The COVID-19 virus and the resulting economic slowdown mean drastic cuts to Arkansas’ budget.
The Arkansas legislature’s Fiscal Session will begin April 8. In the session the Governor, with the legislature, will set the state budget for the next fiscal year, which is July 2020 through June 2021.
In a special session a few weeks ago cuts were made to the budget for the fiscal year ending June 30. The cuts had to be made to keep from running out of money for essential services. The state cannot run a deficit. Then the legislature approved using some of Arkansas’ reserve funds to supplement areas of the budget Governor Hutchinson determines are the most critical. That was just to get through the final three months of this fiscal year – April, May, and June.
The Fiscal Session will set the budget for next fiscal year.
WHAT TO EXPECT IN THE FISCAL SESSION
First, don’t expect the legislature to stay long. Some are saying it will be only a ten-day session. The shortness will limit the legislature’s input into crafting a budget, but who could blame them for rushing through the process. Two state Representatives have already tested positive for the COVID-19 virus. – Rep. Reginald Murdock and Rep. Vivian Flowers
Second, there are hundreds of appropriation bill bills that must be passed but don’t expect their work to be focused on the appropriation bills. They are likely to approve the bills in big batches to speed though them. Most of the revision to the budget will be done through amendments to Arkansas’ Revenue Stabilization Act (RSA), which determines how much money will flow to each appropriation from general revenue.
An “appropriation” is the authorization to spend money and serves only as a maximum. RSA is the control measure to send out money to state agencies. The amount sent to an agency cannot exceed the maximum authorized in the agency’s appropriation.
Third, expect the RSA to reduce the general revenue budget since the state has less tax money to spend.
Fourth, RSA sets a spending priority. There are currently three classifications of spending – Category “A”, “B” and “C”; with “A” being the most important. Lower classifications are cut first when there is not enough money to fully fund the budget. Each category is large and is unlikely to adequately address critical needs during this crisis without change. Years ago, there were additional categories or subcategories but having additional categories has not been as important during the good times when the budget could be fully funded anyway. Deciding what belongs in each category of spending will be more important for the 2020-21 Fiscal Year. Even if additional categories are not added, some spending may be shifted between the categories.
Fifth, the legislature is likely to continue to authorize the Governor to tap Arkansas’s reserve fund to transfer for budget needs. In special session the legislature agreed to authorize spending some of the reserve as determined by the Governor, but limited the transfers to within the appropriations the legislature already established. The same plan is likely for the new fiscal year. Unfortunately, according to a study by Pew Charitable Trusts, Arkansas is one of the states that has the least percentage of reserve built up.
A danger in the rush to go home would be if the legislature decided to rely on the already constitutional questionable process of letting the Governor spend reserve funds outside of the appropriation process.
MAKING FISCAL SESSIONS A FIZZLE
In 2008, when the people approved a constitutional amendment changing the state from a two-year budget to a one-year budget, which necessitated a fiscal session focusing primarily on budget matters. Despite the annual budget amendment being proposed by the legislature, the legislature never fully embraced it. The Democrat majority that existed at the time decided to minimize budget deliberations by continuing to plan budgets for a two-year period. The first half of that plan would be passed in the Regular Session (odd numbered years), then the fiscal session would rely on the plan from a year and a half before and then consider minor tweaks to the budget, usually adding some more money than planned to agencies and programs.
With the Fiscal Session being proposed by the legislature but underutilized by the legislature, it appears the amendment was likely used by the Democrats as a trade off to the Republican minority while expecting the people would not pass something that would have the legislature meeting more.
When Republicans became the majority party the pattern was already set and they have continued to minimize the potential of the Fiscal Sessions.
TURNING POINT FOR BUDGETING ?
This year’s abbreviated Fiscal Session could be a turning point to either push a new amendment to abandon fiscal sessions and go back to two-year budgeting or for the legislature to put greater effort into adopting a conservative budget.
Before saying let’s go back to a two-year budget consider this: What if we were still doing a two-year budget and this virus had hit at the beginning of a regular session, how good of a two year budget would be passed in the rush to get home.
On the other hand, if your answer is we need to utilize Fiscal Sessions better, two things are necessary:
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- More effort. Except during the current crisis, there are legislative committee meetings almost every week and legislators who are not even members of the committees come to sign in and get tax exempt mileage and per diem payments for signing in. Yet few of those meeting are to discuss the budget except in the months before a regular session and shortly before a fiscal session.
- Better process. Appropriations bills have largely been determined by how much money the agency had in the previous fiscal year and then applying some cost of living increase to the budget. This is poor planning and leads to wasteful spending when times are good. Some form of performance-based budget is needed to hone in on spending priorities.
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Please say a prayer for all who are involved in the Fiscal Session, and if you are not a praying person, we hope you will send them your good thoughts and encouragement.
