ALC-JBC Budget Hearings

The budget meeting to order Uh we have a special guest first of if we are going to move our business to after governor speaks but I would like to a representative are to recognize representative general Barry for a personal privilege general where you're recognized. Thank you Mr chairman for your consideration and on this up skin it better and stay even I would like to special recognition to one of our colleagues a great friend of mine great fan of all of this and center Dave Wallace. And. You talk about a great American hero we're very fortunate to have center Dave Wallace serving in our legislature so I wanted to make mention that in addition to the centre Wallace's of legion of merit bronze star his air medal for battery Ballard. Yes three distinguished flying crosses for heroism. Yes three Vietnam crosses for gallantry. He served in active duty for twenty one years and tours in Vietnam he's just a if you don't know what the distinguished flying crosses in the accomplishments of center Dave Wallace I beg you to go look at that because he is a true American hero and it gives me great pleasure recognized Dave Wallace. Thank you representative berry and we appreciate or calling for an. Senator Wallace and we recognize all are veterans and thank them for their personal sacrificed. To our freedom and the members we are again moving other business after the governor here governor welcome to governor Aissa Hutchinson let's give them a well. Thank you for being with this day and in your packet members we have copies of balance budget and not a forecast to governor you're recognized thank you. Thank you Mr chairman and two members of the committee thank you for that welcome today and thank you for honoring senator Wallace you're very those were a great words that you shared today and first let me extend congratulations to each of those that one re election in this last session and I also want to congratulate my successor governor elect Sarah Sanders I'm. I met with my successor yesterday and we have coordinated what I expect to be an excellent transition from one administration to the next. It is an honor to appear before this General Assembly for my last time. We have done a lot together over the last eight years we have lowered taxes created more efficient state government with a fourteen Ridge percent reduction in the number of state employees we have invested in education funded highways and set aside over two point five billion dollars in reserve accounts today I can say with confidence that this state has never been in better financial condition. I also want to recognize my cabinet I noticed that they came in or behind me either to back up the Secretary wall through any answers questions or to a back me up today but I'm grateful for each of my cabinet for a helping hand the state successful over the last eight years and to work closely with the members of this assembly and I salute them. I also will be joined by secretary Larry wall three budget director Robert Brack who will answer questions following my overview of the budget. Let me present the highlights of the executive recommendations on the budget. First of all as I mentioned there is two point seven eight billion dollars in reserve funding I believe we have a slide to that effect and you can see from this slide that the you have. One point two billion dollars in the catastrophic catastrophic reserve fund you have a general revenue allotment reserve front fund of one point three billion dollars a restricted reserve fund and small amount left in rainy day fund that likely will be spent but you can see the extraordinary reserves that we have built up together here in this state totaling two point seven eight billion dollars. The second highlight I will mention in the budget that the executive branch has submitted is that it includes a five hundred fifty million dollar increase in public school funding over the next two years this is from general revenues two hundred million dollars in FY twenty four and three hundred fifty million dollars in FY twenty five. This allows the next administration and the General Assembly maximum flexibility in terms of raising teacher salaries and raising the outcomes for education in this state. The increase would be the largest increase in education spending and well over a decade and I believe that it is necessary for us to be competitive it is necessary in light of our financial condition and it is important in light of what is needed in terms of student growth and progress. The budget also includes thirteen point three million dollars increase for the Division of Children and Family Services to improve our foster our care for foster children and foster families this money will allow an increase in this type in for foster parents for the first time since two thousand and nine. It will also cover stipends for the first time for provisional foster parents such as grandparents siblings and other can you provide a safe place for the foster children. This is important to do for the welfare of our children in the state. The budget also increases state police budget by one point five million dollars for each of the next two years this obviously is needed for increase operational expenses and they'll also be three million dollars allocated for state police vehicles that will become a part of the budget rather than rely upon one time funding. There is an increase in the proposed budget for the department of corrections of five point four million dollars that covers increase in medical costs and it'll also support their work in trying to increase bed capacity and that will be an increase of seven point three million dollars for the second year of the biennium. There will be an increase for community corrections of three point five million dollars for each of the next two years that cover additional drug courts many of which you have advocated for and it will also cover the intensive supervision initiative that puts it in additional parole officers to support those high risk Rowley's that come out that are trying to get a second chance in life or struggling with different issues. You will provide for an increase of four point two million dollars to the department of the military. This will cover increase maintenance of armory facilities which is important for recruitment and retention purposes