that's "well said."
He said "the fireworks" are going to start when task force members begin talking about changes in the state's tax code.
"But rather than having somebody we pay to sit down there and tell us those things, a lot of that is going to have to come from you all, so be prepared to do that, be prepared to help us make the kind of changes to the tax code that are best for the state and make sense for all of that," he said.
After the meeting, the governor said a written statement that he didn't give any input about the consultant to lawmakers before the decision to fire PFM.
"I was advised in advance as a courtesy," Hutchinson said. "I understand and respect the decision. In addition to the research that has been done to date, there are sufficient internal resources to provide the necessary support for the task force as they work toward their recommendations on tax reform."
Hutchinson is Hendren's uncle.
PFM is one of two consultants that the Legislature hired last year at a combined potential price tag of nearly $650,000. The Legislature also hired Ikaso Consulting of San Bruno, Calif., to help review procurement laws under a contract for up to $336,800 through Dec. 31, 2018.
Before the Legislative Council approved the contract with PFM on Sept. 15, Sen. Bryan King, R-Green Forest, suggested the bureau's staff could do the work instead with the help of the National Conference of State Legislatures. The conference is a bipartisan national advisory organization and resource for legislatures and their staffs. King is not a member of the task force.
Hendren said he doesn't believe it was a mistake to hire PFM.
"For what they have provided up to this point has been helpful and useful to the task force, but I don't think they have demonstrated at least to me and to many that they are what we need to start doing some of the advocacy and analysis and recommendations moving forward," he said.
King said hiring PFM was "a total waste of taxpayers' money" and Hendren needs to "disband this debacle." He also said the task force needed to start over with new leadership.
A Section on 01/09/2018