BUDGET ALTERNATIVE: 2011-2013 BIENNIUM

(January 2011) Funding for core Arkansas government functions—education, corrections and transportation—could occur at slightly increased rates while other operations are frozen at current levels, providing $31 million in savings to cut state income, capital gains and grocery tax rates.

Arkansas Gov. Mike Beebe has called on tax cut proponents to identify spending cuts.(1) Spending cuts are not required to cut income and capital tax rates. The 2012 budget alternative would increase state spending for core functions while freezing other operations, allocating savings for tax rate cuts.

Increase Core Functions

Gov. Beebe’s executive recommendation for FY 2012 includes increases of 2.9% for the Public School Fund and 2.2% for the Department of Correction. The State Highway Commission is vested with the power to administer the Arkansas State Highway and Transportation Department (AHTD).

Spending increases could occur under the budget alternative, though smaller percentage increases would provide additional savings for tax rate cuts. (2) The budget alternative includes increases of 2.4% for the Public School Fund and 1.2% for Corrections, and would generate $12.4 million for tax rate cuts.

Freeze Other Operations

The budget alternative would save $18.6 million by freezing Gov. Beebe’s proposed increases for the following departments and programs: Department of Education (2.0%), State Library (3.1%), Department of Career Education (9.7%), Human Services (0.6%), Department of Arkansas Heritage (0.3%), Department of Agriculture (1.2%), Department of Labor (2.7%), Department of Economic Development (0.4%), Department of Community Correction (6.1%), and Miscellaneous Agencies (14.1%).

Funding for the School for the Blind, School for the Deaf and Rehabilitation Services would increase under the budget alternative.

Conclusion: Apply Savings to Tax Cuts

Gov. Beebe has proposed a half-cent reduction in the grocery tax from 2.0 to 1.5%. Enacting his modest proposal ($15,500,000) would still allow state capital gains and income tax rates to be reduced by applying savings ($15,500,000) from the alternative budget. The budget alternative would provide $31 million in tax relief, double the amount proposed in the executive recommendation.

--Greg Kaza

(1) The Policy Foundation has identified $74 million in savings from increased efficiencies, not spending cuts. These include restructuring educational service cooperatives into one unit, restructuring K-12 administration functions into 134 units, expanding privatization initiatives, and restructuring state retirement systems into one system.

(2) Policy Foundation memo, “Three Budget Alternatives: 2011-2013 Biennium” (December 2010)