Weekly Legislative Roundup

April 26 - May 2, 2021

2021 session nears end as lawmakers look to adopt Revenue Stabilization Act to balance state’s $5.86 billion budget for upcoming fiscal year

As the Arkansas 93rd General Assembly Looks toward its final week before adjourning on April 30, the Joint Budget Committee on Friday approved the Revenue Stabilization Act (RSA) that categorizes and state spending for the fiscal year 2022 that begins July 1, 2021.

Under the RSA schedule drafted by Joint Budget co-chairmen Rep. Lane Jean, R-Magnolia, and Sen. Larry Teague, D-Nashville, the revised budget forecast for fiscal 2022 is $5.86 billion with a surplus of 17 million. Before the legislation began on Jan. 11, the Arkansas Department of Finance Administration forecast came in at nearly $6.07 billion before appropriations were enacted in the 2021 session.

As required by the RSA’s complex balance-budgeting forecasting model, legislators must prioritize all state agency spending requests during both the fiscal and regular legislative session. The legislature usually divides state general revenues into “A”, “B”, and “C” categories under the RSA. Allocations in the “A” category have top priority and normally are 100% funded.

If there is money left over after funding the “A” category, the “B” category is also funded, and eventually “C” category is funded if revenues allow. Following today’s year-end results, state budget officials said $64 million will be divided between the Restricted Reserve Fund and the Arkansas Highway Fund at a rate of 75% and 25%, respectively. The remainder of the $295.4 million budget surplus will be distributed between the General Revenue Allotment Reserve Fund and the state Highway transfer fund at the same 75-25 distribution ratio.

Altogether, the 2021 session has enacted over 600 new laws, including fiscal-related appropriations that will cost the state over $200 million in the upcoming fiscal year. A year ago, during the fiscal session in April, the General Assembly enacted a $5.89 general revenue budget for the 12-month period ending on June 30, 2021. That budget forecast estimated the state collections would provide $5.68 billion into state budget coffers, leaving $212.2 million of that budget unfunded.

In the state’s March revenue report on April 2, DFA officials reported year-to-date gross tax collections totaled $5.48 billion, representing an increase of $380.7 million or 7.5% above last year. Year-to-date net available general revenues came in at nearly $4.67 billion, up $409.3 million or 9.6% above year ago levels.

Through the first nine months of fiscal year 2021, net available revenue is above forecast by $549.9 million or 13.3%. The results include net collection increases tied to the income tax due date shift to July from April in the prior fiscal year, state budget officials said.

Before the 2021 session official adjourns, the legislature must approve Gov. Asa Hutchinson’s $5.75 billion budget with the overwhelming approval of the RSA. In his State-of-the-State address on Jan. 15, Hutchinson outlined a $5.84 billion balanced budget for 2022. Among many things, Hutchinson’s key fiscal agenda included raises in average teacher salaries by $2,000 over the next two years.

On April 12, Hutchinson also held a press conference to tout his teacher pay initiatives. Senate Bill 504, sponsored by Sen. Missy Irvin, R-Mountain View, and House Bill 1614 by Rep. Bruce Cozart, R-Hot Springs, the respective chairs of the Senate and House Education Committees, were two identical bills into Hutchinson signed into law as Act 680 of 2021 during the press event.

Act 680 raises the target median teacher salary to $51,822 for the 2021-22 and 2022-23 school years. The House and Senate Committees afterwards would jointly set the statewide target median salary. The new act also provides $25 million to create a Teacher Salary Equalization Fund, which will provide $185 per student in districts that are below the median salary. 

According to the legislation, the gap between the highest average salary, $60,963, and the lowest of $39,578 was $21,385. Hutchinson said $15 million will come from adequacy funding passed by the Legislature, while $10 million will come from the educational adequacy trust fund.

Hutchinson’s other top fiscal priority included two specific tax cuts to reduce the sales tax on used cars that sell between $4,000 and $10,000 from 6.5% to 3.5%. This would give relief to thousands of Arkansans who depend upon used vehicles for getting to work and to school, said Hutchinson before the session began.

Highlighting the final two years of his tenure as Arkansas governor, Hutchinson also said he would continue building on his legacy of tax cuts with a commitment to not only absorb cuts from previous years but also set aside another $50 million in tax relief for workers in low- and middle-income brackets. 

Under Hutchinson’s new tax plan, Arkansas tax rate for new residents would be lower to 4.9% for the first five years they live in Arkansas. That will attract new Arkansans, who will spend money and pay taxes, and companies that will create jobs and contribute to our economy, he said. In fiscal 2021, the individual income tax rate has been reduced to 5.9 % with the goal to reduce the rate to 4.9% for all residents by the time he leaves office at the end of 2021, Hutchinson said.

