Beebe, Petrus find harmony on tax cutting
Posted on Wednesday, February 7, 2007
The brief stalemate over how best to cut taxes ended Tuesday with an agreement between Gov. Mike Beebe and House Speaker Benny Petrus that ensures Beebe’s signature agenda item, halving the state sales tax on groceries, will be passed.
The deal also includes two things that Petrus sought: expanding the sales-tax cut for manufacturers that Beebe proposed and exempting more low-income Arkansans from the state income tax.
Beebe said the deal wasn’t necessary for the grocery-tax cut to get through but it helps the 86 th General Assembly move on to other things.
“Certainly we have a lot of other battles,” Beebe said. “In my mind, we certainly could have passed the [grocery tax ] bill. But I think it was a good idea to include targeted tax relief for the very poorest of Arkansans. It does it at a level we can afford. On the other [tax cut ], it was always my intention to phase out the sales tax on utilities for manufacturers.”
Petrus said the debate was refreshing.
“Isn’t it wonderful that the discussion was how to give money back ?” Petrus said. “So many times in state government we’re faced with what we have to do to raise taxes and create the money.”
On Monday, the bill to lower taxes on groceries, Senate Bill 185 by Sen. Bobby Glover, DCarlisle, had 62 sponsors among the 100 House members but on- ly six on the 20-member House Revenue and Taxation Committee. It takes 11 favorable votes in the committee to send a bill to the House floor.
Beebe said he wasn’t worried about his plan getting blocked in committee.
“There were two ways to get it out of House committee,” he said. “I was confident either way.”
If a bill fails to win committee approval, the House can call the bill out of committee to the House on a two-thirds vote.
By late Tuesday, the House sponsor, Rep. David Evans, DSearcy, said the bill would have no problem in the committee and may be presented there as early as Thursday. He said he would file an amendment adding about 30 more sponsors, including Rep. Keven Anderson, R-Rogers, the tax committee chairman who had sided with Petrus against Beebe’s bill. Anderson said the agreement calls for the House not to pursue passage in the Senate of two bills that the House passed by overwhelming margins Monday: His HB 1337, which would have given a $ 75 per dependent income tax credit to taxpayers of low and moderate incomes, and HB 1336 by Rep. Johnny Key, R-Mountain Home, which would have raised the state’s $ 6, 000 tax exemption for pension income to $ 10, 000. Beebe called the deal “the largest tax decrease in the history of the state. That’s all [the tax cuts ] we’re going to be able to do.”
THE PACKAGE The agreement was completed during a meeting between Beebe and Petrus in the governor’s office Tuesday morning. It calls for: Cutting the state sales tax on groceries from 6 percent to 3 percent. The state says that will reduce state revenue $ 121 million in fiscal 2008 and $ 131 million in fiscal 2009. This has passed the Senate 35-0.
A yet-to-be-filed bill that will raise to the federal poverty level the income threshold necessary to owe state income tax. For a family of four, the current minimum is $ 16, 000, which would be changed to $ 20, 650 under the agreement. This would reduce state revenue by $ 14. 4 million in fiscal 2008 and $ 16. 5 million in fiscal 2009. The Department of Finance and Administration estimates that would mean 81, 000 more Arkansans would pay no state income tax.
Cutting the state sales tax on energy used by manufacturers from 6 percent to 4. 5 percent in fiscal 2008, reducing revenue by $ 15 million, and to 4 percent in fiscal 2009, reducing revenue by $ 20 million. Beebe originally proposed cutting it to 5 percent, which would have reduced state revenue by $ 10 million.
Both sides had good things to say about the other.
“The speaker was not hardheaded,” Beebe said. “Once he realized I was not going to move [away from cutting ] the sales tax on groceries, [House leaders ] were very constructive and positive in their suggestions.”
Petrus said, “It showed why he’s been elected governor of Arkansas. He was very good to work with the whole time. There was never a line drawn in the sand by us for sure, and he was very understanding and great to work with in the whole process.” BEEBE: BUDGET STILL SOUND
The compromise will cut a combined $ 19. 4 million from the funding for Beebe’s proposed budget in fiscal 2008 and $ 27 million in fiscal 2009.
But Beebe said no program proposal will have to be scaled back to accommodate the tax cuts. He said that’s because the needed money will be drawn from two trust funds and by tapping general revenue that would have gone toward buying more state vehicles.
