House Revenue & Taxation Committee
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Bills discussed (2)
| Bill | Title | Sponsor | Status |
|---|---|---|---|
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HB1041
· 6 mentions in chapter, transcript
Matched: “HB1041”
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Pre-2017 bill | ||
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HB1039
· 1 mention in transcript
Matched: “…when we get started is representative Warlaw here today for House Bill 1039 House Bill 1041 representative Bruce Westman you're recogni…”
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Pre-2017 bill |
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Representative Joe Jett
Unverified
0:00
I'd like to introduce my niece and my nephew Abigail Shackelford and Luke Shackelford he's they're both job shadowing today so appreciate y'all being here today we see a quorum so when we get started is representative Warlaw here today for House Bill 1039 House Bill 1041 representative Bruce Westman you're recognized
Representative Bruce Westerman
Unverified
0:34
mr. chair is it okay to present from
Representative Bruce Westerman
Unverified
1:24
Thank you, Mr. Chair. This is House Bill 1041. We've heard it said that governments don't have a revenue problem. They have a spending problem, and that is evident in our federal government today. But thanks to our predecessors here in Arkansas who implemented the Revenue Stabilization Act in the 1940s, we don't spend more than we take in.
And although RSA has kept us from deficit spending unlike the federal government, it has not solved all of our spending issues. To illustrate this point, I've got a slide that I want to put up. It's not that one. This is data that I got from legislative research
on economic indicators over the past 10 years.
And this top line, the blue one, it starts here in 2000, and it goes up through 2011, or 2001 to 2011. It's the change since 2000. And what that blue line represents is our total expenditures in state government. In the beginning, it was $8.8 billion, and in 2011, we were up to $20.8 billion. That's 136% growth in total expenditures.
Now, that's not just general revenue expenditures. That's all expenditures. As you're aware, we're a little below $5 billion in our general revenue budget. But at that same time, this red line represents our gross state product or the state GDP. And it went from $68.2 billion to $108.5 billion over the same time period. Now, that is a 59.2 percent increase in the state GDP.
So if you look at the differential between the state GDP and the total state expenditures, we're outpacing our GDP growth by 2.3 times with our total expenditures. You can see this rapid spike in expenditures right here. That's the federal stimulus money that came into the state in the 2007-2008 time frame. We've also got on this chart some other economic indicators of the state.
The green line represents the household median income, which went from $29.7,000 to $36.9,000. But you can see what happened since the recession where median household income went down. At the same time, we see our state agency's average salaries went from $30.2000 to $39.2000. So while our average household median income was going down, our state agency's average
salaries were going up. We also see on this kind of a pink line down here that's hidden that the number of jobs in state government over this time period increased 21.1 percent, while if we look at all jobs in the state from 2000, only increased 4.9 percent. And on top of that, we had a 9.8 percent population growth.
So although we do have the Revenue Stabilization Act that prevents us from deficit spending or spending more money than we take in, we can see from these economic indicators over time that we've still got some spending issues, and we can be more fiscally responsible than what we've been in the past. And this was done with a Republican governor and a Democratic governor. not that I'm not putting blame on one party or the other these are just the
facts of where we're at we have an opportunity to implement legislation that will introduce true physical conservative controls our state spending and it
will limit our state government from growing faster than the economy as I showed you right here there's the the total expenditures have grown 2.3 times the economy the rate of
the economy and we have control to
fix that and that's what I believe House bill 1041
will do now house bill 1041 would only affect general revenue expenditures and that's what this chart right here illustrates the blue line is our actual general revenue expenditures over time over that same time period as
the previous data that I showed you. The red line is what our general revenue expenditures would have been had we had this expenditure growth cap model in place. If
you look at this chart in 2004 we increased our expenditures 8.5 percent 2006 was 5.4 percent 2007 6.1
percent 2008 7.3 percent and you can see something else that happened because of
Revenue Stabilization Act, we grew our general revenue expenditures as the general revenue was increasing and then we got into a situation with the recession where our general revenues went down and we actually had to cut spending because we didn't have enough revenues to cover the expenditures. Had
Had we implemented this model of a growth cap on expenditures, then we would have seen a steady growth in expenditures over time. And even when we faced the recession, we wouldn't have had to cut expenditures. We could have leveled them out. And I believe this would be a better tool for budgeting and it would be better for agency directors in planning for their budgeting if they knew we weren't going to get into situations where we had surpluses and rapid spending growth.
And then we might get into a situation where we had
a downturn and had to cut. Now there's also a question about what this bill does
and what this bill doesn't do. The way the bill is written, what it does is it pegs the growth in expenditures to two
things. And it would be the lesser of the three-year average of growth in the gross domestic product or a rate of 3%, which roughly equals the rate of inflation over time. If you look at the Consumer Price Index over the past 10 years, the inflation rate is really only about 2.5%. But we set the language up in this bill to cap the growth at 3%
or the three previous year's average of growth in the gross domestic product. What that would allow us to do is to smooth out any sudden changes in revenue by looking at a three-year history on the revenue. What this bill doesn't do
is it doesn't cut anything. You can see if we'd have had this model in place in 2003,
we would have still grown at a slow, steady rate. three percent and then when we hit the recession we would have tapered off at a lower rate of growth another thing that this bill doesn't do is it doesn't cede any power to the executive branch but it exercises legislative control over expenditures I've added an emergency clause to the bill or not an emergency
clause, but language for an emergency situation, because when I filed the bill, that was one of the questions that many people had. Well, what happens if we get in a situation where we've got emergencies? And there's language in there now that if there is an emergency expenditure, then the governor can present that emergency expenditure to the legislative council if we're not in session in the interim, or if we're in session, can present those emergency
expenditures to joint budget to be approved, which gives the legislature another layer of checking on expenditures. It doesn't just give free reign to the state agencies to spend everything in their appropriation or everything in RSA if the revenues come in above forecast, which we know that DF&A is usually pretty conservative, and we usually have some kind of a surplus at the end of the year.
I believe we're in a model right now where we don't spend more than we take in, but we end up spending everything that we take in. And the reason that I believe this legislation is important to the future of our state is because we need funds for rainy days, we need funds for emergencies, and we need funds so that we can give it back to the taxpayers. All of this money would flow,
any excess money would flow into the existing revenue allotment fund. Nothing would change on the mechanics of how the money flows or where it's accumulated at. Just to give you an example, my understanding is we'll be hearing a bill in this committee sometime during this session to raise a tax on property owners of timber to help fund the Forestry Commission. The governor's budget proposes $900,000 in increased general revenue for the Forestry Commission,
but they're asking for a five-cent tax on forest land to make up the additional $900,000 they need to operate their budget. We're projected to have about a $90 million surplus this year, and I believe the projections for next year are in the hundreds of millions of dollars. But we get into a situation with general revenue where when we need to increase funding to a vital organization like the Forestry Commission, instead of just going ahead and having another $900,000
to fund the firefighting efforts of that organization, we're faced with raising taxes to generate more revenue for that organization. Many questions have been asked about what happens if a, like with the highway tax, the half-cent tax on roads, well, that's a special revenue. It's not a general revenue, and this wouldn't affect those expenditures. I believe this is a good bill.
I believe it will help us to be more fiscally responsible. I believe it will help position our state to face the uncertainties that might be coming down from decreased funding from the federal government. And I believe this is a bill that the people of Arkansas, I believe this is a type of legislation that the people of Arkansas want us to pass to move this state forward.
And with that, Mr. Chairman, I'll take any questions.
