Governor Asa Hutchinson plans to further strengthen a state savings account and suggests doubling the amount to at least $ 420 million by mid-2023.
The Long-Term Reserve Fund was designated as a savings account in 2016, which can be used to support government programs in times of economic downturn. The fund was originally called the Arkansas Rainy-Day Fund, which ran for several years but never received any money.
Hutchinson stated his intention to top up the reserve fund in a letter to lawmakers on Nov. 10 when he presented his proposed general income budgets for fiscal years 2022 and 2023. The budget year 2022 starts on July 1, 2021.
“When I took office [in 2015]The long-term reserve account balance was zero, “Hutchinson wrote.” Today the account balance is $ 185 million. With today’s budget, I’m going to come up with a plan that will bring the balance up to at least $ 420 million by the end of the biennium. “
Hutchinson called on the 93rd Annual General Meeting to transfer $ 100 million of the $ 240.9 million surplus to the reserve fund at its regular meeting beginning Jan. 11.
“This is important to our future, and you can see this is being added every year to keep it growing and a cushion against the uncertainty of the future,” said Hutchinson.
In May 2016, lawmakers and Hutchinson renamed the Arkansas Rainy-Day Fund the Long-Term Reserve Fund to avoid confusion about which Rainy Day fund would be drawn upon, a state official said at the time.
At the time, Jake Bleed, who is now the budget manager, said the reserve fund would be “a fallback source of funding in the event of an economic downturn,” and its funding would come from the Securities Reserve Fund, which includes income from investments made by the state treasurer.
In May 2017, lawmakers and Hutchinson approved the transfer of more than $ 100 million from the Arkansas Healthy Century Trust Fund, which held tobacco clearing funds, to the Long-Term Reserve Fund.
At that point, Hutchinson had been seeking legislative approval for the transfer of tobacco money to upgrade AA & Stable’s global rating for the state’s Standard & Poor’s bonds.
Robert “Ro” Arrington, director of home ownership and public finance for the Arkansas Development Finance Authority, said last week that building the long-term reserve fund would ultimately add up to between 7% and 10% of the state budget among other factors to help the bond’s rating improve.
Hutchinson said Friday that cheap bond ratings will ultimately lower interest rates for higher education institutions and other government agencies, such as the prison system, that use bonds to fund capital improvement projects.
The Reserve Fund currently has a balance of $ 184.9 million due to transfers of $ 103.4 million from the Arkansas Healthy Century Trust Fund – including a transfer of $ 102.9 million on June 29, 2017 – and $ 81.5 million in transfers from the Securities Reserve Fund as of June 30, 2017, according to Scott Hardin, a spokesman for the State Department of Finance and Administration.
OTHER SOURCES OF FINANCING
In addition to the proposed $ 100 million transfer of excess funds to the reserve fund, Bleed said in a recent interview that the governor’s proposal would raise $ 25 million per year from the state property tax trust fund over a three-year period would shift funds to the fund.
Finance and Administrative Secretary Larry Walther is empowered under the 2019 law to make these transfers.
Voters approved Amendment 79 to the Arkansas Constitution in 2000 to create the homestead tax credit. Legislators originally set the loan at $ 300 per package and increased it to $ 350 in 2007. At the 2019 meeting, the General Assembly and Hutchinson passed bill to increase the homestead property tax credit to $ 375 per package.
The legislature enacted a sales tax of 0.5% with effect from January 1, 2001, and the proceeds will go to the trust fund for property taxes. The trust fund was created to compensate local governments, school districts, and other entities for the loss of their property tax income due to the loan.
“We have to be careful how we do this [transfer to the reserve fund] Because the counties, and therefore the school counties, build their budgets from transfers from the property transfer fund, “Bleed said.” If we take out too much, there will be a cash flow ripple effect down the chain. What we have is a plan to transfer $ 25 million a year, 20, 21, and 22 million a year from there every calendar year, without that someone is affected. So that’s another $ 75 million that we have planned. “
Another source would be the Revenue Stabilization Act, which prioritizes the flow of general revenue of the state into government-sponsored programs.
In fiscal 2023, we plan to transfer approximately $ 55 million from [the Revenue Stabilization Act] right in long-term reserve, “said Bleed.
