What the Gov’s proposed budget could mean for key agencies

If you care about education, child welfare, juvenile justice, education, or public health in Arkansas, you must pay attention to the state budget. This is because, of course, great policy is not free. We are just days away from the start of the 2017 legislative session, and the first major step of the budget formulation process happened in early November with the release of the Governor’s proposed budget. This blog will walk you through the good and the bad for each of those agencies’ funding prospects under the new budget.

Counting our chickens at the capitol (the budget forecast)

Before we get into the details of how our tax dollars will be spent, we should take a look at how many tax dollars we will have to work with. That’s the revenue forecast. According to predictions from the Governor’s office, we won’t be starting off with impressive revenue growth. In fiscal year 2017, the official forecast shows negative growth (down $34.7 million or about -.6% compared to the previous year). This would be a very different story if we had retained the recently passed $242 million in tax cuts instead of spending it on tax breaks for those who needed it least. In the following year, fiscal year 2018, the Governor’s office expects moderate growth of 2.8 percent. The year after that, they expect a very ambitious 4.9 percent growth rate. Remember, just like weather forecasts or any other type of prediction, the farther out you look the less reliable the numbers are.

Agency spotlights

Efforts to improve funding for health services and the foster care system are the major bright spots of the current budget plan. Unfortunately, there are still many missed opportunities, like options to prevent incarceration in our juvenile justice system or to improve our public schools. This is why it is important to keep in mind that these budget numbers are just the starting point in a long deliberation and are by no means final.

  • Healthcare in Arkansas: the Department of Human Services (DHS)

DHS was one of few agencies that saw an increase in funding, while other state agency budgets remained relatively flat. Some of this increase can be attributed to the Medicaid program and other health services. This is due to $110 million in normal growth in the costs of delivering health care, but almost half is expected to be offset by $50 million of savings resulting from reorganizing the agency. In 2017, states also must begin contributing a share (5 percent of the costs) to the Medicaid expansion program, now called Arkansas Works.

The Governor’s budget also includes additional funding to support services for people with mental illnesses by putting $5 million towards the creation of three crisis stabilization centers.  The centers were recommended by the Behavioral Health Treatment Task Force, which was created as part of the Governor’s criminal justice reform initiative. The crisis stabilization centers are expected to improve services for people with mental illness that are often left untreated in county jails.

  • Taking care of our most vulnerable kids: the Division of Children and Family Services (DCFS)

The foster care system is overburdened and in crisis. In response, the Governor has requested an increase in the DCFS budget. This request includes an increase of $26 million for SFY 2018 and $38 million for SFY 2019. The number of children in foster care is at an all-time high of 5,200 children. In November 2016, the Arkansas Department of Human Services released a special report that included a plan to stabilize the Arkansas child welfare system.

As part of this plan, additional funding over the two-year period would be used to hire 228 new workers to help ease the burden and retain staff. DCFS has a high staff turnover rate (32 percent). DCFS is also looking at ways to keep more children safely at home instead of in foster care. The Governor requested and the legislature approved in November an additional $10 million for DCFS in fiscal year 2017. Part of that funding will be used to create a prevention and reunification unit and will focus on helping families keep their children safely at home. But without the additional funding for more staff and prevention and reunification programs, the number of children in foster care will continue to grow.

  • Looking out for our Youth: Juvenile Justice and the Division of Youth Services (DYS)

At this point the DYS budget has not been reviewed by the Joint Budget Committee. These comments reflect the proposed budget and are based on the Governor’s recommendations through the 2018-19 biennium.

This proposed budget does represent a better investment in community-based services. However, the overuse of residential confinement of youth in the state’s justice system continues. From 2000 to 2014, the number of Arkansas youth confined in residential facilities rose nearly 22 percent. By contrast, confinement declined 53 percent nationwide and 56 percent in the other 10 states of the Deep South. Many of these Arkansas youths can be better served in proven-effective, community-based alternatives. It would cost the state less, increase the youth’s chances of success and improve public safety if we adopted this community approach to rehabilitation.

The Division of Youth Services’ overall annual budget will increase $1.88 million during the upcoming biennium. The budget for residential services (which includes secure lockups) will remain flat at $27.6 million after having increased from fiscal year 2016 to 2017. Community services will see an increased appropriation of $2.817 million. This will offset the $1.6 million decrease in community services’ appropriation during the 2015 to 2016 fiscal year. And will result in an additional $1.2 million increase for community services over previous years. This much-needed increase in community services was made possible, in part, by a $1.4 million decrease in DYS administrative costs in the upcoming biennium. There was also a $500,000 increase in incentive block grants during the 2017 to 2018 fiscal year. This will fund two additional Juvenile Detention Alternative Initiatives (JDAI) designed to decrease the number of youth held in county-operated detention centers. During 2014 to 2016, two detention centers in Northwest Arkansas successfully implemented JDAI and saw significant reductions in the use of detention.

