Giving away revenue risks a balanced budget.

Arkansas families know, when they are putting together a budget, that total family income must be more than total family expenses. Likewise, the Arkansas state government must ensure that revenue be greater than the expenditures in a budgeted year. In fact, Amendment 20 to the Arkansas Constitution, adopted in 1934, requires the state to obtain popular public approval before issuing debt. Various state laws require the governor to propose a balanced budget and the Department of Finance and Administration to avoid deficits. The legislature has its own innovative tool, the Revenue Stabilization Act, to avoid deficit spending.

As part of the process to develop a balanced budget, the Secretary of the Department of Finance and Administration provides to the Arkansas Legislature a forecast of general revenue for the upcoming fiscal year. The latest official forecast memorandum dated May 21, 2025, projects net available general revenues of $6,679 million for the current fiscal year, an increase of $153 million, or 2.3%, from last year. This revenue is expected to fully fund the approved general revenue budget, leaving a $185 million surplus.

The Department of Finance and Administration also provides monthly revenue updates. The August summary indicates revenues nearly 8.9% above forecast. This jump in revenue can be at least partially explained by the Governor’s Executive Orders 25-08 and 25-09, which postponed tax filing deadlines from April and June to July 31 for residents of counties affected by severe storms, flooding, and tornadoes.

Despite this explanation of the better-than-expected August revenue report, and that the August report is only the first monthly report in a long fiscal year, some in government are already calling for another round of income tax cuts. For now, let’s set aside the discussion on whether further income tax cuts will help most Arkansans. Instead, let’s stick to “Tax and Budget 101” and consider revenue AND expenditures. The state SHOULD NOT consider additional tax cuts given the additional expenses and economic insecurity we are facing.

Here’s a quick rundown of some of these new expenses:

• Education Freedom Accounts (public vouchers for private and home schooling): For EFAs in the current fiscal year, the state has budgeted $188 million, plus another $90 million in a set aside in case of high demand. This is enough to provide 39,700 EFAs at $7,000 each. But the Department of Education received 51,231applications this year, and the governor has indicated she is committed to finding funding for all eligible applicants. That’s an additional $80 million. And the set aside will have to be incorporated into the budget in future years, for a total of $170 million.

• New State Employee Pay Classification System: Most people agree that state employees deserve a raise. But this costs money. While increases are paid out of the Performance Fund this current year, they will have to be incorporated into the budget in future years. Assuming 20% of the increases can be absorbed by current department budgets, we will need an additional $100 million.

• Public Education Per Pupil Spending: Most people also agree that we need to increase the amount of funding school districts get for each student. And the increases enacted by the legislature will cost an additional $70 million.

• New Prison: Whether the state builds a new prison in Franklin County or not, it is seeking to increase the number of prison beds. Not only is it expensive to build a prison, it is also expensive to operate it. The cost to operate a new prison of the magnitude the state is seeking is approximately $30 million.

• The Supplement Nutrition Assistance Program (SNAP) Administrative Costs: The federal bill H.R. 1, also known as the “One Big Beautiful Bill Act,” is now law. And the law requires each state to pay more to administer the SNAP program each year. In Arkansas, the increase will cost $23 million.

• The Supplement Nutrition Assistance Program (SNAP) Program Costs: For the first time ever, the federal government will require states to pay a portion of SNAP program costs based on the number of errors they make in administering the program. While the amount that Arkansas must pay could double in the future, for now it is $55 million.

The total of the dollar amounts just for the items listed equals $448 million. But that’s not all: there is also economic uncertainty in our future. For example, what additional costs will the federal government push to the states in such sectors as education, student loans, natural disaster relief, low-income housing, affordable energy, and others? What will the state need to spend on overcoming the healthcare harm created by H.R. 1, including making sure rural hospitals survive? What are the effects of tariffs on employment and tax revenue in Arkansas? What if we see increased unemployment and inflation? The list goes on.

But for the sake of argument, let’s stick with the $448 million in new expenses outlined above. This $448 million by far eclipses the surplus forecasted by the Department of Finance and Administration for the current fiscal year ($185 million). In fact, it is much more than two fiscal-year surpluses of this amount.

Now is exactly the wrong time to consider any new income tax cuts that give away precious revenue, as giving away revenue risks a balanced budget. Instead, the governor and legislators must begin the difficult work of learning how to budget with a high degree of economic uncertainty and with an understanding of increasing budgetary demands from the federal government and elsewhere.