And further income tax cuts will not address affordability challenges.
Today Governor Sanders presented her balanced budget for the 2027-2029 Biennium to the legislative Joint Budget Committee. While the budget includes some important investments in critical areas, we do not believe it goes far enough to address the needs of Arkansans. And the push for additional income tax cuts does not make life more affordable for most Arkansans and instead threatens important programs and services.
The governor’s proposed increased investments are concentrated in a few specific areas:
- $150 million investment in Medicaid, including providing supportive living services for those on the Community and Employment Support (CES) Waiver waitlist
- $70 million investment in Education Freedom Accounts, the tax-payer funded vouchers for private and home schooling
- $25 million investment in the Division of County Operations, to provide for Supplemental Nutrition Assistance Program (SNAP) administrative costs
- $20 million investment in early childhood education
- $9 million investment in institutions of higher education, to reflect increases in institutions’ productivity
- $6.1 million investment in the Division of Developmental Disability Services, to fund operations at Human Development Centers
- $4.4 million investment in the Division of Youth Services, to fund operations
Arkansas Advocates for Children and Families is pleased by the investments in essential Medicaid and SNAP services, as these support the most vulnerable families and children in the state. Further, AACF has long advocated for increased funding for Disability Services and Youth Services. And, as AACF is actively seeking policy solutions to address the early childhood education crisis, we are happy to see the $20 million investment and hope that this will increase access for families.
However, the budget request is light on details. For example, after much discussion this year on the need to serve those on the CES waiver waitlist and expand community support for individuals with disabilities, it is unclear how much of the $150 million Medicaid investment will go to this effort versus other outstanding Medicaid needs. And how will the $20 million in early childhood education be applied? As the Department of Finance and Administration (DFA) Secretary Hudson stated, the governor will work with the legislature on these details during the upcoming session, we will continue to monitor and advocate for the best use of these funds to positively impact children and their families.
The total general revenue budget request for next year – Fiscal Year 2028 – totals just under $7 billion. This represents a 3.94% increase over the current year budget (an additional $312 million). With inflation at 3.7% over the past year, the budget at first seems to keep up. But the increases are not evenly distributed across important functions of government. In fact, the total from the list above is about $285 million. This leaves only $27 million for the rest of government. And the requests for several agencies are flat or negative. Further, the budget request for Fiscal Year 2029 is flat when compared to Fiscal Year 2028 (though, adjustments can be made during the 2028 Fiscal Session).
Additionally, the governor has requested four items to be funded through one-time surplus funding:
- $200 million investment in Medicaid Sustainability
- $50 million investment in support of the State Water Plan
- $50 million in funding for the state’s potential Supplemental Nutrition Assistance Program (SNAP) benefits share
- $50 million investment for Human Development Centers
Again, AACF is pleased to see this list, especially the investments to meet our Medicaid and SNAP obligations. We will advocate for wise allocation of these resources as the legislature works through details during the 2027 General Session.
Most importantly, we oppose the governor’s call for additional income tax cuts. The state budget witnessed a $655 million budget surplus last fiscal year. But as the list above demonstrates, Arkansas families have pressing needs. In most cases, these one-time funding increases will not satisfy ongoing needs, requiring additional investments.
DFA is now projecting a $582 million surplus for the current fiscal year. It is important to understand what is driving these increases in revenue. Sales tax is up 8.3% over last year. According to DFA, “Double-digit growth was recorded in several of the largest sectors including Utilities, Manufacturing, Construction, and Accommodation and Food Services.” In plain language: consumers are spending a lot more in these areas. While some of this can be explained by high rates of inflation, these sectors are outpacing inflation. As Arkansans know, they are spending much more to turn on their lights, cool and heat their homes, and warm their water. Housing construction costs have risen dramatically. Families are spending more on fast food and dining out. Paying more for goods and services drives up tax revenue. This reality also describes some of the increases in corporate profits, and therefore increases in corporate income tax.
Future income tax cuts will not help most Arkansans with affordability challenges. These cuts come to the highest income brackets and therefore do not “put more money in the pockets” of working families (the lowest 20% of earners in Arkansas received $0 from the most recent Arkansas income tax cut). This means that low- and middle-income Arkansans will fund the tax breaks for the wealthiest as they are facing rising prices. Arkansas already has the 9th most regressive tax system in the country: the middle 60% of Arkansas workers pay 10.7% of their income in taxes, while the top 1% pays only 5.8%. Additional income tax cuts will shift an even larger burden to 80% of Arkansans.
Instead, the state should invest in programs that help Arkansans afford basic needs, such as:
- Paid family and medical leave
- Improved private and home-school accountability
- 12-month postpartum Medicaid coverage
- Increased early childhood education funding, including investments in the workforce
- A strong families’ tax credit
During the Joint Budget Committee discussion of the proposed budget, one legislator stated, “[The increased budget surplus] as projected is great, because that will help the legislature serve people better. That’s where we get better services, by having more money and spending it wisely.”
We agree. New income tax cuts do not equate with spending money wisely. Investments in families do.
