The Governor's Budget: Surplus Spending, Prisons, Education, Taxes, & GIF

Jan 27, 2015

Gov. Asa Hutchinson (R) speaking to reporters at the Capitol about his budget proposal.
Credit Jacob Kauffman / KUAR

Governor Asa Hutchinson is proposing an overall spending increase of three percent in his budget plan for the next fiscal year. The Republican governor released his proposal to lawmakers Tuesday. General education, Medicaid, and prisons would see an increase in funding. Higher education and pre-K would remain flat while many state agencies will take a one percent cut.

The budget plan includes the use of $157 in one-time surplus funds which in part pays for the governor’s $100 million tax cut. Speaking to reporters, Hutchinson said he wasn’t worried about dipping into the surplus.

“This economy’s going to grow. I have confidence in that and it’s consistent with, you know administrations in the past have used one time funds to sure up Medicaid, we’re using that partially. We’re using one time funds for some of the facility needs in our education adequacy program. And then of course some of it is simply for our tax cuts, that’s what I talked about all through the campaign,” said Hutchinson.

The surplus would have $58 million remaining under Hutchinson’s proposal. Republican Representative David Branscum of Marshall, near the Buffalo River, said he too thinks the economy will grow but he’s concerned about relying on the surplus.

“That’s the way we’ve been doing it for several years now. We have to get a funding stream in there that is consistent. We can’t just keep going one time, one time, one time but that’s what we do,” said Branscum.

Under the governor’s plan the Department of Corrections would receive an additional $14.3 million. Most of that, to the tune of $11 million, is directed toward increasing the compensation given to county jails for holding over 2,000 excess state inmates. The county rate will rise $2 from $28 to $30 a day. A little over $1 million would go to drug courts, primarily for veterans, and $300,000 is allocated to re-entry programs. Democratic Senator Stephanie Flowers of Pine Bluff said $300,000 for re-entry was much lower than she expected. Hutchinson allotted over $100,000 more than that sum to upgrade his office and the Governor's Mansion.

“I recall the governor’s statements so far to the legislature and his seeming concern about those that are transitioning back from prison and the need for training for these individuals and I’m just wondering if this is counter to that,” said Flowers.

Hutchinson said his re-entry programs will rely in part on non-governmental entities.

“This is an example of where our communities can help us. It’s not necessarily tax payers dollars but it’s a partnership and I want to challenge them to help us,” said Hutchinson.

When asked by a reporter, Hutchinson said his budget included no funding for additional prison beds. But the governor indicated there could be request in the coming weeks, “I’m hoping that we will have something by the end of the legislative session obviously that we can bring back and address the prison overcrowding issue."

The budget plan presented to the Joint Budget Committee Tuesday morning did not include any additional funding for pre-K education. The state’s pre-K funding has remained flat since 2007 and increasing the program was a key campaign platform of the defeated Democratic nominee for governor Mike Ross. Democratic Senator Joyce Elliott of Little Rock brought up the lack of funding. Elliott noted that Hutchinson had pledged during his campaign to raise pre-K funding.

Speaking in the Governor’s Conference Room in the Capitol, Hutchinson addressed the critique. The governor argued a one-time federal grant intended to fund new seats for a four year period, and not meet cost of living needs of the existing program, was sufficient.

“That is a big infusion, a big increase so that need I think has been met to a certain extent. Obviously I’ll work with the Legislature to see if there’s a greater need than that. But I think that grant money of over $60 million has to be factored into that and give that time to absorb into the system,” said Hutchinson.

General education would receive an 8.4 percent increase, with $40 million for facilities and $5 million to meet his campaign pledge of increasing access to computer science. That, along with an additional $80 million to Medicaid accounts for some of the largest budget increases in Hutchinson's proposal.

After the budget was presented Tuesday lawmakers in the House Revenue and Taxation Committee amended the governor’s tax cut package to halt a repeal of a 2013 capital gains cut. The repeal of the capital gains cut was passed in the Senate and intended to defray part of the cost of the governor’s $100 million individual income tax cut.

Instead of a repeal the House committee lowered the capital gains exemption to 40 percent from 50. The 2013 cut originally called for a reduction to 30 percent. The change amounts to the state losing around $10 million in revenue annually. Department of Finance and Administration official Tim Leathers said that the majority of the cut would directly benefit the wealthiest 10,000 Arkansas, or those earning over $250,000 a year. Hutchinson said he preferred the total repeal of the 2013 capital gains cut but that he’d support the compromise measure pushed by more conservative Republicans.

“It’s acceptable to me, the compromise at the 40 percent exclusion that still gives our tax payers an increase from the traditional 30 percent to a 40 percent exclusion so it lowers the effective capital gains tax. So I can live with that, I’m happy with that. I just want to caution the Legislature, urge the Legislature that any further adjustments in that, really jeopardizes a good voting coalition and also it really makes it difficult on the budget,” said Hutchinson.

Another source of revenue to help pay for the governor’s tax plans may include the elimination of general improvement funds. These dollars are traditionally distributed by individual legislators for projects within their districts at their discretion. It’s a fund that’s been criticized as a slush fund and heralded by some as a type of block grant that can be better used by those close to constituents. Hutchinson said GIF disbursements had no place in his administration.

“There’s no provision for gubernatorial GIF or legislative GIF. There’s zero dollars in GIF in the budget that we presented," said Hutchinson. "the priority should be on the overall budget needs of the state as well as the tax cut that’s a priority." Hutchinson continued, "that is not the highest state priority this year.”

The budget proposal is $5.2 billion for fiscal year 2016 and $5.37 billion for fiscal year 2017.