Leader Blues

Wednesday, October 11, 2006

TOP STORY >>Surplus seen as shaping budget

By JOHN HOFHEIMER
Leader staff writer

Lawmakers began fall budget hearings Tuesday with the prospect of a $721 million budget surplus, but that doesn’t mean it will be easy going as legislators ponder repeal of the grocery tax, and significantly increased funding requests for Medicaid, prisons, education and educational facilities.

“We don’t know whether (the surplus) will be ongoing,” said state Sen. John Paul Capps, D-Searcy. “We have to be very careful how we obligate ourselves.” “In my experience, a surplus is cyclical. Four years ago, we were scraping to raise money to balance the budget—my first day in the Senate,” said Capps, a former House speaker. He said there was enthusiasm among lawmakers about abolishing the sales tax on groceries. “I think all sales taxes are regressive. Rather than sending back a little check to everyone, I’d rather take off the grocery tax,” Capps added.

“Everybody’s focused on (spending) the surplus,” said state Rep. Will Bond, D-Jacksonville. “We need to take a step back. We’ve had significant ups and downs in income and obligations (over the past few years).” Bond counseled proceeding cautiously and setting some aside to concentrate on court-ordered improvements to school facilities.

The No. 1 goal should be tax fairness and tax consistency, Bond insisted. Bond said the surplus was created by forecasting revenues conservatively and budgeting within the forecast. “We have made tough decisions,” he said, including holding various agencies to their appropriations instead of extending funding to unfunded requests when revenues were sufficient.
Other factors in accumulating the surplus include raising the state sales tax 7/8 of a cent in 2004 for education, and extending services taxed to include, for instance, dry cleaning and tattooing.

The state also imposed a 3 percent income tax surcharge. The projected $721 million surplus includes a $402.7 million surplus accumulated previously. The Legislative Council and Joint Budget Committee began their traditional prelegislative session spending reviews with cash-generating agencies whose spending does not depend on a two-year revenue forecast or balanced budget proposal from Gov. Mike Huckabee.

Both the balanced budget proposal and forecast are expected Nov. 9, two days after the election to decide Huckabee’s successor. Huckabee, a Republican, is term-limited and cannot run for governor again. Lawmakers say the uncertainty over the election means they will defer to the winner of the Nov. 7 governor’s race. Both major party candidates are already eyeing portions of the surplus for various proposals and have suggested different ways to eliminate the state’s 6-cent tax on groceries.

Democratic Party nominee Mike Beebe has said he wants to phase out the tax over time and tie its elimination to state revenue growth, while Republican Asa Hutchinson says there’s enough money in the surplus to eliminate the tax immediately.

Sen. Tim Wooldridge, co-chairman of the Legislative Council, said the uncertainty over who will be in the Governor’s Mansion provides an uncertain element that the state hasn’t seen in some time. The race is the first without an incumbent since 1978.
“While this administration will present the budget, we will want to be yielding as much as we can to whoever is coming in in January,” said Wooldridge, D-Paragould. “That will make for an interesting dynamic that we haven’t had in a while.”

Legislative leaders say they’re going to be cautious about the surplus, which could already be whittled away by a series of requests from state agency heads. Those requests include a $318 million capital-improvements request from the state’s colleges and universities. In addition, the state Department of Health and Human Services is asking for $316 million more in state funding, mostly to cover the costs of its Medicaid program for about 750,000 Arkansans. And state prison officials are seeking $76 million more money in annual budgets.

On top of that, lawmakers have been told that $250 million will likely be needed over the next two years for a program to repair crumbling school buildings around the state. Another uncertainty is funding for the state’s schools, with a legislative report missing a final price tag on the cost of an adequate education in the state.

Consultants Allan Odden of the University of Wisconsin and Larry Picus of the University of Southern California said in their report that the state should increase its per student funding by $237 million total and should up its funding for districts with poor students by $104 million.

Their report focused on funding for the 2007-2008 school year. Leaders of the House and Senate education committees accepted the report but did not recommend a final price tag because of several unresolved funding factors — including teacher salaries, maintenance and central office expenses. Facing a state Supreme Court ruling that the state’s funding method was inadequate, legislators passed and Huckabee signed into law nearly $200 million in additional money for the state’s school districts.

The bill included up to $50 million for school facilities and $13 million for declining and isolated school districts.
The Associated Press contributed to this report.