Wednesday, March 9, 2016

The slow squeeze of state services in the era of Arkansas's Republican tax cuts

Posted By on Wed, Mar 9, 2016 at 4:47 PM

click to enlarge Gov. Asa Hutchinson (file photo) - BRIAN CHILSON
  • Brian Chilson
  • Gov. Asa Hutchinson (file photo)
Arkansas Advocates for Children and Families wrote yesterday of Gov. Hutchinson's proposed budget for the coming fiscal year, pointing out that the governor's fiscal priorities have the net effect of forcing state agencies to do more with less.

The erosion is a slow burn, and it's not readily apparent from the aggregate numbers. Asa's FY 2017 budget aims to grow by 2 percent ($106.8 million), which sounds reasonable at first glance. But Advocates points out that "that growth would have more than doubled without the middle income tax cut passed in 2015, which saved the typical Arkansas worker only about $39 a year. The proposed budget under-funds things important to kids like pre-K, juvenile justice and libraries." Meanwhile, the legislature last year imposed on state agencies a 1 percent across-the-board budget cut, resulting in dwindling funds for libraries and other services.

Still, the fiscal out look could be worse, and there's one big reason it's not: Obamacare. The infusion of federal money made possible by the private option (Medicaid expansion) has mitigated the damage the 2015 GOP tax cuts did to state revenue. Advocates notes:
Some legislators were expecting to go over two budgets today: one assuming the continuation of the Medicaid expansion (what Governor Hutchinson is calling “Arkansas Works”) and a separate plan if that program falls through. They only got the first one that includes the expansion (yet still lacks the funds needed to make basic cost of living adjustments). Without expanding Medicaid, we would hemorrhage $100 million additional dollars out of the budget on top of the $242 million in tax cuts over the past two sessions. Perhaps that alternate budget was too wretched to print.
It's interesting to compare the budget picture in Arkansas — somewhat leaner times, stagnating outlays — with the outright fiscal catastrophe unfolding to the south, where Louisiana is reeling from years of indiscriminate budget slashing from Republican Gov. Bobby Jindal. The budget picture there would be disastrous regardless, but it's worsened by the fact that Jindal, like almost every other Southern governor, rejected the Medicaid expansion.

Then again, if Arkansas Republicans have more tax cuts in store for the state (and judging from past remarks by Hutchinson, I'm guessing they will when the next regular session rolls around in a year's time), the cushion provided by the Medicaid expansion eventually won't be enough to make up the difference. We're on that path already, in fact, considering Hutchinson's proposal for increased highway funding relies on committing funds from future budget surpluses — a maneuver that elides the fact that a "surplus" is only a function of how low you set the bar for revenue projections to begin with, as Advocates explains below. Add in the fact that the surplus for the current fiscal year was relatively small (again, a product of shrinking revenues — surprise, that's what happens when you cut taxes) and Louisiana doesn't seem that far away after all.
The anticipated surplus for fiscal year 2016 is a modest $35.9 million. That is fine this year, but could be disastrous in 2018. If we end up with a surplus that small two years from now, the governor’s highway funding plan (which depends on surplus funds starting in 2018) will have few options left. We won’t be able to start guessing at what the 2018 surplus will be until after that fiscal year starts, but historically they have ranged wildly from hundreds of millions to zero dollars. If we have a few lean years, that will knock a big hole in the highway plan, and there isn’t much room left for increased “efficiency” in public programs which have already been squeezed within an inch of their lives.
Currently, the crux of the plan uses surplus funds instead of directly taking money from general revenue (which could further devastate public programs like schools and parks). However, general revenue from a surplus and general revenue from the normal budgeting process is really all the same pot of tax dollars.

On the topic of funding highways with surpluses instead of giving it a column in the regular budget like everything else, Representative Payton asked “I mean, isn’t that essentially what column B and C [of the normal budget] does?” Yes. Waiting to spend general revenue until after it has magically transformed into surplus money doesn’t change the fact that you are taking general revenue from where it should be spent (pre-K, juvenile justice, etc.) and using it for highways – it just sounds better. 

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