and for strengthening the support of at risk youth at the National Guard service. They'll be additional changes in the Division of Youth Services budget which will provide for an increase of the division of Youth Services to better manage and provide treatment for use with more complex needs including those with a history of more violent behavior the additional funding will support the opening of a twenty bed residential facility for high risk offenders high risk youth offenders and the budget also includes an expected price increase the contract for management of these facilities this is important part of the budget because we have some challenges with youth offenders this allocates more resources for them and that's a tremendous responsibility for this state both in terms of public safety but also in terms of doing the right thing with youth that come from trouble background that are struggling in life. Even with these investments in public safety health and education I'm submitting a budget that includes a surplus of two hundred and fifty five million dollars in FY twenty four and a beta and a surplus of three hundred nine billion dollars in FY twenty five these are budgeted surpluses. And it I would add again that we are currently in a fiscal year and we are anticipating a six hundred million dollar surplus through the course of this year. The budget growth rate in year over year terms is five point two percent in FY twenty four and down to two point eight percent in FY twenty five considering inflation is at over eight percent across the nation and in Arkansas limiting the growth to five percent reflects conservative budgeting during these challenging times. In terms of the Medicaid budget we're not increasing the funding until the second year but I remind everyone that we have over six hundred billion dollars in our Medicaid trust fund which is the largest amount in my memory for that trust fund the trust fund has a larger balance now than eight years ago it is in good position and so we're not allocating increase the Medicaid. Budget or draw down for that now they were is expected to be a draw down from that over the course of the next couple years but we have six hundred million dollars that set aside in that trust fund. The budget includes funding for a new pay plan which could be forty one million dollars this is included in the performance funding line on the budget and it doesn't mean it has to be spent some of that can be absorbed but it allows forty one million dollars for a new pay plan. This will allow room for a new pay plan to be considered and adopted by the next administration and the General Assembly that will help us to recruit and retain quality state employees who serve the people of this state so well. Lastly on higher education the budget reflects increases to cover the productivity funding model and an increase for you a P. B. to cover the cost of the federal match required for land grant institutions. That concludes a my summary of some of the highlights of the budget I know that you'll look at it very closely and Secretary wall there in director Robert Breck will be here to answer questions on it the budget is now in your hands and in the hands of the next administration I know that you will work to adopt a final budget that improves education public safety and the services of state government. It has been the highest honor of my public life to serve as governor of this state. Scripture says that iron sharpens iron. I think about that in terms the General Assembly. And when iron strikes iron what do you get. Get a few sparks. But you also get a sharper outcome. And I believe that our relationship is reflected that scriptural principle that you have may be a better governor you have made our outcomes better and it is been a high honor and privilege to serve with you over the last years and I'll be praying for you and God bless you. And for the governor ladies room all I forgot to mention the reason some of our senators are not here we were having orientation organization up with a roof ratings in the budget was came back but some of them are we'll be coming back for our organizations afternoon so they send their best to thank you. members I thank the FNA is just chomping at the bit would like to come up. If anybody has any questions or if we don't have any questions will save their time. I thank go to got a question for you. This goes. Thank you for being here will let you identify yourself in an Senator Irvin as a question I'm Larry wall third the secretary of the department of finance administration. Robert Brekken budget director. John shall not DFA thank you gentlemen for being here Senator when you're recognized thank you Mr chair thank you gentlemen for being here and it could be more of an agency director question that I was wondering if we could get an update on the Medicaid F. map which has been enhanced and the timeline of us moving away from that enhanced match rate under the F. map and what that might do to our budget and our Medicaid spending our Medicaid spent. Our. Please recognize yourself being answered questions thank you Mr Clark quite part of Human Services so as you indicated center right now we do have an enhanced if map it is six point two percentage points higher than what it normally would be because of the public health emergency declared by the federal government related because of it and let me give each will be the assist the timing on that that is extends for as long as we are in that public health emergency the federal government there is current the current emergency extends through January thirteenth Act I'm sorry January tenth. Do we expect to hear well. The federal government's promise they'll give states at least sixty days notice before they let that public health emergency expire if they intend to let this be the final extension and for to expire in January they will be notified us this week we have not received notice yet but we are waiting to see if we receiving notice I presume Lee if they do not make that announcmenet today or tomorrow that would suggest they intend to extend that public health emergency further into the spring of next year at least so at the moment are waiting to hear from the fence about what happens once that expires that enhanced F. map would end at the end of that quarter in which that expression happens