An Arkansas legislative panel on Tuesday called for the Legislative Council to rescind its approval last month of $500 million in spending authority for the state Department of Education to disperse funds under the federal American Rescue Plan's Elementary and Secondary Schools Emergency Relief Fund.
With no audible dissenters, the Legislative Council's Performance Evaluation and Expenditure Review Subcommittee approved a motion by Senate President Pro Tempore Jimmy Hickey, R-Texarkana, to recommend that the council on Thursday vote to expunge its approval of that spending authority June 17.
Afterward, Hickey said his aim is for Gov. Asa Hutchinson's administration and educators to try to develop a plan to use the federal funds to finance a recruitment and retention bonus program in the public schools for the Legislative Council to consider in the future.
The purpose of the American Rescue Plan Elementary and Secondary Schools Emergency Relief Funds is to help state education agencies and local school districts to safely reopen and sustain sustain safe operations of schools and to address the academic, social, emotional and mental health impacts of the coronavirus pandemic on the nation's students, the state Department of Education said in a report to lawmakers last month.
The state has received a total of $1.7 billion in three tranches of federal Elementary and Secondary Schools Emergency Relief Funds tied to covid-19 to distribute to school districts, said state Department of Education Secretary Johnny Key.
About $914 million of these federal funds are allocated to school districts but haven't been spent yet, said Greg Rogers, assistant commissioner of fiscal and administrative services at the state Department of Education.
A legislative subcommittee co-chairman, Sen. Jonathan Dismang, R-Searcy, said he found a Dec. 16, 2021, memo from U.S. Department of Education Secretary Miguel Cardona stating that these federal funds can be used for retention and recruitment bonuses for teachers or staff and mental health for staff.
He said he has talked to some school district officials who thought they could only use these federal funds for capital projects.
Key said some school districts have used these federal funds for additional pay for extra duties tied to covid-19, for recruitment and retention bonuses and incentives for vaccination.
Dismang said other states' education departments encouraged school districts to use these federal funds for retention and recruitment programs.
Key said the state Department of Education encouraged school districts to use these federal funds for recruitment and retention, and reviewed plans from school districts to do that. The school districts have a lot flexibility to use these federal funds that are distributed based on the Title 1 funding formula, he said.
Dismang said some school districts he has talked to didn't know they could use these federal funds for retention and recruitment bonuses.
But Key said "If they didn't, it is not because they haven't been told, because we have been telling them."
Dismang said "even in our own discussions, there was some lack of clarity or knowing whether or not that would be accepted or an acceptable thing to do."
Key said school districts' plans for using these federal funds have to be tied somewhat to covid-19.
"You just can't go out and create bonuses," he said. "There has to be a plan."
Dismang said there is no question these federal funds can be used for retention and recruitment bonuses in the public schools based on the guidance from the U.S. Department of Education.
Senate Education Committee Chairwoman Missy Irvin, R-Mountain View, said she wants information on how each school district spent its federal Elementary and Secondary Schools Emergency Relief Funds if the money was not used for bonuses, "so we can send that information out to the teachers so they can go to their local school districts with that information and question why they chose to use [these federal funds] for this versus bonuses for them."
Key said "that will be a big list."
State Rep. Johnny Rye, R-Trumann, said the bonuses financed with federal funds would only be one-time funds and not an increase in teachers'ongoing base salaries.
Afterward, Hickey said a state law requires state agencies to bring a detailed report to lawmakers on their proposed use of federal American Rescue Plan funds when they request spending authority to use the funds.
"Obviously, they were not detailed enough with the $500 million, and we are going to require those reports to start coming before us and we are going to request that the education constituency out there gets with the executive branch and they try to figure out how to structure this for the retention bonuses [out of the federal Elementary and Secondary Schools Emergency Relief Funds].
Hickey said he expects the Legislative Council to approve his motion Thursday.
"We are not looking to use our surplus funds of the state for salaries and reoccurring expenses, and we are holding to that," he emphasized.
"However, we are providing an option out here that if the constituency can get with the executive branch and they can figure out something that is suitable through those [federal Elementary and Secondary Schools Emergency Relief Funds], then we are going to look at it as they bring it back to us piece by piece, not in a half-billion dollar block," Hickey said.
The Arkansas Education Association announced Tuesday that parents, educators and public-school advocates will attend Thursday's meeting of the Arkansas Legislative Council and call on lawmakers to prioritize educator pay increases during the upcoming special session
Hutchinson said Tuesday in a written statement that "The recommendation [of the Legislative Council's Performance Evaluation and Expenditure Review Subcommittee] reflects the desire of the General Assembly to do more to retain and pay teachers.
