The end of each legislative session is dominated by legislation on the state budget. The bill everyone watches is the Revenue Stabilization Law. Once the bill is passed, some legislators start bragging that they have balanced the state budget and held down spending. It all sounds very rosy, but much of the story is missing.
Here we will provide some missing pieces to the story. But before we begin, here are some basics you need to know before deciding if all the crowing about the budget is justified.
TERMS AND BASICS
Arkansas’ general revenue budget is made up of two parts. First, several hundred appropriation acts are passed. An “appropriation act” is a law authorizing a state agency or state program to spend up to a stated amount of money. There are several hundred of these appropriation bills because the Arkansas Constitution requires each bill to embrace only one subject. [i] Don’t you wish the federal government had that same requirement?
Second, the other part of the general revenue budget is the Revenue Stabilization Law. The law came about in 1973 because in years when less revenue came into the state treasury than the legislature had appropriated there was no orderly way to reduce spending. Spending just stopped when the money ran out. The Revenue Stabilization Law is about lowering distributions in bad economic times and about setting up priorities so the items in a lower classification are cut first.
Under the Revenue Stabilization Law, if revenue estimates fall, the Governor may reduce spending across the board for a spending classification.
Each year the legislature passes a revenue stabilization act which amends the Revenue Stabilization law by changing expenditure totals and by revising which items are under which classifications.
FIVE THINGS THAT MAY SURPRISE YOU ABOUT REVENUE STABILIZATION AND THE GENERAL REVENUE BUDGET
- Although all the talk is about the General Revenue budget and about the Revenue Stabilization Law, according to a recent report, they only apply to about eighteen percent ( 18%) of total state spending! You didn’t hear much about the other eighty two percent (82%) of state spending. The 82% is not subject to the need for an appropriation acts ti spend and is not subject to the Revenue Stabilization Law. (According to the Bureau of Legislative Research in 2021 total state expenditures consisted of the following spending percentages: General Revenue 18%, Federal Funds 40%, Cash Funds 10%, Special Revenue 6%, State Central and Constitutional Officers Fund 1%, and Other Funds 25%)[ii]
- Despite what some legislators claim, the Revenue Stabilization Law is not about balancing Arkansas’ General Revenue Budget. Even without the law the general revenue budget would be balanced because spending ends when the revenue runs out. Arkansas can’t print money like the federal government and borrowing consists of voter approved bonds backed by specific taxes.
- The state would spend less general revenue if the legislature failed to pass a new law amending the Revenue Stabilization Act. Each year the legislature approves revisions to the Revenue Stabilization Law to increase spending. Spending always goes up in the same way the federal debt ceiling always goes up. If the legislature were to fail to pass changes to the law, the limits for the previous year would continue to apply in future years. Remember, the previous year’s general revenue expenditure is always lower since the legislature consistently approves bigger general revenue budgets.
- When a legislator claims to have “held down spending” through passing a revenue stabilization act, it only means someone else hoped to spend even more. And don’t forget the legislator is only talking about 18% of spending and spending from other sources continues to grow.
- In stating the percentage increase in the new general revenue budget, they ignore revenue that magically changes from general revenue to “surplus revenue” on July 1. In good economic years where more general revenues are collected than predicted, there will be unused general revenues. On July 1, suddenly these funds are no longer considered general revenues and instead are call “surplus revenue.” Some of the so-called surplus revenues (once general revenue) are put into a reserve account, and that is good, but often millions are spent as surplus without having to show the expenditures as part of the general revenue expenditure. “Surplus” spending is done without the necessity of an appropriation bill approved by 3/4th of the Arkansas Senate and House of Representatives. Often “surplus” is spent on the request of a governor and approval by merely one legislative committee, not the full legislature.
STILL A GOOD THING
The Revenue Stabilization Law is not the solve-all some politicians make it sound like. Still, it is a very good law in its limited role of handling reductions in spending from the general revenue fund during bad economic times. It only applies to a small portion of state expenditures, but it is a very helpful law.
[i] Ark. Const. Art. 5, § 30
[ii] 2022 Financing State Program PowerPoint presentation by the Bureau of Legislative Research. https://www.arkleg.state.ar.us/Bureau/Document?type=pptx&source=blr%2FFiscal%2FPublications%2FD.++Budget+Process+PowerPoints+AND+Important+Session+Dates&filename=2022+Financing+State+Programs