Speaker 27
14:41
Thank you, Representative Westerman. Any questions from the committee? Representative
Speaker 30
14:48
Armstrong. Thank you, Mr. Chair. Mr. Representative Westerman, what's our Quick Action Close Fund currently used for? What is the governor's quick action closed fund currently used for I believe that's
Representative Bruce Westerman
Unverified
14:59
used for economic development projects And does he have the discretion
Speaker 30
15:02
outside of economic development projects in the case of an emergency situation to use any of those funds? Currently or under this currently I
Representative Bruce Westerman
Unverified
15:12
Believe he does Mr.. Mr.. Weiss might be able to address that in more detail sure because
Speaker 36
15:23
I've got a question for you next if you don't mind
Speaker 30
15:28
the reason I'm asking is you mentioned that this would allow for more flexibility in events like the one you just mentioned with the forestry if we've got a quick action closed fund that was created in the event of emergencies why do we want to create this mechanism if there's already one in
Representative Bruce Westerman
Unverified
15:46
place yeah representative Armstrong I don't believe the quick check quick action closing fund was for emergencies I believe that was created more for
Speaker 30
15:56
economic development buffer can be used if needed am I
Representative Bruce Westerman
Unverified
16:00
correct I'm not certain about that you might ask the man at the end of the
Speaker 41
16:06
table okay mr. Usher watch go ahead and recognize yourself
Speaker 42
16:11
please thank you mr. chairman I'm Richard Weiss of the Department of Finance Administration mr. Armstrong your
Speaker 43
16:17
question on the quick action closing fund I believe that is for the purposes of economic development and that's the sole purpose for it if I recall the language in the appropriation the appropriate remember the language and the appropriation is what governs the use of the money thank you my
Speaker 30
16:35
next question is for DF and a you have you
Speaker 45
16:37
guys I'm sure you've vetted this mr. Westman I know you're wise enough to do that but have you guys
Speaker 36
16:43
taken a position one way or the other on the impact of this legislation
Speaker 44
16:48
yes sir we have where we we are opposed to it for a
Speaker 48
16:50
whole host of reasons that I would I would like to bring to the committee at some point okay thank you like that's it for now Thank You mr. chair any more questions for
Speaker 35
17:00
him from the committee okay do we have any opposition to
Speaker 10
17:12
the bill and I think we do go ahead mr. Weiss
Speaker 42
17:18
thank you mr. chairman and I mr. Westman I don't want to come across as just being completely
Speaker 43
17:24
negative on everything I've been around here for a long time and have gone through lots of cycles and down cycles in the economy and I
Speaker 48
17:32
can tell you that I am very proud of the way the state has been operated at least for the years under when I've had the responsibility to do that we have been written up nationally as one of the most conservative and one of the most fiscally responsible states and I'm very keenly aware of
that and get a great deal of satisfaction from that. However I'm never opposed to looking at things in a new way and a new light. The issues we have with this bill, if I may, just kind of go through my list, Mr. Chairman, as a starting point and then we can discuss from that point on, but the bill as we read it and delegates the responsibility for determining state expenditure levels to the director
of the department, which was myself, contrary to the appropriation and funding laws enacted by the legislature. This violates the constitutional responsibility of the legislation to appropriate money and set state funding levels as they do in the stabilization law now. It violates the basic constitutional principle that the legislative branch of government makes laws. If the legislature desires to limit funding to any specific amount calculated by formula or otherwise, it has the authority and responsibility to do that under the Constitution.
That can be done every budget year in the legislative session, whether it's a fiscal session or a regular session. Secondly, the bill has several drafting issues, leaving it open to interpretation and question. One of the main issues is whether the calculation is applied to gross general revenue, collections or net rep general revenues the difference in application results in millions of dollars bill is also unclear as to the economic and statistic statistical information that should be utilized and we have got an
attachment that talks about that and I'll get to that in just
Speaker 44
19:40
a moment in fact let me just do that right now I've got that in front of me So in the statistical information that you
Speaker 43
19:56
are keying off of, you refer to GDP. The bill does not specify which official GDP state measure to use, current dollar or real,
Speaker 48
20:05
which is inflation adjusted. Calculation for the three-year growth rates using both official variations and using cube root formula are attached, and I will get to that directly. The current dollar version of the state GDP would be more appropriate for use with current dollar revenue collections than state expenditures. There is at least a one-year lag in the official data for state GDP. This could actually be longer than one year, depending on the timing of certification of
this measure for determinations and associated growth. The latest available year for state GDP as of January 2013 is calendar 2011. So there's a significant lag time there. The official data is only estimated in calendar year annual format. In addition, the lag time mentioned above. We would not be able to convert fiscal year terms unless some other process would strive to use more historic years and construct true approximations of fiscal years with averages
of two calendar years. The calendar year format and data lag would produce the effect of slow response in the formula to new inflation episodes in the state economy and state operating costs. The state gross domestic data is periodically revised by the official source, which is the U.S. Bureau of Economic Analysis. How would we handle that? The cube root
Speaker 44
21:38
calculations described in House Bill 1041 is appropriate for calculating an
average growth rate over a three
Speaker 48
21:51
year interval. The next item would be lowering spending levels which are set by the legislature in the Revenue Stabilization Act which severely jeopardize critical government areas such as prisons and state police, not to mention Medicaid. This is because the so-called Doomsday Clause maintains education spending to the expense
of all other programs, even if the expenditure levels are cut below those established by the legislature, and I think all of you all know what that is, but the Doomsday Provision says that once the legislature has set whatever the adequate, and that's the term, the adequate level of funding for the school in the ensuing fiscal year, if there is any reduction anywhere in the collections of taxes, to the point that you would
Speaker 44
22:44
even in the current revenue
stabilization all get into school funding, you would then immediately leave school funding the loan and cut all of the other entities including Medicaid and anything else that may be important out there
Speaker 48
23:02
amendment 82 which allows the legislature to enact general revenue bonds for major economic projects would be jeopardized by any reduction of general revenue expenditures
Speaker 43
23:13
below the amount enacted by the legislature this instability would prevent
dedicating any general revenue for such projects as you have just had presented
Speaker 48
23:21
to you on the amendment 82 project any attempt to apply the formula in the bill based on best guess as to what application as is written would dramatically reduce the balanced budget as presented by the governor to the legislature and I understand that's part of what y'all are trying to do or what this bill is trying to do is dramatically reduce expenditures but I I would point out, for example, that when the executive put together the balanced budget
proposal for you all back in the
Speaker 44
23:57
fall, and you all looked through all those budgets, spent several months at it, and came up with the budget, it incorporated such things as picking up in the prison budget the amount that the governor had
Speaker 48
24:10
used out of the rainy day fund to keep the operations going. that amounted to some 14 million dollars there were several other instances in there where we had put growth money but of course the biggest one where we had
Speaker 44
24:25
put growth money some 90 million dollars in general revenue was also to be supplemented by a hundred and forty million dollars over two years of money coming out of surplus and even at that
Speaker 48
24:36
point we could not afford all of the Medicaid program mr. chairman I've thrown out a lot of a lot of issues here I don't know how you want to proceed from here if you want me to keep going or
Speaker 44
24:51
yes sir there's any questions like meeting
Representative Stephen Meeks
Unverified
25:00
thank you mr. chairman question that I have for you you've raised some valid concerns here. Is there a, I don't know if compromise is the best word here, but is it possible that a compromise can be reached here, that we still keep the spirit of what this bill is trying to do, but address a lot of the concerns that you've raised about getting, you know, net versus gross, getting these year-over-year GDP calculations in. Is that something that you'd be
willing to work with the bill sponsor to try to make it a little more or are you in a position where you know that we
Speaker 44
25:40
just can't do this well of course I would anything that I would agree to it I would have to I would have to get the governor's
Speaker 48
25:48
sure sure I understand that I could do that
Speaker 43
25:52
but but you know the whole revenue stabilization law as it's out there currently constrained state spending it constrains it to the amount of cash that the state brings in and AND EVERYTHING HAS
Speaker 48
26:01
BEEN TAILORED VERY CLOSELY TOGETHER TO MAKE SURE WE, AS BEST WE CAN,
UNDER CURRENT TAX LAWS AND UNDER CURRENT SPENDING OBLIGATIONS, MEET ALL OF THOSE OBLIGATIONS IN A BALANCED APPROACH. WE HAVE A HUGE MEDICAID ISSUE JUST KEEPING ON
Speaker 43
26:16
THE CURRENT PROGRAM, JUST THE PROGRAM AS IT IS RIGHT NOW, NOT TO MENTION MEDICAID EXPANSION. THAT IS A BIG, BIG ISSUE OUT THERE, AND I
Speaker 48
26:25
DON'T KNOW HOW YOU'D EVEN DEAL WITH THAT under this. I mean, you just have less money to put
Speaker 44
26:36
towards it. The way that would make
it, I think, constitutionally acceptable would be just to set your revenue stabilization
Speaker 48
26:43
at 3 percent or at pick a number, whatever percent lower than that you want to set the spending of the state to be, and then let the stabilization law act like it does now during the time that you all are not in session, having the legislature when, I mean, you know, under the Constitution, you guys make the laws and you set the policy, but the executive
Speaker 44
27:08
branch is who's supposed to carry it out and not come back for approval for everything
Speaker 48
27:13
that's done in the interim, and I'm not an attorney, but I have a lot of them who advise me on such matters, and I don't think you guys need any advice on that, but that's just That's a simple constitutional issue. You know, what this does is, as I read it, just to paint a picture, said, well, you guys could set the budget anywhere you want it to, and after you go home, then I'm supposed to, Chief Fiscal Office of State, I'm supposed to just reduce the budget.
