Hutchinson Delays Budget To Answer Cost Of Tax Cuts & Future Of Private Option

Jan 21, 2015

Gov. Asa Hutchinson (R) talks about why he's moving back his budget plan in the Governor's Conference Room. Former Gov. Mike Beebe's portrait hangs above Hutchinson.
Credit Jacob Kauffman / KUAR

For the second time since the Arkansas legislature convened, a little over a week ago, Governor Asa Hutchinson has announced he will move back a public rollout of his budget proposal.

Hutchinson said he is delaying the release of his budget until next Tuesday for two reasons, “because of the emphasis on the health care reform remarks on Thursday, and because I wanted to give the legislature some time to give me informal feedback.”

The legislature’s concerns with Hutchinson’s budget have revolved in part around how to pay for the governor’s top priority, a $100 million a year, one percent income tax cut for individuals earning between $25,000 and $75,000 a year.

Hutchinson released details of the tax cut last week. And on Tuesday Governor Hutchinson seemed to listen, giving legislative leaders an advance look at his budget.

“I’ve met with the Senate Revenue and Tax members today (Tuesday), as well as with Chairmen Jett (D – Success) from the House side. I’ve met with the Democratic members of the House Revenue and Tax today (Tuesday) in the mansion and I’ll be meeting with additional committee members,” said Hutchinson.

While legislators are getting a chance to assess the tax cut in a fuller context Hutchinson continued to speak in broad terms to the public. Hutchinson said the cost of his $100 million tax cut can be absorbed by a combination of one-time surplus money and what he predicts will be future revenue growth based on the impact of cuts..The governor also said cuts to state services are planned.

“There will be certainly some savings. Now, the previous administration recommended that if you have tax cuts then you not only have to delay some tax cuts but you also have to have a one percent, across the board cut among all state agencies and that will not be the case,” said Hutchinson.

The governor did not identify what state services are likely to be cut nor did he specify which past tax cuts might be delayed to pay for his tax cut proposal. Although, Hutchinson did say delays to some but not all tax cuts from last session are planned, That could include $50 million worth of cuts to capital gains, personal exemptions, and manufacturing.

“There are four different parts to the 2013 bills that come into play this year. I’ve announced my position on one, the others is what I’m getting some feedback from the legislature on. I’ve got my views on that, that will be announced next week. But it’s not going to be...the previous administration recommended a delay of all of those taxes, and let me assure you that all of those tax cuts will not be delayed," saidd Hutchinson.

Hutchinson’s tax bill, carried by House Speaker Jeremy Gillam (R-Judsonia) and Senate President Jonathan Dismang (D-Searcy), already delays one 2013 cut, a one-tenth of a percent reduction in income tax. Another large chunk of the budget which is still yet to be announced to the public is what will happen to the state’s health plan for over 200,000 lower income residents, the private option.

The previous governor, term-limited Democrat Mike Beebe, linked 2013’s tax cuts to nearly $90 million in savings generated by the private option. The newly inaugurated Republican governor views the connection differently.

“If you look at the budget, they’re de-linked. There’s not any tie in there. If you defunded the private option, sure there’s a cost impact because you’re moving from a 30 percent state funding requirement, to a zero percent on some aspects of it. But you’re also going to be eliminating some other costs. So, I de-link those, particularly in the first year of the biennium,” said Hutchinson.

The federal government currently pays for 100 percent of the cost of the private option. The contribution will be lowered to 90 percent by 2020. Before the private option was in place the federal government contributed 70 percent of the cost of Medicaid to the state.

The adaptation of the Affordable Care Act, branded as the “private option” uses federal dollars intended for the federally-run Medicaid system, to instead by private insurance for those making up to 138 percent of the poverty line, or a little over $16,000 a year for an individual.

As for the private option’s place in the state budget, the delay in the Hutchinson’s proposal gives the governor an opportunity Thursday to make the case for whatever his vision might be for the embattled health reform, with the undivided attention of lawmakers. Hutchinson will be making the address at the University of Arkansas for Medical Sciences.

Also speaking at the Capitol Tuesday was UAMS Chancellor Dan Rahn, who told lawmakers in the House Public Health, Welfare, and Labor Committee that the private option has led to savings at the institution, cutting the percentage of uninsured patients down from 14 to 4 percent.