“I am happy to report that my whole budget proposal is unaffected by all this,” Beebe said. “It’s only $ 20 million. You’re dealing with a $ 4 billion budget.”
According to Richard Weiss, director of the state Department of Finance and Administration, the money to fund the budget after the additional tax cuts would come from: The Merit Adjustment Fund. Funding for merit raises for state employees would be reduced by $ 10 million a year. The fund’s balance, which is $ 21. 8 million, will be tapped to pay those raises. The Medicaid Trust Fund. It would be tapped for $ 6. 8 million in fiscal 2008 and $ 14. 4 million in fiscal 2009. It now has a balance of $ 183 million. By using the fund to help pay for the tax cuts and to supplement the Medicaid budget more than in the past as Beebe proposed last month, the balance is projected to dip to $ 19 million by the end of fiscal 2009. Weiss said that ending balance “should be sufficient.” The $ 2. 6 million a year that Beebe had proposed setting aside for state vehicle acquisition. Instead, vehicles would be purchased from the General Improvement Fund. The state projects a surplus of $ 843 million by June 30, more than $ 400 million of which already is in the bank.
EDUCATION’S NEXT Beebe said now he’ll turn his attention to education. “We want to make sure we do those things in education I promised,” Beebe said. “We want to make sure to get preschool paid for in the budget. We want to make sure we handle facilities. We want to make sure we... comply with the court.”
Special masters appointed by the state Supreme Court are again reviewing actions by the Legislature to address public education. But Beebe said he wasn’t worried that tax cuts are taking place before the masters have reported. He said he’s confident that the court will only address actions taken in the 2006 special session and won’t order more school spending for fiscal 2008 and 2009.
“[Beebe ] certainly says the right things,” said Sen. Jim Argue, D-Little Rock, chairman of the Senate Education Committee. “I’ve got great respect for his ability.”
But Argue said he needs more data to be convinced that Beebe’s budget will take care of the everything the state needs to address.
Brent Stevenson of Little Rock, a lobbyist who has represented timber mills seeking the sales tax cut on energy bills, said the compromise is a step in the right direction. He said his clients will accept it as the most they can get this session but will be pushing for further cuts in the 2009 session.
Rep. Allen Maxwell, D-Monticello, said he plans to file the manufacturers tax-cut bill today. He said he wasn’t aware of any industry that would come to Arkansas or would stay in Arkansas because of a utility tax cut.
“I know every manufacturer I talk to is desperate for any kind of relief that makes Arkansas more competitive,” Maxwell said.
He said he has about 80 House sponsors. Senate President Pro Tempore Jack Critcher, D-Batesville, said he expects the manufacturers tax cut and the income tax cut to breeze through the Senate. “It’s great to resolve that issue now and concentrate on our school funding issues,” Critcher said.
OTHER ACTION Not a lot happened in the legislative chambers during Tuesday’s session. On a 29-1 vote, the Senate approved HB 1072 by Rep. Shirley Walters, R-Greenwood, which would require school districts to adopt policies barring “cyberbullying” as part of their anti-bullying policies. State law already requires each school district to adopt policies to prevent pupil harassment, known as bullying, and the bill defines cyberbullying.
Sen. Dave Bisbee, R-Rogers, said the bill would make sure that school districts have uniform anti-bullying policies that can survive constitutional challenges. The bill goes back to the House to consider a Senate amendment.
A 35-0 Senate vote approved HB 1022 by Rep. Bill Sample, RHot Springs, that would allow sheriffs to charge some county inmates a booking fee to fund jail maintenance. A person convicted of a felony or a Class A misdemeanor would be charged a $ 20 fee. The measure is intended to defray the rising cost of jailing inmates, and officials hope that it will alleviate overcrowding in some counties by raising funds for jail expansion. The bill goes back to the House to consider a Senate-approved amendment.
The Senate also approved 35-0 Senate Bill 80 by Sen. Jimmy Jeffress, D-Crossett, to allow more Arkansas Teacher Retirement System members who don’t contribute 6 percent of their salaries to the system to start doing so in the future. It now goes to the House.
About 43, 000 members pay and about 39, 000 others don’t, said Julie Cabe, the system’s interim director. Information for this article was contributed by Laura Kellams of the Arkansas Democrat-Gazette.
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