I guess ever how I want to
Speaker 43
27:49
do it to meet either a 3 percent arbitrary 3 percent limit or something less depending on which of the many calculations of GDP are out there. And that's where we have real problems because if you guys are in session and you leave and you pass a stabilization law that's way higher than that or
Speaker 48
28:10
appropriations that just can't be financed at all, then which ones am I supposed to cut and how am I supposed to cut them and all that type of thing, this
changes all of the game in that regard okay thank you
Representative Stephen Meeks
Unverified
28:23
that's a valid concerns definitely thank you thank you mr. chairman resident bella oh
Representative Joe Jett
Unverified
28:29
your apology I took you out of order so I apologize to you and you wondered your
Representative Nate Bell
Unverified
28:38
question thank you mr. chair mr. wise as I sit here and listen the constitutional concerns that you've expressed would seem to be also applicable applicable to RSA we've been operating under RSA for a long time
would you care to explain what you see
Speaker 63
28:59
is the differences between the two sure you know in the Revenue Stabilization Act
Speaker 48
29:04
as it currently exists and is currently administered you guys set the appropriations you make the appropriations you assemble your priority in the Revenue Stabilization law saying just across
Speaker 44
29:18
the board which would be cut whenever and it is administered by cash flow of taxes coming into the state so anytime you have
Speaker 48
29:27
a shortfall or appears that we're going into recession we can make we can make a cut the administration the executive branch of government can make a cut in strict accordance with the stabilization schedule the way it's laid out and it goes across the board the only exception being that you cannot cut adequacy
Speaker 44
29:49
under this under this bill as we read it we would you
Speaker 48
29:54
guys would it kind of takes
away anything that you might base your appropriations on or any funding scheme on and say well we'll come up with a number of the three percent or something less at the end of the year or before the budgets are done for the next time and set it at that arbitrarily with no real tie back to anything the legislature had done and then and then you further have said well okay fine if there's anything emergency comes up bring it back to us and we'll approve it
Speaker 44
30:29
those are the two that's the really big
Representative Nate Bell
Unverified
30:34
difference I guess the point the part that I'm struggling with here is this is a limitation on appropriation what what am I missing you're dealing with the expenditure side and I guess I'm missing how you're connecting the two if
Speaker 43
30:51
you're making limitation on appropriation mr. Bell you do it right now when you're in session correct but isn't that also what RSA does no sir well RSA takes the sum total of all those appropriations and
Speaker 48
31:02
and categorizes them and determines where they fall in the priority list. You all determine the priority list. The stabilization law determines the priority list of how much is in the first allotment, how much the second, how much the third, or however, how it's organized. And then the cuts that we make are purely, they're not subjective. They are purely as a percent of what you have laid out. There's no subjectivity to it. I
Representative Nate Bell
Unverified
31:30
guess I'm back to my original point.
It would appear to me that the constitutional authority for both are the same. The legislature raises and appropriates revenue, and the executive branch has the spending authority. I don't personally see the connection. If you can expound further, I'd appreciate it, but I'm really having a difficult time
Speaker 69
31:51
getting there. Well, I'm a very poor lawyer, Mr. Bell, as you probably are too, and we'd
Speaker 44
31:59
talk about that, which we're certainly able to do. But there are some vast differences that we see in there.
Representative Nate Bell
Unverified
32:06
If there's somebody that could maybe help a non-lawyer farmer like me understand that, I'd certainly appreciate it because I'm really having trouble making that jump.
Speaker 48
32:16
Okay. Mr. Chairman, if it's agreeable with the chair, I'd like for Mr. Leathers to, who has given me legal advice for many years, give a shot at this. Yes, sir.