so if they would let that expire in January that would mean the public health immersive expire the the enhanced F. map would expire by the end of March at the end of that quarter and then we'll go back to our regular F. now It is. The F. map after that right now looks a little better than we thought it did three six months ago projections have actually gone up a little bit for us in terms of what or R. F. map will be but I would caution you that there is a lot of volatility in the national economy right now R. F. map is calculated based on how our economy does in comparison to the rest of the nation historically when there's a downturn our state runs a few months behind the rest of the nation in terms of that downturn so into so it would have to wait and see how the economy does and how that impacts our F. map and so has been making specific projections going not too far because of that will until the but overcome lays out where things are at right now so just as the if you can just give me a ball parks as to like what that means for real dollars what are we looking at sure for everyone point difference in the F. map that is a sixty five million dollar difference in terms of state general revenue. And we're at six point two. It's a waste the end has to six point two right now our current is is around seventy percent right is projected to be for next year I believe seventy point three three if my memory is correct okay so it could potentially be a big big. Issue for us to deal with yes there's if there's a change that F. map it does make a significant difference on the mansion Medicaid program okay I just wanted to make sure I had timeline clear and that information as part of this conversation because I think it's a big thing that we have to watch as we move into the next session for our budget and our spend. It is that we as the governor said we do have a very healthy balance in the Medicare trust fund right now we have been so far with an enhanced F. map even though it is brought other obligations that it cost us money net we have done we've been on the positive side for that okay and right now it looks the next biennium looks good for us with the combination of S. U. R. and what's in the trust fund okay the binding following that there will be in the forest you are. Okay thank you thank you Mr chair. Thank you a representative Cavenaugh you're recognized thank you Mr chair mine's gonna be for day of may thank you so I just want to talk about the forecast for a little bit just ask questions if you don't mind on the forecast I noticed that we're showing that the revenue goes down and twenty three and twenty four and a projected to go back up and twenty five. Is that because of the tax cuts we we actually are going to be implementing. Is it that and also the fact that we're going to your thought about a recession and what might happen to the revenue because of that. So the the forecast includes all of those includes the phase down of stimulus funds and programs it assumes that inflation slows down and it in suit and includes essentially a borderline US recession next year with some impact on the growth rate and then FY twenty five is essentially normal growth coming back into the forecast after four years of abnormal growth up and down. And so FY twenty five is soon to be normal growth year over year. Okay and on the inflation your project and it to to cool down in twenty four is that what we're projecting right across the entire biennium we're looking at some cool down of inflation still someone above the long run average even and twenty five but. Some question never again slowdown of inflation across the but the biennium okay thank you. Thank you Senator Dismang you're recognized well it can actually we're we're busy and just a little bit but not because it's more of a question I think will be answered when you all present balanced budget I'm seven we're still going to go through with that I think we've got the highlights the need parts but like to get a little bit in the weeds on with right of the other balanced budget proposal looks like and a little bit warm forecast I think you'll have presentations ready in particular when you do I would I'd like just to dress a little bit about how much we plan on with this balanced budget utilizing any of our trust fund so that's gonna be Medicaid or education and that sort of thing because it's going to be important to stand anyway if you don't mind at. S. the is gonna move for the presentation balanced budget. In one of three go ahead and have that ready for your presentation. I believe with the governor presented is everything all the increases in the balanced budget I can tell you as far as using fund balances obviously with Medicaid they may have to use their fund balances depending on on how that works after the lives of six point two percent enhanced F. map at the end of March so they made a defender their fund balances I also the education fund balances would have to be dipped into to to do what the department of education it is is planning along with what the recommendations from the Senate and house depending on how those Finalize but it but it would it would be necessary to use some of the adequacy funding other fund balances as well in the in public school funding. Because the only fund balances that I'm aware of. Okay so in we're not gonna so there's no more deep dive into the the balanced budget rented proposal that the government's morning it is so then I guess what I would ask is. At so just more specific in in this is probably an agency in there there was a proposal that made to the governor you know DHS has some estimation of what is going to take because the proposal he made today exactly what that number looks like for what needs to be the drawdown Trust Fund I'm just curious and trying to make sure I understand how much one time money we're using that is outside of everything that's been presented today or do we anticipate using outside of what's been utilized in same thing would be true for education so that the big two I we should hear directly from the agencies about their plans. And I know there's volatility and maybe that's a way to gonna work around with that and saying absolute number but there should be contingency I would think both ways on the F. map change and then also for whatever of the fed's reduce the or do it in