  • Funding for young learners: the Department of Education

Ensuring that children and working families have access to quality pre-K has been one of AACF’s top priorities for nearly 20 years. During the 2016 fiscal session, we continued to push for a much-needed funding increase for the state-funded Arkansas Better Chance (ABC) program, which has been flat-funded since 2008. While the Governor agreed to include a $3 million increase in his newest budget, this amount falls short of the program’s urgent needs.

Although legislators overwhelmingly approved the Positive Youth Development Act (PYDA) in 2011 to help expand after-school and summer programs statewide, the program remains unfunded in the current budget plan. The Joint Education Committee recommended adding an additional $4 million to National School Lunch categorical funding in the state’s biennial “adequacy” study, which could be used for matching grants for districts’ after-school and summer programs.

What if we have money leftover?

If we collect more tax revenue than we expect over the coming years, we will end up with a surplus. A primary outlet for that surplus money is the General Improvement Fund (GIF), which also houses other types of miscellaneous government funds. GIF money is intended for one-time projects that benefit the entire state. The GIF project funding for the current biennium is planned for things like educational facilities ($100 million), the computer science initiative ($5 million) and higher education workforce grants ($6 million). Those types of projects each show up on the GIF balance sheet and are relatively transparent.

Other ways to spend GIF funds are more opaque. There is a discretionary spending section of the GIF that traditionally divides sometimes tens of millions of dollars between the executive and legislative branches. That funding is less transparent because each legislator can choose what his or her allotment should be spent on, without it showing up on the main balance sheet. This type of spending has come under criticism (and multiple lawsuits) because it can be interpreted as unconstitutional.

In a diversion from normal operating procedure, the Governor is proposing $0 for this type of discretionary spending. The Governor might have held back on discretionary funds out of necessity from a tight budget, or because of the recent criticism. Many will see this change as a positive move for Arkansas overall, but it is not a flawless win. Although it will likely clear out funding for localized projects that weren’t ideal candidates for GIF in the first place, cutting off funding for some of those projects will sting (think county fairs and firefighting equipment for the forestry department).

Tax cuts and other issues to watch

The current budget plan is based on tax revenue projections, which are based on many things, including current tax policy. If we change tax policy, that affects how much revenue we have left to spend on things like child welfare and education. That’s why it is important to consider any tax changes on the front end of the budget process. If legislators decide on a budget and then pass a tax cut afterwards, they must go back and make cuts to important programs. This has happened before in Arkansas and in other states.

The Governor’s current plan includes a $50 million tax cut. We haven’t seen the economic growth this year that we need to absorb the previous two rounds of tax cuts (totaling $242 million), and it is certainly troubling to see more cuts on the horizon. This is also a time to remember that these plans are very changeable, and many legislators will be pushing for much larger tax cuts than this initial $50 million proposal. According to the Arkansas Democrat Gazette “Hutchinson told reporters that if lawmakers cut more than $50 million a year, ‘we’ve got to have offsets with closing other tax loopholes or exemptions.’” Major tax cuts are essentially a threat to the community investments that kids and families depend on–like summer reading programs, pre-K, and parks–because they shrink the pot of money that keeps all of those services running.

Another threat to funding for programs that support thriving communities are “General Revenue transfers.” General Revenue supplies most major agencies with state funds. Think education, health care, higher education, police and corrections. Transferring money out of General Revenue for any reason compromises our ability to maintain adequate programs. That translates to things like larger class sizes, restricted library hours, and dilapidated schools and public buildings. Despite these risks, the highway department has repeatedly attempted to withdraw funds from General Revenue. We recommend alternative measures for highway funding (like a modernized fuel tax) that do not come at the cost of kids and families.

What does this year’s budget mean for children and families?

Of course, children cannot vote, but their lives will be influenced by what legislators decide at the Capitol. There is still time to prioritize funding for quality pre-K, after-school and summer programs, and to fix our foster care system and other urgent needs. If we pull together and invest our tax dollars in the health, safety, and education of our kids and families we can create a successful, prosperous community that benefits everyone.