Speaker 72
32:36
Chairman Tim Leathers with the Department of Finance and Administration
Speaker 73
32:39
there is a significant difference in this and revenue stabilization in that revenue stabilization provides some very strict guidelines on adjustments and how they're going to be made in by category when you look at our Constitution and the responsibilities of the legislature those are set out to pass appropriations and then you fund those and you pass those laws every year you know you can do that every year in fact you could do what's in this bill every
year you can make those calculations however you want them and change them but to set something in law that we have to do calculations particularly as vague as they are here and us trying to guess what they're doing then you're putting it on the executive branch to make those contrary to all of those things that are provided in the Constitution for you to do and revenue stabilization we're just following the format of the Constitution that provides your efforts and then particularly when there's a provision in here that says there's an emergency then
the governor and the chief fiscal officer will go in interim for approval to exceed that amount you know it's clearly unconstitutional so we have some some real concerns about this particularly in light of if you're looking at this and you have the authority why would you want to take the legislative authority that you have to do this every year and then arbitrarily say we're going to follow some other formula when you're the decision-makers why you know it's
kind of hard for us to understand why you would even give up that authority in making
Representative Nate Bell
Unverified
34:26
that decision mr. chair could I respond to that question please it mr. letters just from my point of view for the same reason that the folks who passed the original revenue stabilization Act did we would like to see an ongoing statement from this legislature of how we choose to limit spending and just like the folks that originally put revenue stabilization in
place it's my belief that we need to set a long-term policy of how we intend to see our money spent and revenue stabilization is not a constitutional amendment it's survived for a long time because the legislature continues to honor that policy that was set a long time ago and I guess I appreciate what you've said but I still don't see how it's unconstitutional for the legislature to set conditions on appropriations I'm still missing
Speaker 73
35:21
that you know not to be argumentative but just to make the point we see a
significant difference because the Constitution sets out specific responsibilities and we think with revenue stabilization the legislature has fulfilled those we think if you pass those and you follow revenue stabilization and then you say well forget about revenue stabilization you follow these other rules and the director of DFA is going to make some calculations and make those changes particularly as vague as they are that that that's what really creates the problem and then layered on top of that that we would go to the legislature for some sort of executive approval when the
legislature is not in session when there's an emergency to try to override it just adds another
Representative Nate Bell
Unverified
36:12
problem to that do you believe that the legislature has the constitutional authority to ensure that we don't spend every dollar we take in and if so how would you recommend that
Speaker 73
36:25
we go about that by setting the spending amounts as you currently have authority to do by passing appropriation and FUNDING LAWS, YOU CAN FOLLOW REVENUE STABILIZATION, OR YOU CAN
SET, EACH TIME YOU COME IN SESSION, YOU COULD DO THIS CALCULATION, AS WE TALKED ABOUT. I UNDERSTAND YOUR THEORY OF WANTING TO PUT SOME POLICY IN EFFECT TO FOLLOW, AND AS WE KNOW, EVEN WITH REVENUE STABILIZATION, WE CAN'T BIND FUTURE LEGISLATORS, BUT YOU COULD PASS THAT INTO LAW AND SAY, YOU KNOW, THIS SESSION, THIS IS GOING TO BE OUR FUNDING LEVEL. it's going to be a maximum of 3% or this calculation we put in and then you then at that time you do your constitutional requirement and you pass budgets
appropriations and funding under the Constitution to fit that you don't do it based on what's happening and what the chief fiscal officer says in the past but you could certainly do that and set that pattern and put language in that law that you know this is our intent to follow that well what I
Representative Nate Bell
Unverified
37:29
hear you say and I'm going to yield the floor because I've been talking way too long here but what I hear you say and if I understand correctly is that the power of the legislature to curb spending rests in the appropriation process in
Speaker 73
37:41
appropriations and funding process the funding that goes along that you know we have both in this state will you follow that and you could follow revenue stabilization or you could come up with just direct some other way of doing it for direct funding and establishing the funds there's nothing in the Constitution that requires you to follow revenue stabilization you could throw that you know do away
Speaker 75
38:04
with that which is in essence what you're doing here thank you very
Representative Nate Bell
Unverified
38:10
much we'll have to agree to disagree there appreciate it
Representative Douglas House
Unverified
38:15
representative house thank you mr. chairman question in the execution of the appropriations and budgets that the legislature has passed, enacted, is my understanding correct that all agencies and departments of state government are told to execute 95% of their appropriation and return 5% to the
Speaker 43
38:48
general fund? No sir, that is not correct. Was it done that away in the past?
Speaker 48
38:59
It's It's never been correct. The only instance in which we talk to agencies about a percentage of what they ought to budget is when we're dealing with the state central services fund, which is the fund that finances y'all's operation, DFA and the tax collection part of it, any of the constitutional officers and judicial branch where we have traditionally not spent over about 85 percent of all of
the appropriations out there so in that one fund in that one instance we'll say that in all other agencies of
Speaker 43
39:30
state government they are if they're if they have a general revenue allotment we will set when we
Speaker 48
39:37
do the stabilization with law we'll say under the revenue stabilization law this is how much money you got to spend because this is where the line was drawn it may be like it is right now 100% of funding in some years we have cut down where we've gone into a category
and reduced below that amount. Then you have agencies like Highway, Game and Fish, all these special revenue agencies and they have to certify to us how much money they expect is going to come in and we allow them to budget to that extent. But we try to fill as much as we can, try to let agencies budget however much money is going to be produced under the current stabilization law or under their collections of special revenues.
Representative Douglas House
Unverified
40:27
Well, maybe I was too specific. My question, just before you mentioned Game and Fish and Highway Department, you said you set
Speaker 43
40:37
a level what they're going to spend. The stabilization law does that, sir. When we, under
Speaker 44
40:42
normal circumstances, after the session is over, after we know how, you know, make our
Speaker 48
40:48
estimates on how much taxes are going to collect and be dedicated to the financing of state government, we run that number against the Revenue Stabilization Law.
If it is less than fully funded, we will say, I mean, the line just goes back to whatever the funding that we think is going to happen falls out in
Representative Douglas House
Unverified
41:13
the stabilization law so it might be 80% 9% 99% 110% or a plus
Speaker 48
41:18
10 a plus B category will never be over 100% right okay because they're capped by appropriations and the funding law will cap them the stabilization law acts as a cap as well
Speaker 44
41:31
So, for example, in the current year, we're expecting, we told the Legislative Council in the fall when we did the official forecast that we were expecting all of the collections to completely fill the revenue stabilization law and have another $100 million above and beyond that that is captured as one-time money for one-time purposes. so dfna with the
Representative Douglas House
Unverified
42:01
guidance of the governor does in fact review agency
budgets and direct them as to how much they may spend or execute in
Speaker 44
42:15
accordance with the law absolutely absolutely that fact that's that is our one of our big and big responsibilities is to make sure, you know, one
Speaker 48
42:24
person in this state goes to jail, as we always say, if the state ever goes into a deficit spending situation, and that's me. So, yes, we pay very close attention to that.
Speaker 77
42:39
Well, we don't want you to go to jail. Governor said he'd send flowers to me. Yeah.
Representative Douglas House
Unverified
42:46
But it ain't going to happen. You know, we can't get you out. We will come see you. So when you said earlier that you're really not in a
position to be telling the agencies what level of spending they can execute,
Speaker 48
43:03
that was a misstatement? Well, if I said that, it was. I think my response to you, sir, was that those entities that are financed out of the State Central Services Fund, which is the core government fund, we do set as much as we can.
I mean, as much as we can tell the legislature, the House, or the Senate, or the
Speaker 43
43:22
Secretary of State, or anybody, we tell them, look, we would like for you to stay at that 85 percent level, you know, or tell us why you need to go above it kind of thing, just so that we can try to finance all of those programs. Certainly,
Representative Douglas House
Unverified
43:36
sir. The reason I ask questions back when I was working for the Guard, we would get directives pretty regularly to spend 90 percent of our budget, spend 95 percent of our budget and turn the rest back into general funds and I
Speaker 89
43:49
know that personal knowledge so I was just that did
Speaker 44
43:52
not come from DFA that would have come from your folks in the guard it was
Speaker 48
43:57
that we we have never sent out anything to agencies to spend X amount less than what we've
Speaker 44
44:04
certified as the funding source for them to bring back to us to for any purpose I'm sorry I thought
Representative Douglas House
Unverified
44:11
you just explained to us that you do tell agencies only to spend certain levels out there.
Speaker 43
44:17
Just the constitutional agencies, just the ones out of their finance from this one fund.
