If problems are inevitable, “disagreeing about what to do with excess money” is a good one to have.
That’s the situation where Arkansas policymakers find themselves as the state finished fiscal year 2023 on June 30 with a $1.161 billion general revenue surplus. In other words, it collected that much more than it spent that year.
It was the third straight huge surplus. Last year’s record $1.628 billion was absurd. The surplus in fiscal year 2021 – $945 million – was more than double the previous record of $409 million in fiscal year 2007. Added together, the state has enjoyed $3.73 billion in surpluses the past three fiscal years.
What’s causing all this black ink? Obviously, COVID dollars have played a huge part. Billions of (borrowed from the future) federal dollars have flowed into Arkansas. Here are two examples. Schools were allocated $1.77 billion to pay for technology and other needs. Of that, $1.37 billion has been spent. The $1.2 trillion Infrastructure Investment and Jobs Act is spending billions more for roads, bridges, electric charging stations and other investments. That includes a billion dollars announced recently for broadband expansion.
Department of Finance and Administration spokesperson Scott Hardin said his folks don’t think the COVID dollars account for even the majority of the surplus nowadays. After all, the money has slowed down since the early days of the pandemic. I would tend to disagree, but they know more. While inflation is high, jobs are plentiful and the economy has done pretty well. Sales tax collections have been strong the last three years.
Hardin said DFA doesn’t expect surpluses to remain at these levels, but it does expect the state to continue doing well.
Regardless of the explanation, the state has budgeted much more conservatively than it could have. It has spent or obligated part of the excess accumulated these past three years along with previous ones. It also has cut taxes while putting some of the money into savings.
It has $1.62 billion in its restricted reserve fund. That money will be spent for specific needs, including $417 million for educational facilities. Another $330 million will build a new prison while $200 mllion will construct a new Crime Lab. Another $100 million will help the University of Arkansas for Medical Sciences achieve a National Cancer Institute designation, which is a big deal.
Meanwhile, the state has $1.5 billion in its catastrophic reserve fund. That’s for emergencies and can only be touched if DFA forecasts less than 3% revenue growth. (Pay attention, Washington, D.C.) It has another $710 million in its general revenue allotment reserve, which easily can be touched and most certainly will be.
What to do with all that extra money? One perspective is to spend some. Arkansas has many needs, including human ones.
Another is to cut taxes, which lawmakers have been doing for years – responsibly and gradually, to their credit. The top state income tax rate was 7% in 2015 and will be 4.7% this upcoming one. Gov. Sarah Huckabee Sanders has been saying for a while that she wants to phase out the income tax completely until it matches the 0% rates in neighboring Texas and Tennessee. Some legislators are eager to help her do that. However, she said last week she is not inclined to call the Legislature into special session this year to pass additional tax cuts.
The other option is to wait and see how much of this economy is real and whether or not we’re due a COVID hangover. You never know what’s going to happen. That previous record surplus in 2007 was shortly followed by the Great Recession. Plus, the state has made a big commitment through Sanders’ LEARNS Act to pay teachers a minimum $50,000 annually while letting parents access state funds for private and home schooling. State officials think they know what it’s all going to cost in the early years. But sometimes things cost more than expected, especially over the long term.
My preference would be to do nothing until next year’s regularly scheduled fiscal session. I’m OK with small tax cuts then if the numbers are still favorable. But let’s take things slowly lest Arkansas start looking like Washington, D.C.
Not everyone agrees with me, of course. That’s OK. Disagreeing about what to do with excess money is a good problem to have.
Steve Brawner is a syndicated columnist published in 13 outlets in Arkansas. Email him at brawnersteve@mac.com. Follow him on Twitter at @stevebrawner.
