Gov. Hutchinson’s Revenue Forecast: A Solid Start

by Eleanor Wheeler, senior policy analyst

Asa Hutchinson’s budget was released last week, marking the first play in a long exchange between the Governor and legislators over what changes should be made to our tax system and how that money should be spent. These early discussions are very fluid, and if previous years are any indication, it’s possible for only the worst parts of a mixed bag to end up in the final plan at the end of the session. With that in mind, this plan still includes some reasons to be optimistic.

Perhaps the brightest spot in the plan is the $27 million in new funding dedicated to the child welfare system. DCFS case workers help our kids through their most difficult and vulnerable times, and they have been desperately underfunded for years. Advocates for children in the foster care system are surely breathing a sigh of relief at this increase.

The Governor also included $10 million for higher education, contingent upon a new performance-based funding formula. He also made permanent the $3 million increase to pre-K that was only temporarily funded through one-time money last year. That $3 million for pre-K is now part of the agency’s ongoing operating budget, according to the Governor’s proposed budget. After going so long on a shoestring budget, kids and teachers at our pre-K centers really need closer to a $40 million dollar increase to keep up with inflation, but it’s a decent start. Especially after the GOP removed pre-K from its platform entirely this year.

One of the more encouraging parts of the plan, from an advocate’s perspective, is that the Governor decided to restore the $1 million that libraries lost last year. A lot of people were upset to see libraries, a foundation of education and literacy, get cut. Those people didn’t keep quiet about it, and somebody listened. The fact that libraries made it back into the budget as a priority is a nice reminder that voices do matter.

Educational facilities will also see a one-time funding increase of $100 million dollars from the general improvement fund (GIF). This money is from the pot of leftovers at the end of the year. It is supposed to be used on short-term projects that benefit the entire state – I can’t think of a better example of proper use of GIF than improving educational facilities.

In a diversion from normal operating procedure, the Governor is doling out $0 for discretionary spending. Usually, if there is a surplus, the Governor and the legislature split up a portion of that leftover money and spend it as they see fit. Not this time. Gov. Hutchinson might have held back on discretionary funds out of necessity from a tight budget, or because it has come under criticism as wasteful pork-barrel spending. Many will see this change as a positive move for Arkansas overall, but it is not a complete 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).

This budget also doesn’t look good for anyone hoping to give young people the option to engage in activities after school, or anyone who would like to see fewer people locked up in our overcrowded prisons in the years down the road. That is because the Positive Youth Development Act (passed in 2011) still lacks the funding to get off the ground. This act is a proven way to help kids engage with the community, learn, and stay out of trouble. But the source of funding (the Department of Youth Services) still hasn’t gotten the budget increase it needs.

Another reason for concern is a continuation of tax cuts, starting with $25 million a year in 2019, and growing to $50 million the following year. We haven’t seen the economic growth this year that we need to absorb the previous two rounds of tax cuts, 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.

The revenue forecast is modest this year. When you combine that with tax cut plans, you can bet there won’t be a lot of money left over. And with a budget that tight, it’s hard to see a way to continue to responsibly fund highways – which the Governor has set up to depend on extra money at the end of the year.

More Forecast Details:

Experts do not expect a boon in the amount of tax revenue that Arkansas will collect this year. This is largely thanks to the two rounds of serious tax cuts ($242 million total) we have seen over the last legislative sessions. Next year’s net available revenues are expected to be down $34.7 million compared to last year. So far this fiscal year, revenues are $23.2 million lower than what was forecast. A big driver of those disappointing numbers is that Arkansans have been spending less, and that shows up in lower sales and use tax collections. Forecasters predict a 2.8 percent growth rate for 2018, followed by a stout 4.9 percent growth in revenues in 2019.

Like any budget, some parts are better than others. We hope that lawmakers will keep the investments in education, child welfare and libraries and expand funding for pre-K. We hope that any tax cuts are sensible and directed at the bottom 20 percent of earners – the only ones left out of the past two rounds of tax cuts. We know for sure that this budget will change over the coming months, and you can stay in the loop by following us on Twitter, Facebook, and Instagram.