All of the rest of the government that's financed out of general revenues or special revenues or cash or any of the rest, I mean, what you consider government out there, we certify to them how much they can spend based on our estimates of the tax
Speaker 44
44:39
dollars or what we think tax dollars are going to bring in. That's the forecast that we said, okay
Speaker 93
44:48
Thank you, mr. Thank you representative house representative Copenheimer
Speaker 95
44:56
Thank you, mr. Chair Mr. Weiss I appreciate
Speaker 89
45:01
your testimony this morning, and I'm just enjoying being educated But could you fill me in on, you mentioned a doomsday apparatus that was set forth in, I think it was 2003. Yes, sir. The effects that if this were not enough or sufficient, the 3%, what effects and whom this would affect the inadequacy if we didn't have
Speaker 48
45:26
the funding for that? Under current law, if the collections were such that in filling the Revenue Stabilization
Act were such that we could not fill all of A category, and the adequacy has been traditionally put up as an A category, which is the first category to be financed, if the collections we thought because of recession we're going to be less than that we'd have to take adequacy out of the mix and which would mean in most cases that's a
pretty substantial part of a category and then reduce everybody else to get within the spending amount you know as defined by whatever the forecast was in filling those things in other words you cannot reduce the spending for adequate education you got to reduce everybody else rather than reduce them and it would be again it would be in strict accordance with their allotment and their percentage allotment in the stabilization law so if it meant you
Speaker 44
46:37
know you could you had to go in and cut prisons or anything else you'd be letting out prisoners and you'd be cutting off Medicaid programs thank you very much Ripson Alexander thank you
Representative Randy Alexander
Unverified
46:59
mr. chair well I hope we don't have to let any prisoners out I'm having trouble following this as well you seem to be saying that something that is
perfectly legal for us to do on an annual basis year after year after year is somehow not constitutional if we pass legislation that sets up a parameter to guide budget planning is
Speaker 48
47:28
that correct let and I apologize for my my being inarticulate what I what we're trying to say is if you want if you want right now
Speaker 43
47:41
Now, in this session, expenditures not to exceed 3 percent, you make that appropriation. You do the revenue stabilization law to do that. Don't set the appropriations at 7 percent or whatever percent and then go
Speaker 48
47:58
home and then I've got to say, well, no, we can't do but 2.96 percent, and so I'm just going to cut everybody down to that amount because of this law, okay?
Speaker 43
48:11
What we're saying is if that's what you want for all the state government to operate at, make the appropriation to whatever that
Speaker 44
48:20
is rather than what the executive branch has proposed to you based on what we expect to collect the tax collections this year.
Speaker 48
48:27
That's the difference. you have the authority you have the power to make that change right now in the
Representative Randy Alexander
Unverified
48:38
appropriation process I understand that but I still don't understand why if we decide to make that decision now as an ongoing guideline that somehow that's
an issue it seems to me that RSA is an ongoing guideline very much like that And I'm just having trouble understanding why something that is appropriate and constitutional on a year-by-year basis somehow becomes unconstitutional if we set it up as an ongoing guideline. If we have the authority to do it one year, why
Speaker 102
49:09
wouldn't we have the authority to do it as an ongoing principle? Let me see if
Speaker 43
49:17
Mr. Leathers can take them and speak more plainly than I can with this.
Speaker 73
49:25
Mr. Chairman, Representative, the difference is, and what we were talking about, is you would set it in the law. The law would provide spending at 3%, or the law would provide spending at, do that calculation, if it's based on your formula, if you decided you wanted that to be 1.8% or 2%, and then when you left here, that would be set in the law. If you wanted it to flow through revenue stabilization or any kind of funding, you had to follow the Constitution, pass the appropriations, provided the funding for that next year.
But to do that and go through the process we have in joint budget and to provide funding and provide the appropriations, follow the Constitution, and then say we've got this other law over here, forget all of that stuff about what we said about funding budgets. If the chief fiscal officer determines there's GDP or some other formula, then he's going to override all that we've done by following our constitutional authority during that year.
What we're saying is you have yearly sessions now. You come in. If you make that decision as the body that makes the law and sets the policy, every year you can follow this and make that determination. But to leave and have it done in the interim, and then particularly to have the language that was amended into the bill that says if there's an emergency and the governor and chief physical officer decide there's an emergency in the interim, then come in and have the legislature approve that when we're not in session, which is even more unconstitutional.
Representative Randy Alexander
Unverified
51:07
That's the distinction there. Mr. Chair, if I could ask one more question. I think I understand what you're saying I just don't I don't follow the logic of it but moving to another topic you mentioned emergency spending and this would create an issue with that what is the process that currently exists if we need to declare an
Speaker 53
51:40
emergency and spend additional money that's not already in the budget It depends on the size of the emergency, sir.
Speaker 44
51:48
If there is money in the budget to meet the needs of the emergency, there is a disaster relief fund, there is both a federal and a state appropriation for that. there's
Speaker 48
52:03
enough money available through both sides of federal and state money to meet most emergencies. Okay,
Representative Randy Alexander
Unverified
52:10
that's what I thought. So my question is, wouldn't passage of this bill minimize the likelihood of an emergency that could
Speaker 102
52:19
not be dealt with using existing revenue funds or reserve funds? I'm
Speaker 43
52:29
sorry. Well There would have to be a lot of changes in the law, I think, because
Speaker 48
52:34
right now, as Mr. Westerman was explaining his bill and all that, he said, well, if there were emergencies then you could even out all of that stuff. Well, that presumes, I guess,
Speaker 44
52:46
that there is a pot of money sitting over here to even out the cash flow in those times, and we don't currently have that.
When you finish out a fiscal year, anything that's unspent or anything that's collected above that goes into a one-time pot, and then you all deal with that the next section. It's the
Speaker 48
53:07
fable to GIF that a lot of legislators have enjoyed over the years that's used for all kinds of projects. It's used for the capital needs of the state and that sort of thing. There has never been a pot of money out there to even out those kinds of rough areas of
cash flow. What we have done under the current law, when we see a recession happening coming at us and cash receipts start going down, we can tailor the spending level to that as it happens by reducing in strict accordance with what you've passed in law, the revenue stabilization law in accordance with that we reduce the levels of expenditure so that we're in a balanced budget position at all times thank you mr. chair
Speaker 110
53:59
thank you mr. wise this bill 1041 it deals
Speaker 111
54:07
with just general revenue is that correct that
Speaker 69
54:12
is our understanding of it okay and that's about what four point nine billion it varies but yes sir it's it's
Representative Lane Jean
Unverified
54:19
just a little under five billion problem overall in the budget how much federal revenue will we have do we
Speaker 113
54:30
have coming in this is this fiscal year Okay,
Speaker 42
54:43
Mr. Sharp tells me about $6 billion is federal.
Representative Lane Jean
Unverified
54:46
$6 billion. Special revenue, what do we have coming in? in the five to six billion dollar six billion cash funds as
Speaker 42
55:00
far as I can't give you that because there are there a lot of that is being held in colleges and universities and it's it's kind of off our radar
Representative Lane Jean
Unverified
55:09
so there's a lot several billion oh yeah yeah and
Speaker 69
55:14
then fund balances are also budgeted for special
Representative Lane Jean
Unverified
55:16
and cash and none of that is included in on this cap other than the general revenue is that correct general revenue I believe is all the state is over a twenty something billion dollar budget and we're talking about capping about a little less than a quarter sure but let me just point out I know
Speaker 44
55:35
where you're going or I see where you're going I think well now you don't really know No, I really don't know where you're going. You're right.
Speaker 42
55:48
Some of the legislators I might know, but not you.
Speaker 43
55:54
Go ahead. Why are you arguing about general revenue? That's the only pot of money you have to argue about. You're collecting gas tax money. It goes to highways. You could argue about it, but it doesn't do you any good. I mean, that's dedicated to that source. You could argue about federal money coming in for all the health programs or for highway matching funds. It ain't going to do you any good because it's dedicated to that source.