"I appreciate Senator Hickey working on this issue," the Republican governor said. "There is a question as to whether an appropriation once passed into law can be rescinded but it is important for both the executive and legislative branches to work together to increase teacher compensation."
Earlier this month, Hutchinson said he won't put a teacher salary increase on the call for the special session that he intends to call starting Aug. 8 to consider tax cuts because of the lack of support in the Republican-dominated Legislature for a teacher pay increase in the special session. House and Senate Democrats have said they support raising teacher salaries in the special session, and some Republicans have signaled their support for teacher raises.
At that time, he said "The core of the special session, the reason it is called, is to provide the tax relief" after state government collected its largest general revenue surplus ever totaling $1.628 billion in fiscal 2022 that ended June 30.
Several weeks ago, Hutchinson initially proposed raising teacher salaries to a minimum of $46,000 and implementing at least a $4,000 salary increase. Under Act 170 of 2019, the minimum teacher salary is $34,900 in the 2021-2022 school year and will increase to $36,000 in the 2022-2023 school year. At that point, Hickey said the proposal would cost $333 million to implement and "I don't see we get anywhere close to that."
Hutchinson subsequently trimmed his initial proposal to increase the minimum teacher salary to $42,000 a year and provide a $4,000 increase to every teacher for the 2022-2023 school year. That proposal's total cost of $150 million for fiscal 2023 that started Friday and ends June 30, 2023, would come out of the fiscal 2022 surplus, according to Key.
For fiscal 2024, the public school fund would need $140 million in ongoing general revenue under this proposal and the $60 million in additional needed funds would come from combined growth in the educational adequacy fund, educational excellence trust fund, and uniform rate of tax, Key has said.
Key has pointed out that going into the 2022-23 school year, base salaries in Oklahoma, Missouri, Tennessee and Mississippi are all higher than Arkansas, and Mississippi just increased its base salary to $41,500 along with an approximately $5,000 salary increase for every teacher.
The four-pronged tax cut package that Hutchinson has said he reached consensus on with legislative leaders is projected to reduce state general revenue by $433.8 million in fiscal 2023, $166.6 more in fiscal 2024, $69.5 million more in fiscal 2025, $18.4 million more in fiscal 2026 and $8.4 million more in fiscal 2027, according to the state Department of Finance and Administration.
The four prongs of the package include:
• Accelerating the implementation of cutting the state's top individual income tax rate from 5.5% to 4.9%, retroactive to Jan. 1, 2022. The state's top individual income tax rate is scheduled to be cut to 5.3% on Jan. 1, 2023, to 5.1% on Jan. 1, 2024, and to 4.9% on Jan. 1, 2025, under current state law.
• Temporarily axing the 2% tax rate on income ranges from $5,100 to $10,299 for those with net income of less than or equal to $87,000. It would amount to about $100 per qualifying individual and $200 for a dual earning couple to be received via withholding reduction and/or a tax refund.
• Accelerating the reduction in the state's top corporate income tax rate to 5.3% on Jan. 1, 2023. Arkansas' top corporate income tax rate of 6.2% dropped to 5.9% on Jan. 1, 2022. The rate is scheduled to drop to 5.7% on Jan. 1, 2023, to 5.5% on Jan. 1, 2024, and to 5.3% on Jan. 1, 2025, under current state law.
• Adopting the 2022 federal Section 179 depreciation schedule that allows businesses to deduct the entire purchase price of new or used equipment up to $1.08 million in 2022 rather than capitalizing and depreciating the asset over the designated useful life of the asset The $1.08 million deduction is reduced dollar for dollar if asset purchases exceed $2.7 million for 2022.
Arkansas previously adopted Section 179 as it existed Jan. 1, 2009, and the dollar limitation on the deduction is $25,000 and the dollar-for-dollar phase-out starts at $200,000, according to the finance department. The federal limitation is adjusted for inflation each year.
Hickey said Tuesday in an interview that cutting taxes is a reoccurring expense for state government, but the Legislature already has enacted laws in the Dec. 7-9 special session to phase in cuts in the state's top individual and corporate income taxes.
"I will say that I understand that we are accelerating [the implementation of the individual and corporate tax rate cuts] but that legislation itself is already on the books, so we are going to cut that general revenue out of our budget," he said.
"If we start passing in a special session a salary increase, then we are going to have the tax cuts that we have already done, plus this additional [expense], so we have got two reoccurring [expenses] this way, and I fully expect that we are going to do something for teachers come January" after educational adequacy review by the House and Senate Educational Committees is completed this fall, Hickey said. "I truly do. But it want it to go through the process and us to look at all of our [general revenue] forecasts and everything else to make sure whenever we do two recurring [expenses] -- the tax cuts and it -- that we have all that lined out for the future."