Additional, Hutchinson has also proposed financial plan for state government operations will also increase the balance in the Long-Term Reserve from $185 million to $285 million by the end of the biennium. Hutchinson noted that when he took office in 2015, the state’s “rainy day” fund’s balance was zero.

As a nod to Hutchinson’s fiscal agenda, the Senate Revenue and Tax Committee on Wednesday gave a do-pass recommendation to House Bill 1912, which would reduce the sales tax on used cars, trailers and semitrailers. The bill, sponsored Rep. John Payton, R-Wilburn and Sen. Jonathan Dismang, R-Beebe. 

The bill moved to the Senate floor on Thursday, where it is expected to gain quick approval and then sent to the Hutchinson’s desk to be enacted into law. It was approved unanimously in the House by a vote of 91-0 on April 20. According to DFA budget analysis, HB 1912 would reduce sales tax revenue by $6.5 million in the upcoming fiscal year and by $13.1 million in fiscal 2023. Like most sales tax changes in Arkansas, HB 1912 would become effective on Jan. 1 of the upcoming calendar year.

To pay for tax cuts, we need to continue to grow our economy and bring people to Arkansas. To help with that goal, I am recommending a second tax cut. And that is that we lower our tax rate for new residents to 4.9 percent for the first five years they live in Arkansas. That will attract new Arkansans, who will spend money and pay taxes, and companies that will create jobs and contribute to our economy.

Arkansas House and Senate

Other key House and Senate bills passed over the past including the following:

• SB564-This bill creates the Arkansas Tutoring Corps Act. It allows the Department of Education to develop a program to identify qualified tutors and a curriculum to support elementary students in reading and math. The bill states that data suggests that learning loss suffered because of the pandemic will be substantial, particularly for the state’s most vulnerable students.

• SB629-This bill will allow a school district with declining enrollment to receive both declining enrollment funding and special needs isolated funding.

• SB680-This bill creates a tax credit for eligible contributions made to a scholarship-granting organization under the Philanthropic Investment in Arkansas Kids Program Act. This legislation would allow a student who has an annual family income less than or equal to 200% of the federal poverty level to receive an educational scholarship that covers all or part of the tuition and fees at a private school.

The scholarships would equal 80% of foundation funding for students in K-8 and 90% of foundation funding for high school students. The total amount of tax credits awarded in a year shall not exceed $2 million.

• SB450-This bill states that members of the male sex are prohibited from an interscholastic, intercollegiate, intramural, or club athletic team or sport that is expressly designated for females, women, or girls. The bill also states the Attorney General may bring a cause of action for injunctive relief and any other relief available under the law against an entity that does not comply.

• HB1761-This bill states that a public school or an open-enrollment charter school shall not express, depict, or teach about race or ethnicity in a manner that prevents or inhibits fair and open discourse that employs reason as a guide for deliberation in the exchange of ideas and opposing points of view.

• SB248-This bill creates the Food Freedom Act by exempting certain producers of homemade food or drink products from licensure, certification, and inspection.

• SB606-This bill would give Arkansans up to 24 months to take the driving portion of a driver’s test after passing the written portion of the exam. Currently, Arkansans are only given 12 months before they must re-take the written exam.

• SB26-This bill would reduce the sales and use tax on coal if used in manufacturing.

• SB498-This bill states that following a written complaint concerning any election law violation or irregularity to the county board of election commissioners, the written complaint shall be sent by the county board of election commissioners to the State Board of Election Commissioners for evaluation. Currently, the complaints are directed to the county clerk or prosecuting attorney.

• SB557-This bill gives county election boards the power to supervise all election officials.

• SB576-This bill states that each school district and open-enrollment public charter school shall have a policy detailing how a record of pupil attendance shall be kept for public school students who attend school via virtual or remote learning programs.

• SB543-This bill extends tax credits for waste reduction, reuse, or recycling equipment by steel manufacturers.

• SB553-This bill states that a historical monument shall not be relocated, vandalized, damaged, destroyed, removed, altered, renamed, rededicated, or otherwise disturbed. It defines a historical monument as a statue, memorial, gravestone plate, plaque, or historic flag display that is located on public property and was installed or dedicated in honor of a historical person, historical event, public service organization, firefighter, police officer, military organization, or military unit.

• SB590-This bill states that a state agency, a political subdivision of the state, or a state or local official shall not mandate an individual in this state to use a face mask, face shield, or other face covering. It also states that the General Assembly reserves the right to enact legislation regarding the mandatory use of face masks, face shields, or other face coverings.

• SB355-This bill states that if a lottery winner wins more than $500,000, he or she may keep their identity confidential.