The only thing you have to argue about, you know, where we're going to move money, what program we're going to help, what program, is general revenues. So regardless of its proportion of the budget, that misses the point entirely. That's all my questions. Thank you. thank you representing representing Armstrong mr. chairman thank
Speaker 30
56:48
you just a real quick question for the sponsor of the bill and co-sponsors if dfna is
presented their points of this bill having obviously a lot of backlash and we as a body have the year-to-year responsibility representative Alexander to I guess work within the parameters of either capping it or not and on the unconstitutionality basis my question is why
Speaker 122
57:14
do we send this video bill out of this committee if it's deemed unconstitutional
Representative Bruce Westerman
Unverified
57:20
it's a good question representative Armstrong and I will just share a story with you there
was an issue back in 2011 that I was told by the executive branch what you want to do is unconstitutional. Well, my bill failed, and there was a lawsuit filed later that went to the Supreme Court, and the Supreme Court said, basically, in their decision, Representative Westerman, what you did was constitutional. What the executive branch wanted to do was actually what was unconstitutional. We're not the judicial branch. I think that's a weak argument when we come in and argue against bills saying they're unconstitutional,
when I don't see any members of the Supreme Court in the room today. I know we take legal counsel all the time, but I don't believe that it's unconstitutional. I believe we're exercising our authority as a legislative branch to control spending. Follow-up
Speaker 124
58:15
to that. Don't we already have that authority to control spending through RSA? Through RSA, we have the authority, or we have the mandate, not to spend more than we take in.
And we can't predict growth, correct?
Speaker 122
58:35
DF&A predicts growth. No, not growth in our prisons, not growth in our medical disparities. Should someone get sick, we can't predict day-to-day lives of how many criminals we're going to send to prison
Representative Bruce Westerman
Unverified
58:47
or how many people may. And when I looked at this bill and looked at what other states had proposed on this issue, there are some movements to do this constitutionally. But by putting it in statute, another legislature can always come in and raise the rate from 3% to 4.3%,
or they can lower the rate. But I see this as a budgeting tool where the agencies will see, when they start budgeting in the summer or planning for budgeting that we're not going to budget more than the anticipated growth or than is allowed. It's a fiscally responsible measure. It doesn't cut anything. The slide that I showed, there was no cuts. I would like to have it explained to me how we're going to be closing prisons
and cutting things when we're still showing growth every year. and I do have some questions for DF&A after but I'll answer any other questions as well thank you mr. chairman thank you mr. Alexander I'm sorry
Speaker 27
59:51
I'm strong representative Hutchison yes you hear me yeah I just want
Representative John K. Hutchison
Unverified
59:55
to ask just a plain simple simple question yes or no and that really there's nothing simple about any
Speaker 128
1:00:04
of this okay I can tell I can tell but uh the chart we
Representative John K. Hutchison
Unverified
1:00:10
were shown by Representative Westerman to start with does that put a red flag on do you say that as a red flag your agency does that concern you
Speaker 44
1:00:26
yes sir I mean you know well let me say this we're the agency that has
Speaker 48
1:00:33
enforced all of state government to live within the revenue stabilization law and we have done that ever since the 40s we have and we have you know gotten a lot of
accolades all over the country for the way we manage our affairs and the fiscal
Speaker 44
1:00:50
and conservative way that we have run our business the chart mr. Weston showed it had a very dramatic blue
Speaker 48
1:00:58
thing going up and most of that that real big growth in there was the stimulus money that the state got whether you liked it or didn't like it the state got it and the state has generally spent most of it whether it be for computerizing classrooms or building the big interchange out in West Little Rock or doing
a lot of roads in all of your districts or a host of other things that made that big that blue line go shooting out. You know that's probably historians 100 years from now may tell us that was good or bad are not enough or too much. But again, that does not concern me. We lived within the law, the laws at the time. Everything we have done, we are very conscious of the laws, and we live within the laws. Do you see it coming down as quick as it went up?
No, sir, I don't, because if it came down that rapidly, that would mean that not only the state but the nation would have gone into a really sharp recession, and I certainly I hope that does not happen. Me
Representative Stephen Meeks
Unverified
1:02:15
neither. Thank you, sir. Yes, sir. Representative Meeks. I have a question for Representative Westerman, if that's all right. DF&A has brought some, I think, some valid concerns concerning the calculations, whether it's gross net, some clarification.
Is that something that you would be willing to either amend the bill either here in committee or if we pass it out in committee, Would you be willing to
Speaker 111
1:02:36
commit that you would make that amendment on the House and try to clarify, you know, some of these valid concerns they have as
Representative Bruce Westerman
Unverified
1:02:44
far as how these calculations are made? I would like to address some of their concerns, but if there is a valid need that we need to amend the bill, I would certainly be open to amending it on the floor if we need to do that. The issue they brought up about the GDP numbers, and this will, I guess, roll into a question for DF&A,
but my understanding is that they already forecast the numbers. And if you read the bill, it says the, let me get the exact wording here, The estimated state gross domestic product forecast on page 2, and also that's in Part A. And in Part B it says the estimated state gross domestic product. And my understanding is that DF&A already does these estimates.
And if you go back and check their estimates after the Bureau of Economic Analysis, presents their final numbers at the end of the fiscal year, that those numbers do match up over time. I've actually got some of the data here from the DF&A projections and BEA numbers from Moody's Analytics. And those GDP numbers are presented quarterly.
So by doing it in June of the preceding year, there should be quarterly numbers or quarterly estimates out. And not only do they estimate the current GDP, they estimate and forecast the GDP for months to come. So they would,
Speaker 136
1:04:19
according to the current bill, they would use that estimate,
Representative Stephen Meeks
Unverified
1:04:23
and then if there was revisions come out, those revisions would be ignored. They would just
Representative Bruce Westerman
Unverified
1:04:30
stick with that estimate. Well, yeah, it would be based on the estimate as of June 30th, because that was an issue when we looked at the bill of looking at GDP was GDP by the Bureau of Economic Analysis
is a fiscal year or a calendar year number that's reported at the end of the year. And since we're on a July to July fiscal year, we would need the numbers that are estimates produced by DF&A, which historically correspond to Moody's and the numbers that they present at the
Speaker 136
1:05:04
end of the fiscal year. So they would get that number on June 30,
Representative Stephen Meeks
Unverified
1:05:10
do the calculation, and then apply it for the budget for that starts the following day.
Representative Bruce Westerman
Unverified
1:05:17
Is that the following way, correct? That would be during the budgeting process. The agencies would know what the number is that they could budget towards for the next year. Okay, so it would
Representative Stephen Meeks
Unverified
1:05:29
be the following a year later before that number. Right, and
Representative Bruce Westerman
Unverified
1:05:32
if you notice, the bill's not set to take effect until July 1, 2014, because we've already been through the budgeting process this year, and I felt it would be unfair to impose this on the budget during this
session. Okay. All right. Thank you. Thank you, Mr. Chairman.
Representative Bill Gossage
Unverified
1:05:50
Thank you. Representative Gossett. Representative Westerman, did you come up with a number? I mean, if you limit the growth of government over the past 10 years, you talked about that revenue would be set aside in a rainy day fund. Did you have any estimate of how much money would be set aside after the past 10
Representative Bruce Westerman
Unverified
1:06:13
years? Actually, that's a very good question. It's
in that chart. Let me pull up the graph again.
If you look at this model, the blue line is what we actually did. And the red line would be the model under the growth cap. And as you can see, there are no cuts anywhere. The budget would be growing every year, just not at the 5% to 8% rates that we see on this blue line here. And I know a lot of those total expenditures in the – I believe we're actually up to close to $24 billion now on expenditures. A lot of that's because of special revenues and things outside of general revenue,
but we have grown the general revenue budget some years up close to, you know, 8.5% that we've grown the general revenue budget over this time. If we look at the difference between these two growth models, then my calculations show that we would have saved on average $255 million per year and we still would have grown the state budget at a rate of 3% and then at a more modest rate here when we hit the recession.
So I believe to answer your question, Representative Gossage, I would say on average about $255 million per year. So over
Representative Bill Gossage
Unverified
1:07:41
the court, you're talking about $2.5 billion, saying none of it was spent, would be in this rainy day fund at this time if that had been the case
Representative Bruce Westerman
Unverified
1:07:52
10 years ago. That's correct, or it would be there to take care of emergencies in Medicaid, or it would be there to give the taxpayers a refund.
