Web site tips hand; state cash to tighten
Posted on Wednesday, April 9, 2008
The state has cut its projected budget for the fiscal year starting July 1 by nearly $ 107 million.
The projection turned up Tuesday on the Web site of the state Department of Finance and Administration.
Richard Weiss, department director, said officials didn’t intend to release the new forecast until May 7 at a meeting with the Legislature’s Joint Committee on Economic and Tax Policy.
But the state’s budget office posted it on the Web site, probably on Monday, Weiss said.
“Something’s weird,” said Richard Wilson, assistant director of research for the Bureau of Legislative Research, when informed by a reporter about the revision.
Weiss said the reduction reflects Gov. Mike Beebe’s “conservative budgeting philosophy.” “Hopefully, we’ll be able to revise [it ] upward should the economy improve in calendar 2009,” Weiss said.
State agencies “are going to have to just write very tight budgets for fiscal 2009,” he said.
Under state law, the projection governs how much agencies are allowed to spend.
The reduction amounts to a signal to agencies’ leaders preparing for fiscal 2009 to count on spending less than they previously planned.
Weiss said the reduction also reflects a suspicion that the weakening economy may result in lower general revenue from income and sales taxes.
He expects “a pretty dramatic slowdown” in sales tax collections for at least part of the next fiscal year, Weiss said.
And, he said, about $ 65 million in individual and corporate income tax collections in this fiscal year are expected to be one-time collections that won’t show up in the next fiscal year.
Funding of the state general revenue budget is spread using three categories or priorities in a law called the Revenue Stabilization Act. The biggest is Category A. It will be funded first and will not be affected by the projected reduction.
The next-highest priority, which will be second in line for funding, is Category A 1. It, too, will be unaffected.
But the third category, Category B, previously was projected to be funded at 97. 6 percent. The projected change will lower the funding of Category B to 53. 9 percent of its total. That’s a drop of $ 106. 7 million.
The biggest share of that category is $ 65. 9 million in a subcategory that goes to the Department of Human Services to help fund the Medicaid program. The Department of Correction has $ 30. 1 million in Category B, the Arkansas State Police has $ 15 million and the Department of Community Correction has $ 14. 8 million.
Weiss said it will be a challenge for Department of Human Services officials to cope with the size of the projected cut but the department will carry forward fund balances from special revenue.
Julie Munsell, a spokesman for the Department of Human Services, said the department “will have some challenges in stretching these resources as far as we can.
“ Fortunately, DHS has the flexibility through the resource and reallocation process to redirect funds where they are the most needed,” she said. The department also will need to work closely with the federal government to maintain some flexibility with federal funding, she said.
“Between the continued rise in program cost and the actions taken at the federal level to limit how states can spend federal dollars, it creates a very tight financial situation for most states, not just Arkansas,” Munsell said.
The reduction in the general revenue forecast for the next fiscal year caught some state officials by surprise.
“When did they do that ?” asked Dina Tyler, a spokesman for the Department of Correction.
Officials for state agencies and institutions ranging from Arkansas State University to the Arkansas State Police said it’s too early to project the impact of the projected reduction on their agencies.
But, Weiss said he doesn’t believe the reduction in the general revenue forecast will result in any layoffs of state employees.
“For the agencies, I think it is going to be real challenging to figure out how to deal with these cuts. When you get into the next session, if this economy looks like it has really gone to recession and is really hitting the gross [general revenue ] then you have got people already cinched up.” There will be no cut in general education funds for the public schools, he noted.
Weiss said the department has reduced its forecast for gross general revenue for fiscal 2009 from $ 5. 613 billion to $ 5. 529 billion and for net general revenue by nearly $ 107 million to $ 4. 411 billion. The “net” is the amount available for state agencies to spend.
Beebe sought the reduction because of national economic trends and his conservative philosophy toward budgeting, Beebe spokesman Matt DeCample said.
“Experience has taught him that it’s much easier to start with a conservative estimate and revise it upward than it is to have revenue fall short of projections and then have to make midyear budget cuts,” he said.
Legislative leaders said the revenue-forecast reduction is no surprise considering the national economic slowdown.
“People have to use most of their spendable income just to fill up their fuel tanks,” said House Speaker Benny Petrus, DStuttgart. “The fuel crisis has hit everybody, and they have to do without some things that they would like to buy and that takes away from sales taxes.” Senate President Pro Tempore Jack Critcher, D-Batesville, said Arkansas is in better financial shape than many other states that have been suffering because of the national economic downturn.
Last week, Beebe and the Legislature enacted a law to increase the severance tax on natural gas, starting Jan. 1, and dedicate the proceeds to highways and roads.
And, the revised forecast comes after the Finance Department reported that individual income tax collections fueled a $ 6. 6 million increase to $ 469. 1 million in March’s gross general revenue over the same month last year. The collections outpaced the forecast for March by $ 8. 6 million.
In the first nine months of this fiscal year, gross general revenue totaled $ 3. 947 billion. That’s a $ 130. 2 million increase over the same period in the past fiscal year and $ 144. 8 million above forecast.
Weiss said the Finance Department has increased the gross general revenue forecast for the current fiscal year from $ 5. 512 billion to $ 5. 528 billion and for net general revenue by $ 6 million to $ 4. 352 billion.
“We funded that because we feel like we are going to collect all that plus have a balance,” he said.
AT A GLANCE These are the largest amounts ($ 5 million or more ) in the B category of general revenue funding projected for fiscal 2009: Department of Human Services Children and Family Services $ 9, 795, 435. Department of Human Services — Grants $ 65, 900, 221. Department of Agriculture $ 5, 812, 395. Department of Correction $ 30, 116, 102. Department of Community Correction $ 14, 850, 000. Merit Adjustment Fund $ 5, 079, 878. State police $ 15, 030, 782. UA-Fayetteville $ 11, 590, 659. UA-agriculture $ 5, 507, 653. UALR $ 5, 547, 430. UAMS $ 9, 773, 943. UCA $ 9, 774, 593. Pulaski Tech $ 5, 090, 799.
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