and straight. Sir Clark YVHS I apologize I do not have those numbers with me we can get those numbers to you and certainly we're offering those with our our on our budget hearing which is coming up a week from Monday but I will tell you yes our expectation is assuming the PhD and in at the end of March then we do expect to draw down the Medicare trust fund through by any of. I'm just I was thinking we get a little farther along than that so. So specifics I mean just in general terms we know we have a balance based on estimations you know future collections. I mean are we are we anticipating spending all of over the next three years and this proposal over the next two years I mean just in in general terms what do you think is going to happen to that outstanding balance of based on the presentation we've got for this balanced budget in general terms of say that over the next over the rest of the biennium we will be with to the extent we've got access in the trust fund will be exhausted in that for that time which is I think critically important for us to understand its members and is not lined out and this is it's the governor was you know very good to explain this is G. R. spend is what's here and so for spending down our address the imbalances to compensate for a lack of G. R. spend but did we just only be mindful of that what whenever the the bouncers do Grande Dr you're saying sometime potentially next two years I would rate as that what I would call the excess of the trust fund the extent it is larger than what we've seen in the past yes Sir that would serve it after the by hi thank you for. Thank you senator dismaying senator Hammer you're recognized. Thank you a good morning along that line let me ask you do you track historically how much get swept into the Medicaid trust fund at the end of the fiscal year because of money that's not being used in respective categories you have that number readily available and a historical sweep. We can get that number for you Senator completed at the end of at the end of each year there are a number of orders we can sweep those remaining funds in the Medicare trust fund and historically worked with the governor's office and DFA we've tried to do that in order to strengthen that balance of leakage those specific numbers I'd like to get those if you would please thank you bye Mr. James. Senator Rapert you're recognized. Thank you Mr chair out when this is not for you mark this for the other guys when we look at the totality of the surplus. Can you tell me what percent what percentage of that surplus is federal funds or connect federal funds. You can't answer that specifically certainly the the federal programs have boosted spending in the state both the the household level and business and government spending it's it's significant but it's blended with inflation affects and quick rebound in Arkansas from the COVID nineteen recession that was probably a faster rebound than the national average so we can't really segment those effects I'm I'm sorry you can't tell me how many dollars. Of of the whole fund how many dollars of federal dollars I know it has some impact it will have some and ancillary impact but I am there's no way to just say of this big pot of money this many dollars came from the federal government. Well that some of those programs are still in process in the approval stage and pay out stage I don't know if you want to address. Phases of the programs there we still have a RP money to distribute significant amount we have spent a lot already what what the issue is is that money is translated into of grants and and loans or other types of. Assistance to businesses around the state and individuals if you will call during the he is the a pandemic it gets transferred it yes provided to them and then they in turn. You know they spend their money they buy things they businesses are hiring people and they translated income taxes will sales tax but how much of that is in the of the surplus are in the amount of money that we receive in total we we can't tell. so how did a good job of telling me how it works but I when I when I City anybody out there. As we said today here's this big surplus that we have and we say some of it is connected to the stimulus there's no way of saying to the public This is. What's. In the surplus that came from the federal government that we know we probably can't depend we not we don't not probably we can't depend on years down the road because is tied to something else that's to me is how it works but the simple question of what it is can't be answered I just want to be clear about that. Here we have a surplus of whatever but we can't say. We can't extrapolated out to show. In an itemized way how much of it is general revenue to is federal government funds we really can't do that on. Well if you use the example of the cash payments to House rules think the colonists nationally are realizing that for upper income households a lot of that was saved rather than spent yes and so that's affecting how fast the economy responds to higher interest rates for example. I mean we can tally for you the official numbers that were sent to Arkansas but hell they actually played out in the economy it's against a blended story. Okay thank you. Representative wouldn't did you have a question hit your button again it like you got term No you're recognized okay thank you thank you Mr chairman yeah I have I have several questions first of all on the department of education. are the two hundred million in this next fiscal year and then of three hundred fifty what does that cover for teachers those give a four thousand dollar raised for of the base. Price of celery. Yes what what the governor wanted to wanted to do was to make sure that it gave enough flexibility to at least meet the forty thousand dollars that was that was recommended by the house and the Senate education committees with their adequacy recommendations but the things that there's enough leeway to even go higher than that but wanted to leave that up to the next administration and to into the legislature but there is there is that would make sufficient funding available to go up to at least forty thousand. To move to move it to forty yes at least a lot about tenured teachers or they are received. I believe the way the way I understand the the adequacy recommendations all teachers