And it's not cutting any programs. It's just growing them at a slower rate. So I take exception to the comments that we're going to be cutting programs. Mr.
Speaker 41
1:08:18
Weiss, you'd like to respond to that?
Speaker 106
1:08:21
Sure. I think one of the erroneous things that we've
Speaker 48
1:08:25
got going on in the discussion here, I mean, or not erroneous but misleading, is that we look at the aggregate of money
And we say, well, we could have gotten this down, or we could have done this without it. The budgets aren't based on the aggregate. I mean, each agency is looked at by its needs. What does the Department of Corrections need for not only their current population, but what they expect? What does the public school fund need to meet the adequacy standard? do each of these agencies need to meet their mission mission that's out there
and you know at the end of course you have an aggregate of all that but when you're trying to look at just in the aggregate you miss the point completely that that all of this is based on the general revenue budget of the state is based on trying to meet the service needs of government providing service to the people throughout the various agencies and if that's a far jump from just looking at the money in total if I might and
Speaker 44
1:09:35
that's one of the I guess one
of the issues that I we have to look at on the executive side and I would hope
Speaker 48
1:09:42
that you would look at it on the legislative side but you know what do we really need to run this program not what not what you know not a percentage of saying well we're going to keep everybody at this percent so we can come up with negative business so it's a it's a tough thing to do to get across the where you are and what would all programs you need to fanta to finance out-of-state taxes
Representative Bruce Westerman
Unverified
1:10:10
Okay, I've got a few questions for DF&A. Could you just
give a really brief overview of how our baseline budgeting process works? Mr. Chairman, I have
Speaker 44
1:10:29
Dr. Shelnut, who is our chief economist and the man who comes up with
Speaker 48
1:10:35
the forecast of income and I have Brandon Sharpe who is head of the budget
office if you would we can go through the process exactly the way it's done and I don't know who
Speaker 44
1:10:48
wants to start first Brandon do you want to start if you wouldn't mr.
Speaker 143
1:10:55
chairman if you'd recognize them yes sir they're recognized you Brandon Sharpe office of
Speaker 144
1:10:59
budget the base level budget is that we do going into a a biennium, is based on the most recent budget that the agency has prepared. And so when they, each year we do an annual operations plan, which is when the agencies budget the
available appropriation they have authorized in law with the actual money that they have. And so that's when they go and come up with a plan and say, even though we're authorized for 1,000 positions, we only have funding for 800 of those, so those are what we're going to budget that's what moves into the base level budget what we do at that point is we remove any authorized amounts for capital outlay because capital is supposed to be one-time needs and the agencies have to come back and
justify needs to have those amounts restored we also go and make any adjustments to personal services matching increases in retirement health insurance or unemployment rates or any of those rates that affect all state agencies once we do that that is what establishes that base level budget and then any additions or subtractions to that are done through the recommendations of the governor in the general assembly and with that I'll we provide
Speaker 147
1:12:27
we provide the forecast the revenue forecast on the front end and provide it to the office of budget that forecast has been mentioned in the discussion today we do use national forecast contractors to provide the economic part of the forecast but we also bring into that the estimates of the changes in tax law and the estimates added up across that set
Representative Bruce Westerman
Unverified
1:13:04
that across time is it is it fair to say that the beginning point on next year's budget is the ending point on this
Speaker 144
1:13:23
year's expenditures or this year's budget It is fair to say that what was budgeted for the annual operations plan going into the year of the biennium is what establishes the base level. Now that may not always translate back to what the agency has actually expensed.
More often than not in general revenue that does tie together pretty closely, what the agency budgets versus what the agency spends. there are some variations based on the funding there are certain instances where agencies have a lot of federal appropriation that they may or may not receive the funding for but they have that flexibility in those programs so
Representative Bruce Westerman
Unverified
1:14:01
it's in essence a ratcheting process as the budget clicks up one year that's the starting point the next year and and every time we increase we're increasing
that base level for the future year's budgets
Speaker 144
1:14:15
only if there are increases in health insurance retirement or if there is a cost of living adjustment that has been included in that base level for the last two years we have not had a cost of living adjustment included in that base level so those amounts were relatively flat and then you had the reduction of capital outlay by stripping those amounts out those would be the things that would drive the incremental
increases other than just program additions by the General Assembly in previous years okay and I was
Representative Bruce Westerman
Unverified
1:14:51
taking notes and I'm not sure if I got this comment correct did you did
you say you agreed with the cube root calculations or you disagree with the cube root craft calculations on the growth we agree with it okay you were disagreeing with so much I just wanted to make sure there was one thing in there you agreed with I thought I heard that correctly there was some talk about education and
adequacy what is the adequacy amount this year give me just a
Speaker 144
1:15:38
moment just the general revenue component the executive recommendation was about two billion that's the increase in adequacy or though just the increase would be 50
million or for the general revenue component now that doesn't include the educational excellence trust fund or educational adequacy fund. And do
Representative Bruce Westerman
Unverified
1:16:02
you have a percentage number on that? It was about 2.5 percent. Okay, so it's well below the 3 percent cap and it's actually in line with the average three year growth of GDP. I wanted to point that out. And also it's one component of the whole general revenue budget. And if you go back and look at general revenue budgets over the past few years, you will see that education
in Medicaid are eating up most of the growth, and there are some agencies that aren't getting any kind of an increase. So not really a discussion for today, but we have to get those expenditures under control and Medicaid so that we can fairly fund the rest of government, in
my opinion. I know we're running short on time.
You talked about appropriations. I just wanted to make sure that I understand appropriations correctly. Aren't the appropriations always for more than what's actually in the general revenue budget? Not
necessarily, no, sir. But are the total appropriations more than what the
Speaker 42
1:17:15
total general revenue budget are? Well, for example, in the current year, we're fully funding the budget, okay? So the appropriations match the stabilization law.
Representative Bruce Westerman
Unverified
1:17:24
Okay. I was under the impression that the appropriations are usually higher than the general revenue budget,
and the appropriation is just authority to spend, but the revenue budget actually says how much
Speaker 44
1:17:37
can be spent. And there have been many years past because
Speaker 48
1:17:41
when we did the forecast before we wrote the annual budget, we thought the revenue collections were going to be less, that the appropriations were greater in some agencies. So that is always kind of a moving target, and it's based again on the assumption of
what the tax collections are going to bring in and and the needs of the agencies that have gone through the whole process of the executive and the legislative review and ultimately the appropriation process so there's not a there's not a yes or no answer to
Representative Bruce Westerman
Unverified
1:18:19
that it's a moving target and my final question is do you indeed forecast GDP numbers
Speaker 147
1:18:31
We acquire those forecasts from our contractors and use that in our forecast process. Is that your question? Right. And you present a forecast of GDP.
Representative Bruce Westerman
Unverified
1:18:44
I believe you use Moody's as your contractor, or do you use the other, I can't think of the name of the other service. Global Insight is
Speaker 147
1:18:54
the one we are using currently. And, you know, that brings up an issue there that we have moved back and forth some, depending on issues with our contractors.