This is “the first time we’ve actually taken money out of RSA, got a line in the RSA, and started moving money into a long-term reserve, which brings us to about $ 415 million,” he said.
The governor proposed a general income budget of $ 5.84 billion for fiscal 2022, an increase of $ 161 million from the currently funded budget of $ 5.68 billion, and a general income budget of $ 6.01 billion . USD in fiscal year 2023.
The governor’s proposals take into account approximately $ 36 million less revenue from new tax cuts in fiscal 2022 and another $ 37 million more from those tax cuts in fiscal 2023.
These include income tax cuts totaling $ 50 million per year for low- and middle-income Arcansans; Decrease in highest individual rate from 5.9% to 4.9% for new residents for five years; and reduced sales tax from 6.5% to 3.5% for used vehicles priced between $ 4,000 and $ 10,000. Used vehicles priced below $ 4,000 are now sales tax exempt.
As for another source of funding for the Long-Term Reserve Fund, “the final piece of the puzzle, and the hardest to predict, is how much the treasurer’s office will transfer of its investment proceeds,” said Bleed.
“We expect at least a few million dollars more by the end of fiscal 2023. That brings us to about $ 420 million by the end of the biennium,” he said.
Bleed said the governor’s plan “is subject to whatever lawmakers do, and it is quite possible that they will come in and say,” We’re not doing a long-term reserve transfer, we want to cut income taxes. “
“But that’s exactly the balanced budget that the governor has put in place, and that brings us to $ 420 [million] At least, “he said.
INCOME TAX CUTS
Hutchinson said Friday that he had proposed to the legislature to approve an additional $ 50 million in tax cuts for low- and middle-income Arcansans at the upcoming regular session, rather than proposing further cuts in the highest individual tax rate.
The maximum rate drops from 6.6% to 5.9% on January 1st.
The governor said the $ 50 million cuts for low- to middle-income taxpayers would help pave the way for the maximum rate to be cut below 5.9% later.
“We followed that pattern in 2015 when we gave middle-income earners $ 100 million in tax breaks,” he said in a written statement.
“Then we came back [in the 2017 session] and helped the low-income Arkansans and then lowered the maximum rate to 5.9% [in the 2019 session]. This pattern has proven successful, although we would all like to finish earlier. My goal is to bring everyone in our state to an income tax rate of 4.9%, “said Hutchinson.
The Department of Finance and Administration estimates that lowering the top tax rate to 4.9% would ultimately cut tax revenues by about $ 275 million per year.
Hutchinson said Friday that lawmakers had responded very positively to its plan to increase the long-term reserve fund.
“Let’s see [when] We come to the meeting and see how the economy is doing, “said Rep. Lane Jean, R-Magnolia, co-chair of the Joint Committee on Budgets.” I am in favor of always increasing the reserve. I think that’s the most tax-prudent thing. I don’t know what the number will be at the end of the session.
“I support the concept of increasing the reserve as much as possible,” said Jean.
There was uncertainty during the Covid-19 pandemic, he said.
“I’m not sure we were out of the woods economically so I think that’s the right thing,” said Jean.
Senator Bob Ballinger, R-Berryville, said he prefers to put more money in the reserve fund.
“In my view it will be easier to cut taxes if we put the money back, so I’m all for it,” he said. “This is one way to reduce spending and the size of government by putting money aside and not spending it.”
Senate Democratic leader Keith Ingram of West Memphis said the governor’s goal was admirable.
“We have to look at it at times like this,” he said. “We should try to achieve that.”
Rep. Lanny Fite, R-Benton, said he was looking into the feasibility of introducing laws in the 2021 session that would stop the transfer of funds from the Property Tax Relief Trust Fund to the Long-Term Reserve Fund and either increase the homestead property tax credit to $ 400 per package or create a mechanism to increase the tax credit later.
“If the numbers work, I’ll probably submit that bill,” he said
Fite said he didn’t know Hutchinson plans to move $ 25 million a year from the property tax relief fund to the reserve fund over three years, “but I knew he wanted to use the money.”
Fite said Amendment 79 “was sold as a [a 0.5% sales tax] When we go for property tax relief, we feel that people have “been misled about some of the lawmaker-approved uses of the trust fund”.