would get a four thousand dollar raise and the minimum would go up to five up from thirty six to forty but all teachers would get a four thousand dollars okay so that we can cover that with two hundred million the first year and three fifty second that's what the permits cation that's what they that's what they ask for. Secondly on the public safety area. the board of corrections has recommended or as as. The staff down there to store looking for a new president sites four thousand beds and then they're looking at some sanction but is is that in the budget. Not necessarily there the increases are for inflation and and they're operating expenses but there the department corrections does have of some funding that they could be made available for that they may disagree about they did turn back funds last year and we are increasing in the house so our hope is that they get that some of this would help with increase bed capacity as well so so there's nothing in the budget bill The New presence with no Sir all right what about a new crime lab is there any provision made for two hundred million dollars for a new crime let no and we wouldn't want to put that in the RSA necessarily those will be one time a capital projects that could be funded that that's up to the legislature and up to handle realized that I would be part of the R. us a. At the he then the governor's office and given a consideration to that. No this would be part of a balanced budget all right. What about the funding for county jails own paying for prisoners is there anything in the budget to cover that and nobody was increased last year I was asking about the future of nothing nothing additional no additional money no Sir the county jails this state not recognize that that's their responsibility of their of their own once they go through the court system that that is the. Result of an action by the state placing those people in the county jails and I think that's why there was a significant increase last year and I understand the question but there's nothing in this budget to handle any future and because. My next question is for Mr shall the of. Hello I'm knows optimistic is you are or is of the department that inflation is gonna bite nice down the seven point seven percent this morning less the two tenths of a percent drop. But our people are hurting. And the other one I don't know that I don't know what what what are you basing what assumptions are you making. The it's going to turn this around we're we we we have problems with energy we have problems with the supply chain we have a Warren your. What are you basing your assumptions on the inflation rate and the heart is going to manage for the people of Arkansas. So the forecast service that we subscribe to from the national level includes a lot of X. federal reserve staff members in that forecast team and so the forecast and the model look at the economy much the way the fed models to which as soon as the rising interest rates will tap the brakes essential in in the economy For the for the most glaring part of the components of GDP that will show up in construction spending both residential and non residential but the over time there would be this slow down in consumption which is expected next year from these rising interest rates affecting financing of purchases for a big ticket items for example. So the fed policy is geared towards slowing consumption and that leads to lower inflation by pulling down demand in next year it includes a borderline recession that for the first time includes the large component of final consumption in it that was not the case in the first half of this year when it was a mix of other technical components but not consumers but next year it does include the the large component of final demand so there is an assumption that there is a response normal response to these aggressive interest rate changes which is essentially the only tool that the federal reserve has to combat inflation they they do not attempt to modify energy prices or food prices they focus on core inflation which is excluding those components. So you could still see the volatile swings in energy and food prices the the hit the economy but fed policy on interest rates is focused on the core inflation rate. The same applies to our forecast service group of we received forecast updates monthly. the shark coming from energy prices is essentially absorb down the updated forecast it was very difficult to predict global commodity inflation with so many players involved on the supply side and demand we are looking at a borderline global recession next year with Europe leading the way on the. And a lot of other countries hurting because of the The rise in financing calls coming from the US market. So it's it we are looking at a slow down globally for demand. Well. If you go in and wrap of me get back to you have got others way all right well let me just say that the or the the very point you may is the reason that I'm not optimistic that we're going to see a downturn. In the next ten months twelve months next eighteen months with the global situation being what it is and I'll get back in the queue thank you thank you Sir thank you Mr ellam Senator Hickey you're recognized thank you Mister chair Mister white this questions for you if you don't mind I'd like to back up to the Medicaid trust fund if I heard you right you know what the way the budget was balanced you said that we would be using the excess of what's in the Medicaid trust fund and staff. Just pull this for me and my requested. We've got six hundred forty two million dollars in there right now what what do you consider the excess. Because I've got to historical numbers here so right I do I think we need to know that right and and I apologize I did not bring the numbers with me today and I'm very has trying go on memory but just. I would save the money the majority of that trust fund balance I would expect to be used for the course the biennium okay I think that's a little more clear I mean we're talking about over a half a billion dollars. If you talk about a half a billion dollars of money that you're going to use out of your checking account and one is grown we're somehow going to have to replace that and get that you know back within our budget so I guess would be if in a I know you may not want to question but how does all how does