At times, we have used both. We identified a problem with Moody's in recent years. That
Speaker 148
1:19:12
was a concern, and we are now relying heavily on global insight. But you do make forecasts and projections
Representative Bruce Westerman
Unverified
1:19:20
on GDP. We present those in our Forecast presentation and we use it in
Speaker 147
1:19:25
our process. Yes Thank you, mr. Chairman, okay, we've been at this about an hour and a
Representative Joe Jett
Unverified
1:19:34
half We'll do two more questions and we'll move on so
Speaker 160
1:19:37
Representative Altus Thank You mr. Chair, we could debate this forever. I have a motion at
Speaker 161
1:19:46
the proper time So no Representative Alexander Thank
Representative Randy Alexander
Unverified
1:19:51
You mr. Chair You know, it sounds like we have a very good tool in RSA, and it does, as you have said, ensure that we will not spend more money than we have. That's right. But in the absence of a bill like Mr. Westerman's, given the chart that we saw and given the realities of how a base budget model works,
it seems that it's also accurate to say we're going to spend every dollar that we
Speaker 48
1:20:23
have. Well, is that correct? But let me again say that all of the spending and the collections have been tailored to make sure we meet the needs of the state. The appropriations that you all make are a result of the governor coming to you with his balanced budget recommendation, balanced to what we expect the revenues to be. And then we go through several months of legislative hearings before the session starts.
you all look at those and agree or disagree about those being needs of the state and then you come into the session with the result of those two different looks at it with what with the appropriations
Speaker 44
1:21:03
up to this point have been agreed to be made but my question is is
Representative Randy Alexander
Unverified
1:21:10
it not typical that we the outcome
of all that is we spend all the dollars that we believe we have available I
understand that revenue can be higher and there will be additional money but based on the point in time when the decisions made in actual practice what typically happens is we spend all of our money
Speaker 48
1:21:33
yes sir we we we we generally as mr. Westman start off saying we will under underestimate a little bit because we sure as heck don't want to overestimate and go into depth of spending but generally speaking we tried to finance the appropriations have been made thank you mr. speaker okay last question
Representative Tommy Wren
Unverified
1:21:52
representative Wintram thank you mr. chairman mr. Weiss I wasn't here in the legislature when governor Huckabee was here but when he was here were we saving money at the rate at which mr. Westerman's chart shows saving money yes or were
Speaker 44
1:22:13
we spending the money that we were bringing in? I happened to be in this position when Governor
Speaker 48
1:22:19
Huckabee was here, and we have administered the stabilization law the same throughout.
Part of that is the taxes were raised after Lakeview to come up with adequacy and come up with extra money that was earmarked for schools. We have raised taxes over that period of time to
Speaker 43
1:22:41
meet certain needs. A cigarette tax was raised to try to finance a trauma system in
Speaker 48
1:22:47
the state. I mean, every session stands on its own merits. There are always issues that come up where changes are made both in the spending structure and in the tax structure
to meet the perceived needs of the legislature at any given time. So as a result, we have raised taxes and cut taxes when money has been available. As you know, the governor has a proposition before you right now to reduce taxes to get rid finally of all those sales tax on food. So, you know, there have been raises and cuts in the tax structure. But, again, those two get tied together in the stabilization law
and the way we administer the affairs of the state. Okay. Well,
Representative Tommy Wren
Unverified
1:23:36
thank you, sir. I wasn't in the legislature then. I was just making sure that I hadn't missed anything. Thank you, Mr. Chair. Thank you. Is anybody in the
Speaker 135
1:23:44
audience speaking for or against this bill? Yes, sir. Can you step forward and be recognized? can you believe you excuse me give your name and who you represent sure my name
Speaker 167
1:24:08
is Rich Huddleston I'm the executive director for Arkansas advocates for children and families I want to apologize to the committee and my thought this bill was gonna run later so I'm not quite prepared today but just I just want to make two general points one is just to point out that in other Other states that have tried provisions like these, it's not always worked very well. Colorado actually put something like this into their state constitution, and it failed so miserably that the voters with the support of the business community actually came back
and voted to suspend it. The formula that they had in place there really could not keep pace with the rising costs OF HEALTH CARE, EDUCATION, CORRECTIONS, AND THEY HAD TO MAKE DANGEROUS CUTS TO PROGRAMS THAT THE STATE DESPERATELY NEEDED TO INVEST IN, AND I THINK THE CONSENSUS THERE WAS THAT IT REALLY CAUSED DAMAGE TO THE STATE'S PHYSICAL INFRASTRUCTURE AND ALSO TO THE STATE'S WORKFORCE, SO THEY CAME BACK AND AGAIN WITH THE BUSINESS COMMUNITY BASICALLY DECIDED THAT THEY NEEDED
TO SUSPEND A PROVISION LIKE THIS. SECOND POINT I WILL QUICKLY MAKE, BECAUSE I know y'all are anxious to move on, is that we are really concerned long-term what this might do to programs serving vulnerable children and families. I think a provision like this could actually worsen the funding situation for programs serving vulnerable children and families. I think the recession over the last four or five years combined with the fact that some Some of the programs that serve vulnerable children and families really don't have the
politically powerful lobbies. And so if you look at programs like pre-K, that's been pretty much flat funded the last four years. If you look at programs like child welfare, juvenile justice, even in the governor's proposed budget, they had to make some tough choices. They're virtually flat funded and have been over the last four or five years. There are all kinds of instances in the budget where over the last four or five years, programs have had to be flat funded because we didn't have enough revenue, quite frankly. And I'm really concerned that this type of law could actually exasperate those types of inequities.
Make it very difficult for when the economy turns around that some of these programs serving vulnerable children and families could ever catch up. So with that, I'm happy to answer questions, but those are my
Speaker 127
1:26:42
two points. questions members mr. Westman close
Representative Bruce Westerman
Unverified
1:26:49
I'm ready to close thank you mr. chair just to brief brief I want to say that this is not at all a conflict with RSA but it's a compliment to RSA we've seen phenomenal growth in total expenditures
in our state over the past 10 years under both Republican and Democratic leadership I brought that out earlier in the presentation we've seen up to eight and a half percent per year growth over previous growth in our general revenue budget not our total expenditures but simply our general revenue budget that we're talking about with this bill this is evident in a growth rate of 21% in state employment while at the same time we've seen anemic growth down around below 5% in all jobs and median household income decrease so as I close
for this bill I ask you do you wish to vote for continued growth of state government or controlling the growth so that it more closely emulates the growth in the economy and I would appreciate a good vote represent altus
Speaker 159
1:28:01
thinking mr. chair I move do pass as amended what's favorite committees all in favor say any post I said it
Speaker 26
1:28:07
Congratulations, Mr. Westman, and Pastor Bill. And we have a motion to adjourn.
Agenda
HB1041
Documents
No documents posted.
Speakers
Representative Joe Jett
Unverified
Representative Bruce Westerman
Unverified
Speaker 13
Speaker 27
Speaker 30
Speaker 36
Speaker 41
Speaker 42
Speaker 43
Speaker 45
Speaker 44
Speaker 48
Speaker 35
Speaker 10
Representative Stephen Meeks
Unverified
Representative Nate Bell
Unverified
Speaker 63
Speaker 69
Speaker 71
Speaker 72
Speaker 73
Speaker 75
Representative Douglas House
Unverified
Speaker 77
Speaker 89
Speaker 93
Speaker 95
Representative Randy Alexander
Unverified
Speaker 102
Speaker 53
Speaker 110
Speaker 111
Representative Lane Jean
Unverified
Speaker 113
Speaker 122
Speaker 124
Representative John K. Hutchison
Unverified
Speaker 128
Speaker 136
Representative Bill Gossage
Unverified
Speaker 106
Speaker 143
Speaker 144
Speaker 147
Speaker 148
Speaker 160
Speaker 161
Representative Tommy Wren
Unverified
Speaker 135
Speaker 167
Speaker 127
Speaker 159
Speaker 26