Legislators’ opinions vary on what to do with $1B state surplus


Arkansas legislature sees the largest government budget surplus in history as a stroke of luck rather than the start of a trend, some of them said.

At least for now.

“I think we should save the excess,” said Senator Bart Hester of R-Cave Springs. “If we spend the surplus now, it will be used for needs and will endanger needs during an economic downturn.”

Northwest Arkansas’ economy appears to be strong in the wake of the COVID-19 pandemic, but he’s not as confident about the economy in the rest of the state, Hester said.

Legislators in this region want to spend some of the expected $ 1 billion surplus, while others want some of the money to be returned in the form of tax breaks.

Nobody knows what the economy will look like after a century of pandemic and the federal government spending that comes with it.

“I know a lot of my colleagues will be calling for additional tax cuts, but we’re not guaranteed a surplus every year,” said Senator Greg Leding, Fayetteville, D-Fayetteville. “I think it’s better to look at surpluses as one-off opportunities – so it doesn’t seem wise to create a tax cut plan based on the fact that we got lucky this year.”

The economic brakes from the pandemic were expected to devastate national budgets. This happened in states like Nevada and Hawaii, which are heavily reliant on tourists from other states, state financial figures show. According to a study by the Pew Charitable Trust, total government revenues in the United States fell 31.9% in April 2020.

State revenues have largely recovered, but only reached pre-pandemic levels in the last month, the study shows. One year’s sales growth disappeared despite the recovery, figures show.

Federal spending on preventing economic damage found its way into the state coffers directly, through grants to the state, and indirectly through taxed consumer spending from government-funded business stimulus checks to individuals.

Arkansas is receiving nearly $ 1.6 billion from its most recent aid package, the American Rescue Plan, and $ 1.25 billion from the former state’s Coronavirus Aid, Relief and Economic Security Act.

Governor Asa Hutchinson is forecasting a government surplus of $ 1 billion if the fiscal year ends June 30, he said earlier this month. The latest fiscal figures support his forecast. The general revenue survey reached $ 822.8 million in May, 70.8% more than the same month last year.

This number is skewed in part by late state income tax receipts in May 2020. State sales taxes are usually due in May, but the filing deadline has been postponed to July 2020 for businesses and other taxpayers due to the disruption of the pandemic.

“Right now, the economy is based on people with money in their pockets and a lot of catching up to do,” said Senator Mathew Pitsch, R-Fort Smith, a candidate for treasurer.

“You have money left over from stimulus checks and can now spend it,” said Pitsch.

COVID-related restrictions for companies, such as seating restrictions in restaurants, have ended. The spending boom is pumping government sales taxes and other revenue, he said.

But employers are struggling to find workers and it is not clear how long the current spending will last, Pitsch said. He compared current consumer spending to someone who just had a winning scratch card lottery. It’s not something to plan long-term trends on, he said.

“I would like to see what it looks like when the economy runs on all cylinders,” says Pitsch. “I am very optimistic. I see a tax cut coming. “However, details are needed to bring the size of the cut into line with reality, he said.

The state’s one-time revenue spike could help meet a significant portion of its one-time infrastructure needs, said state representative Charlene Fite, R-Van Buren. In particular, the state must have broadband internet access in places that don’t already have one, she said.

“Given the importance of broadband to education, work, telemedicine and public safety, it seems perfectly appropriate to use money from excess resources,” said Fite.

“Today I visited a low-water bridge and roadway in Crawford County that are in very poor condition,” she added on Wednesday. “The county does not have the funds for the necessary repairs. Help from the state would be very welcome. ”Rural areas need help with water projects, and the Arkansas School for the Deaf needs huge funding for new dormitories, she said.

The level of support for tax cuts and the proposed timing varied among lawmakers contacted.

“While I have always supported tax breaks as long as they are done responsibly, we must be careful to use one-time surpluses only for permanent tax cuts,” said Senator Jim Hendren, an independent sulfur source.

“We have many needs, including skyrocketing teacher insurance premiums, broadband deficits, child hunger, workforce training and the 4,700 children in foster care,” said Hendren. “We should set aside some of the dollars to address these issues. We should also continue to strengthen our long-term reserve fund so that we do not fall into a budget crisis, and finally we should think about responsible tax breaks. “

The state’s long-term reserve fund balance had dropped to just $ 184.9 million by December 2020, according to the Department of Finance and Administration. By comparison, the state’s latest general revenue budget is $ 5.89 billion. The amount that remained in the reserve fund at the end of last year would have covered government spending for less than 12 days.

Rep. Justin Boyd, R-Fort Smith, said the state’s fiscal picture should be clear enough by fall for the legislature to enact a major tax cut this year. The legislature will meet again sometime in the fall.

The pandemic and litigation delayed U.S. census data for months. Legislators must set new Congressional district boundaries this year. The detailed census data required to draw these four counties is expected by September 30th, rather than the usual arrival time this spring. That delay forced lawmakers to take an extended break on April 28 and come back when the data becomes available.

“It is important for our state to have a long-term reserve in place to help assess creditworthiness and be prepared for a future economic downturn,” said Boyd. With these precautionary measures, “we as a state are in a great position for a bold tax cut this fall,” he said.

Rep. Gayla McKenzie, R-Gravette, also pointed out that state sales tax on internet purchases went into effect before the pandemic and has proven to be a big boost to state revenues – too big a boost, she said.

“I think the internet sales tax passed in the 2019 meeting is likely to make up a large part of that excess,” McKenzie said.

She agreed that not charging sales tax on internet purchases gave online merchants an unfair advantage at the time, she said.

“However, I did not support Internet sales tax because there was no corresponding agreement to lower the sales tax rate,” she said.

When city and county sales taxes increase the state’s 6.5 percent rate, she says, “people across the state pay nearly 10 percent of sales tax in many cases.” But the state did not collect the tax on internet sales beforehand. The passage of internet sales tax levies resulted in a huge tax hike, she said.

“It’s a regressive tax and just too much. We can and should lower it for the people. “