State General Revenue Budget Highlights FY 2018

Under the Arkansas Constitution, the Arkansas General Assembly must adopt a balanced budget that reflects the revenue forecast, the state’s official estimate of how much revenue the state expects to collect for the upcoming year. At the end of every legislative session the legislature passes a major spending bill, known as the Revenue Stabilization Act (RSA). It allocates state general revenue to state agencies and programs and sets priorities for spending when collections fall short and cuts need to be made. As reflected in this year’s RSA (Act 1127 and Act 1083), the Arkansas legislature adopted a general revenue budget for fiscal year 2018 of $5.49 billion, an increase of about $163 million, or 3 percent over the current fiscal year. As a result, many state agencies will see flat funding or take small cuts in their budgets for next year.

Under the state spending plan, most of the $163 million in new state general revenue funding will be used for seven purposes, including:

  • $75.6 million for DHS grants, which funds the state’s share of the Medicaid program;
  • $26.7 million for the DHS Division of Children and Family Services (DCFS), the state agency responsible for child welfare services for abused and neglected children;
  • $10.7 million for the Department of Corrections;
  • $9.2 million for the Department of Community Corrections;
  • $10.8 million for the Merit Adjustment Fund and raises for state employees;
  • $6 million for the Public School Fund, which helps support public schools;
  • $6 million for the Department of Higher Education.

Not all allocations are created equal. This year’s RSA allocates funding into two big categories—“A” and “B.” Allocations in category “A” must be funded first, then items in category “B” are funded if the revenue forecast (and available funding) for the year holds up. Most of the new funding for fiscal year 2018—$131 million out of $163 million—will be in category “B.” This is important, because if the revenue forecast does not hold up, then any new funding in category “B” might have to be scaled back or even eliminated.

It’s important to note that the state general revenue budget does not reflect all spending by state agencies. Many state agencies also receive one or more of the following: federal funding, state “special revenues” dedicated by state law for certain purposes, or one-time money that is left over from previous years. The Public School Fund, for example, is expected to receive a general revenue increase of less than $6.5 million, far less than the $45 million needed to cover a 1 percent increase for K-12 educational adequacy. In order to make up that difference in the Public School Fund, money from the Educational Adequacy Trust Fund will be used, which is funded by a dedicated state sales tax of 0.875 percent.

One big change this session is that the legislature did not pass a General Improvement Fund (GIF) bill, a strategy implemented in the past to use excess revenue to fund the favored local or pet projects of legislators. Instead, the legislature plans to set aside this one-time money to fund projects that truly have a statewide interest or to plug holes in state agency operating budgets. The legislature expects to have $239 million in excess revenue available at the end of the current fiscal year. Some of the major uses of this one-time money include:

  • Up to $90 million for Medicaid;
  • Up to $60 million for educational facilities;
  • Up to $14 million for foster care at DCFS;
  • Up to $30 million for the Governor’s Quick Action Economic Development Fund;
  • Up to $20 million to be used for matching highway funds to pull down $200 million in federal funds;
  • Almost $13 million to be used for a rainy day fund.

The state budget is a moral document and reflects the values and priorities of Arkansas policymakers. However, the tax cuts enacted during the 2013, 2015, and 2017 legislative sessions have robbed the state budget of new revenue that is desperately needed to pay for critical investments in our children and families. Some of our biggest budget disappointments during the 2017 legislative session included:

  • The Arkansas Better Chance Program (our state-funded high-quality pre-K program) received a $3 million increase, when $20 million was needed;
  • No funding for quality after-school and summer programs to implement the 2011 Positive Youth Development Grant Program Act;
  • Only $1 million for community-based programs at the Division of Youth Services to help the state transition from a juvenile justice system focused on incarceration to one focused on community-based services;
  • No funding for a state Earned Income Tax Credit to support working families;
    Funding for K-12 education adequacy was increased by just 1 percent, compared to the usual adequacy increase of 1.5-2 percent, robbing public education of tens of millions of dollars in needed funding.

Tax cuts have clearly been a bigger priority for many Arkansas policymakers than the needs of children and families. Arkansas can and must do better in the future. See the detailed  2017-2018 general revenue budget here.