The Arkansas General Assembly 2026 Fiscal Session commences on April 8. In preparation for the session, Department of Finance and Administration Secretary Jim Hudson presented the Governor’s proposed fiscal year 2026-27 general revenue budget to the legislative Joint Budget Committee on March 4. Secretary Hudson began with a summary of “Governor Sanders’ Letter on Her Balanced Budget” before taking questions from legislators.
Here are the most important takeaways from the Governor’s proposed budget:
Increase In Spending Over Current Year
The Governor claims a fiscally responsible increase of 3% (a $194.6 million increase over last year’s general revenue budget, to a total proposed expenditure of $6.69 billion). Over the past 12 months, year-over-year inflation has ranged between 2.3 to 3.0%. This means that the budget increase is just exceeding the rate of inflation. Just as a family finds it more expensive to pay the bills, so is it more expensive for our state government to do business. In fact, the governor’s request holds the budget level — no increases — for most state departments and funds. Therefore, leaders of those departments will be asked once again to do more with less.
Upon closer inspection, Education Freedom Accounts (EFAs), the public-dollars-funded vouchers for private and home schooling, make up a whopping 63% of the increase in proposed spending. Add in another 28% for salary increases primarily within the departments of Corrections, Public Safety, and Agriculture, and very little is left for investment in programs more directly supporting children and their families.
Public Vouchers for Private and Home Schooling (EFAs)
The price tag associated with EFAs continues to rise dramatically. It is therefore worth revisiting the math. Last year, during the regular legislative session, the legislature approved $187 million for EFAs. In her proposed budget that year, the Governor included another $90 million in a budget set-aside (a technical term for an allocation outside of the official budget funded by surplus from the previous year) to cover any additional demand for EFAs. When that money ran out, the executive branch returned to the Arkansas Legislative Council to request an additional $32 million instead of turning away applicants for the vouchers. This brought the total allocated for EFAs, for the current fiscal year, to $309 million.
The Governor’s request for the next fiscal year, 2026-27, incorporates the $122 million in one-time funding into the budget, to arrive at $309 million. If approved, this obligates the state to fund vouchers at this level for the coming year and probably into the future, as the legislature is unlikely to take away EFAs once awarded. Additionally, the governor’s new budget requests a $70 million set-aside to cover any growth in the program, which is certain to happen.
Just as important as this new total amount of $379 million is the process by which the voucher program is expanding. By only budgeting the 2025-26 level of expenditure in the 2026-27 budget, and funding growth through set-asides, the governor is practically taking away budgetary authority from the legislature (which is constitutionally responsible for making and enacting any budget decisions). Even if the Department of Education does not come to the Arkansas Legislative Council during the year to request money, it will be able to use the $70 million to grant EFAs to approximately 10,000 more children. Then, because it is politically difficult to take away vouchers once granted, legislators will feel obligated to go along with increase after increase, year after year.
Best budgeting practices require the governor and her staff to project, in the actual budget and not through a set-aside, the growth in demand for vouchers. Yes, this process involves some uncertainty and estimation, but so do other line items, such as state matches on federal programs. And having a realistic amount in the budget proposal allows for proper debate and consideration by our elected representatives in the legislature, during the fiscal session.
Supplemental Nutrition Assistance Program
H.R. 1, enacted by Congress last year (commonly referred to as the One, Big, Beautiful Bill Act, or the OBBBA), passes costs traditionally covered by the federal government on to states. The first to affect the Arkansas state budget in fiscal year 2026-27 is increased administrative costs for the Supplemental Nutrition Assistance Program (SNAP, formerly called Food Stamps). While the state used to pay 50% of those costs, it now must pay 75%. That 25% increase is about $25 million per year.
Secretary Hudson detailed that the state will need to fund $18 million in an administrative cost increase in the new budget (the difference between $25 and $18 million is because the new requirement goes into effect on October 1, when the new federal fiscal year begins). It is also important that the state begin planning now for fiscal year 2027-28, when up to an additional $55 million cost share may be required of Arkansas, or risk losing the more than $500 million in federal SNAP funding the state receives every year. This funding is so very important to hungry children and families in the state.
Yet More Income Tax Cuts?
The governor’s letter continues her push to reduce state income tax. What is new is her proposed mechanism for doing so. The Arkansas general revenue budget is officially known as the Revenue Stabilization Act, or the RSA. Every session — both regular and fiscal — the legislature amends the RSA to officially enact the budget for the coming fiscal year.
The RSA is unique among state budgeting practices. It allows the governor and the legislature to propose spending in priority “buckets.” For example, those programs and functions we really must fund go into bucket A, those that we would like to fund go into B, those that it would be nice to fund go into C (the law doesn’t stipulate how many buckets, and in recent fiscal years there has been only one). If there is an economic downturn and we collect less revenue than expected, this allows the state to avoid deficit spending and to avoid drastic spending cuts in the middle of the year, as we must balance the budget.
However, the governor and the Secretary of Finance and Administration are proposing that the RSA be tapped as an income tax cut tool. Her budget proposal places 93% of the budget in bucket A, and the rest in bucket B. They seem to be suggesting that we really don’t need those items in bucket B, thereby justifying an income tax cut later in the year. This is not at all the purpose of the RSA legislation.
Instead, it is time for legislators to take a step back and consider the current economic situation. The federal government is poised to put increased fiscal demands on state governments. Inflation is not under control, and the job market and consumer spending are showing troubling signs. This time of economic uncertainty is exactly the wrong time to consider reducing the amount of revenue the state receives. Our leaders have not been able to communicate how we would continue to operate state government with no income tax, which makes up nearly 50% of our state’s general revenue. If the governor and legislature are serious about the march to no income tax, we should all ask: What does zero get us?