all that work. Well we've and we've had a lot of discussions with Human Services about their Medicaid Trust Fund. It depends on how you're looking at it so we don't feel like they're going to use that much over the biennium of the thought was we'll know a lot more at the at the end of this fiscal year the F. map whether it's over or not we'll know whether Medicaid the balance will be it should grow more over the next few months as long as they're getting enhanced F. map there actually saving some of that money now or saving the G. the G. R. so we'll know a lot more at the end of the fiscal year a game going into twenty five we may very well have to add money in twenty five the governor want to go ahead and input twenty five million and now the. Just as a as a down payment on that we'll know a lot more a year from now than we do now you today that's the thought is they will be in any trouble in FY twenty four surviving after that that's that's part of the reason why I did if the size the volatility right now I mean just to give an example of that notionally these last six months that we've been working on the budget request to look at the numbers during that time there is a one point swing in the projections for R. F. map for the following years as I said that one point swing that sixty five million invest your and so it's we we we make guesses about where we will go over the next course of this biennium but as I said there's a lot of volatility there and a lot of uncertainty I understand but respectfully here all agencies have to and you all have been doing this for years and I understand the volatility of that and I understand what a percentage on the amount of dollars it shall use what that means as big numbers. But you know you're sitting here telling me that basically over the next two years that you're agencies anticipating using the six hundred and forty two million dollars. And Mr break I'm in here and you also you don't think it's that much I guess my question to you is how much do you think it's going to be. Whether a couple of factors that come into play one is how long the enhanced after the last and then the it's projected their twenty percent more individuals enrolled in Medicaid that are actually eligible at the moment because of the enhanced F. out they've not been able to take anyone off the rolls or very few but they've not been able to do any eligibility requirements and taken they haven't taken anybody off the role since that started so you're gonna have a twenty percent decrease in the enrollees at the same time that you're losing the aftermath how long it takes them to get those people descend rolled that that's going to be interesting and it is going to tell us a lot more what they're going to need in the future one when we looked at it because they're getting in instead the and enhance stuff map today or last year they got around three hundred fifty million dollars because the enhancement but they save the majority of that so when you look at the ability to a shed twenty percent of of the enrollees at the same time let losing that we don't think that that they're going to lose as much as they say but will know a lot more a year from now I do believe that is probably somewhere in the middle I just know I just I just know that we're going to have the session coming up and you know it's always a lot of people you want to do different tax cuts I know that the there's at least the soft drink taxes everybody always wants to come off of that road into this fun and you know I think we're going to have to try to get a better yes you know for lack of a better word mass one more question Mr and then I'll I'll stop. On education funding again the same same thing here how how much of that the. Adequacy fund or whatever we actually anticipating. I don't I don't have in front of me what it was about off of memory I think was two hundred was a to a I mean no it was six hundred to six six hundred and million in there also. what what education ask for was actually two hundred million and twenty four and two hundred fifty million in twenty five that was the original last they are going to be depleting their fund balances the to to be able to do everything that adequacy reports are recommending they are going to have to use their fund balances by giving them the extra hundred million dollars and twenty five that will protect them somewhat but I I do think that there fund balances will be depleted in twenty six or twenty seven. The the the six hundred millions what you're talking about on that that's correct. It's over a billion dollars for talking about of our fund balances that we're there we're gonna have to cash flow within a regular budgets. Okay thank you Mr great. Senator Dismang and then center just for. Well. So I guess we're not going to have an in depth discussion about the proposal and that's that's fine but I. We have we need to spend a lot of time on the forecast if you don't mind can we just get a quick presentation the forecast maybe only want to focus on individual income tax collections and sales tax collections that you know the big two and refunds or or whatever may be because I'm trying to piece together the pages here on I just try to make sense of you know part of this is going to be due to you know. Information implementation of the the tax cuts but that's only gonna be here once we Vance those and then you on the out years what we looking at because it's some pretty volatile swings in individual income tax collections for instance or even sales tax collections your. I mean I think it's dramatic they're gonna go up nine point four percent how much is that due to inflation when we talk about the the federal spending the impact on collections and revenues that's generating but will sales tax in particular how much is that is being driven by inflation only because it seems to me the numbers are lining up pretty similar you might is going into a little bit more depth and he's been a lot of time on it nothing be ashamed not to have a more robust presentation on in forecast. Well first well turning to the current year FY twenty three you'll notice that so we're attempting to place the. xcelerated income tax cuts in the tables here and we've added. Quite a lot of that tax cut down an individual re funds which come later in this fiscal year. And not so much in withholding. Partly