Outgoing Arkansas governor warns no raises, budget cuts if tax reductions take effect

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Arkansas Gov. Mike Beebe acknowledges legislators as he is applauded after speaking at a meeting of the Joint Budget Committee at the Arkansas state Capitol in Little Rock, Ark., Thursday, Nov. 13, 2014. (AP Photo/Danny Johnston)


Arkansas Department of Finance and Administration Director Richard Weiss, left, and assistant Tim Leathers prepare to answers legislators' questions before a meeting of the Joint Budget Committee at the Arkansas state Capitol in Little Rock, Ark., Thursday, Nov. 13, 2014. (AP Photo/Danny Johnston)


Arkansas Gov. Mike Beebe presents his proposed budget to legislators during a meeting of the Joint Budget Committee at the Arkansas state Capitol in Little Rock, Ark., Thursday, Nov. 13, 2014. (AP Photo/Danny Johnston)


Arkansas Gov. Mike Beebe waves as he enters a meeting of the Joint Budget Committee as legislators applaud at the Arkansas state Capitol in Little Rock, Ark., Thursday, Nov. 13, 2014. Beebe referred to his 32 years of state service as a legislator, state attorney general and two terms as Arkansas governor after presenting his last proposed budget to the committee. (AP Photo/Danny Johnston)


LITTLE ROCK, Arkansas — Many state agencies and institutions of higher education would see their funding reduced if tax cuts approved last year take effect, Arkansas Gov. Mike Beebe warned lawmakers Thursday as he prepares to leave office.

The two-term Democrat's administration detailed two budget scenarios, depending on whether lawmakers agree to delay $29.4 million worth of tax cuts on capital gains and manufacturers' utility bills for two years. Beebe is leaving office in January due to term limits but is required to present a lame-duck budget proposal.

The measures, which take effect July 1, 2015, were among about $140 million in tax cuts the Legislature approved last year. Beebe signed the cuts into law but warned at the time that the state may not be able to afford the loss of revenue in future years. He repeated that warning Thursday, two months before his Republican successor who pledged to slash income taxes takes office.

"That'll be your call, not mine," Beebe told the Joint Budget Committee. "I'll be reading the paper and watching you from afar."

If the tax cuts remain in effect, state employees would not receive a 1 percent cost-of-living raise next year and several state agencies, colleges and universities would receive a 1 percent across the board budget cut, according to Beebe's recommendation. The state's Medicaid program would also have to tap more money from the state's surplus if the tax cuts take effect.

Both budget proposals call for a nearly $51 million increase in funding for the state's public schools and propose tapping $65 million from the state's projected nearly $216 million surplus to pay for school building repairs. Both budgets also call for increased funding for the state's prison system and Medicaid program.

Beebe issued the recommendations more than a week after Republican Asa Hutchinson won the governor's race after running primarily on a vow to cut individual income taxes by $100 million.

Hutchinson, who is expected to present his budget after taking office in January, didn't specifically rule out delaying the tax cuts already approved, but said he believed the state could afford the income tax reductions.

"I'm fully committed to funding education, funding our essential services of this state, and I have no doubt we can do that consistent with having the middle class tax cuts I campaigned on," Hutchinson said. "Now how we arrive at that, that's what I've got to focus on between now and then and look at the budget very closely."

The state's outgoing chief fiscal officer said there's no room in the state's budget to make income tax cuts.

"He would have to make significant cuts in a large number of places" to accommodate them, said Richard Weiss, director of the Department of Finance and Administration.

The other unknown surrounding the budget is whether the state will continue its "private option" compromise Medicaid expansion. Under the program, Arkansas is using federal Medicaid funds to purchase private insurance for low-income residents. More than 211,000 people are receiving coverage through the program, crafted as an alternative to the Medicaid expansion envisioned under the federal health law.

The program's future is in doubt after several legislative candidates who vowed to end it won in last week's election. Hutchinson has said he won't decide whether to back its reauthorization until late January. State finance officials say the budgets unveiled Thursday include the savings the state says it's seeing from the program.


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