because of the chaos that does to withholding formulas and tables for employers so we have more of a down and refunds okay so that's the tax cut impact and that was originally active tax cut so you would expect larger refunds later to adjust for the. That includes the hundred fifty dollar tax credit for low income. Which would would show up more in refunds I think okay looking at corporate income tax you know those are more volatile significant revenue category whatever we have two or even three years of double digit percentage growth in that correct category we get concerned about the forecast and we have a handle that was two years of decline back to somewhat normal levels adjusted for inflation. so that explains the double digit decline in. Current year and in FY twenty four so two years of adjustment back down to normal. It may not happen this year so for the revenue the corporate collections look pretty strong suppose they could reverse course late in the fiscal year but we could add to the surplus if that doesn't play out if it doesn't contracted this fiscal year but certainly FY twenty four we have to allow for double digit percentage contraction there. and sales tax again it may be conservative but we are factoring in a borderline recession nationally with some of impact there and at the same time deceleration of inflation slowing that in the context year over year change. I work again and sales tax were coming off of near a double digit growth in that category over two years because of stimulus and quick rebound. And now we're bringing it back to normal. The law states are dealing with the same issue in their forecasts of coming down off of stimulus. And hearing talk of inflation or a recession at the same time. And that's what produces this unusual nearly flat growth rate in FY twenty four. And then twenty five because of all of the economic assumptions it looks like it's back to normal for underlying growth rates and inflation. So the transition here is FY twenty four. Thank you just one quick question on that is in a because when they wouldn't really talk about it and I guess. At least anecdotally what I feel is just the shortage in labor market I think it's what most employers I think you missed part of what we hear about teachers or nurses or whatever may just a general lack of folks to feel you know positions and and how were they factoring that in its but always been my question maybe read a little bit about it but I however the meshing fixing that with the rise in interest rates because they're still the demand when it's not like we're losing. You know people we just don't have enough people to fill the roles to fill demand of the jobs that are out there now that's lease that's what I feel. Personally in and talking to other employers to have a mental how does that factor into this so we're utilizing interest rates to soften the economy. Try but it I just I guess I'm I'm having a hard time understanding how that's going to mess with the labor issue which is I think really one of the drivers. Right well we have very low unemployment rates in Arkansas and relatively low at the national level so the forecast assumes that Ajose in demand for lower demand because of rising interest rates obviously in areas such as the construction but the a lot of other categories as well so demand is lowered you're not seeing that yet in the actual numbers we don't see it collections we're not saying it in labor market indicators so it's all a projection over the horizon of response to fairly aggressive changes in interest rate policy yeah and in my concern would be just as we're working through that it's not just an issue remember we're not going to be able to contract the you know building you know construction industry and its fix what's happening because I believe that shortages across pretty much all industries including service industry. and so again I just I'm not quite sure I'm gonna I I understand how it's gonna work out but I don't know if there was any additional information you'd seen on that so we're we're counting on a contraction in the construction industry that's going to ripple through other areas which again I think almost and related the thank you right we're we're not seeing at the in the actual numbers at this point. Thank you Senator chest FOR you're recognized yes thank you Mr chairman good morning John how are you. I want to see a Ladyman in one of these days of this morning the forecast said we we rate seven point two percent inflation. And as a result of that that the fed may not have to increase interest rates. As aggressively as they have been doing in the past. If that is the case what impact will that have on our budget. So I saw the number released this morning both top line and core inflation the stock market is responding fairly early they're looking ahead also and what it means is suggest we're we have a turning point in inflation numbers coming down but as chairman Powell commented we're very early in the fight on inflation so is not clear of the they're going to step back from three quarter percent to increases back to say have a person of I think that may involve some wishful thinking let's this wish will the tax cuts going forward cost more than originally anticipated thank you said something like a hundred sixty four million in the second year of it is that what I'm remembering what sixty four million come was that the second right now the immediate impact was like five hundred million dollars and then the next year we don't but not cost quite as much. Remind me of what that was remind me of the impact on the budget of the tax cuts so but fiscal year the current year impact is five hundred million. The second year FY twenty four is one hundred and sixty seven million one sixty seven months state one sixty four could you tell me if that's going to be increased if inflation continues. US since that is mainly income tax impacts I have to think about the little bit we give an answer on that one. And I finally I Senator Elliot alluded to how much we get from the financing you're saying that it's not we can't just define it because so many ways the federal government money's impact the state how much money is going to the department of health how much is going to DHS how many federal dollars are going to department of education I'd like to know that and I think you can get that information for me. Is that correct. Yes yes we can get that and I would just like to know according to each one of the agency said it by Secretary how much in federal dollars flowing directly to that agency so some go direct some come through a are paid to what that would come through the centre Committee in the legislature but and then they all come through here for appropriations yeah I know that so so which area we can get we can gather all that hi I appreciated the was if you would share that with me thank you so very much. Thank you representative Ladyman you're recognized. Thank you Mr chair winner of. My question concerns the income to the state okay the income streams that we have coming in from taxes if if we're saying that inflation's going to slow you mentioned housing and construction so if those things slow down in my mind that would reduce our income stream from sales tax income tax so is that figured into this budget how did you projects that reduction in income due to a slowdown in the economy. So tax revenues in Arkansas are based on current calendar activities in the economy and that current calendar isn't is composed of real growth such as construction activity. And also inflation layered in there with the and so what we're seeing in this forecast for FY twenty four is both of them slowing down the real activity and inflation over the years. so it is a blend. But even with those slowdowns in growth the budget projects a growth and income is that correct. Well for FY twenty four in gross revenues we are looking at a contraction of two point six percent for individual and we're assuming a twenty two percent contraction in corporate income. Thank you. Representative within you're recognized. Thank you Mr chairman can you tell me the shell of the percent. Of the surplus. That is created by inflation in the next two years. What what percent of that as a result of inflation. I don't think I can answer that question but so clearly it is it is help paying revenue collection it really depends on our tax base what is taxed and what is not sales tax does not pick up energy inflation to any great extent other than utilities. and we're not in for general revenue we're not picking up food inflation. That would would be manifested in city and county sales tax base but not state to general revenue. All right then. What what worse what we're saying happened here. In a surplus is great for state government. The inflation is terrible for the citizens of Arkansas is costing him a bunch of money. In one hand you indicate that the construction. Has got to abate. In residential construction commercial has got to obey the following along with senator Dismang and senator Hickey's senator Chesterfield. If that abatement occurs. And continues to occur and the fed continues to raise the interest rate. It's going to hurt the people of Arkansas even more my next question is. What portion or does the use of the trust funds. Create. The surpluses add to that. Well using the surpluses and the Department of. Human Services and you mention Mr Breck in the education of their fund balances the using those trust funds like that is that create a situation where it increases the likelihood of surpluses. Well our people are suffering under. Eight percent inflation. An answer is yes if you didn't use any of the surplus dollars from of the either the Public school fund or a Medicaid trust fund it would require a larger percentage increase on the RSA and and more than two hundred dollars or two hundred million dollars and twenty four and three hundred fifty million twenty five it it certainly would. I don't know exactly how much that would be but the I think you could probably add two percent to that at least. So are we back in our self in the corner two were gonna hurt our citizens. And state governments goal of flourish. I don't know how to answer that I think what we're trying to do is keep the keep the RSA down maintain a surplus in twenty three twenty four twenty five because keep in mind even if we do the day plate or reduce the trust funds of the surplus is still there we're looking at a six hundred million dollar surplus this year two hundred and forty five million and twenty four and and another three hundred nine million in twenty five so even though we're using those trust balances were were increasing our balance even more because our phone balances now I think the governor went over that are two point seven they they will grow. I understand that but my my concern is we're we're almost is three billion dollar. Reserve funding and and and and I don't know why we've done that and I think that's good good budgeting and I think that's why she use. But do you agree that we need to be very very careful in the using these trust funds like that because we could back yourself into a corner like we ended up with the workers benefits not too long ago. And then and then also with our benefit program for the state employees you know agree we need to be careful absolutely we need to be careful yes thank you Mr chairman. Thank you not saying more questions thank you gentlemen for being here today which is best for the day I members we have going back to B. one Senator Wallace will be back in just a minute we are going to pull number two and it will be presented to later. Just a minute we'll have Center Wallace's report. You get. They were going to have the report for the personnel subcommittee. Representative will in future button. You're recognized thank you of the personnel committee met on Wednesday November line here in the big mac a in the committee recommends agency request for the constitutional offices and the judicial agencies as well as executive recommendations for listed executive branch agencies the attached documents that you each of you have been provided reflects a revised executive recommendation for to DHS divisions and Mr chairman I moved for the adoption of the report at the proper time. Okay got a motion for the the report I have a second second all in favor aye. Okay members is you can see on your schedule next week is a L. C. week AO sees subcommittees will be meeting Tuesday through Thursday and then Friday will be full A. L. C. you do have a Monday afternoon children used Joint Committee thank you for your participation thank you for being here today have a safe weekend we are Jr.