Week In Review

State Capitol Week in Review

LITTLE ROCK – The governor presented next year's budget for state government and the highlight was his proposal to further reduce the sales tax on groceries by half a cent.

Since 2007, the legislature has approved the governor's requests to gradually remove the state sales tax on food. It is now at 2 percent and would drop to 1.5 percent if the legislature agrees to the governor's proposal.

Removing half a cent from the sales tax on groceries would lower taxes for Arkansas consumers by about $20 million a year. Of that total, about $15 million would come from general revenue and $5 million from several special revenue accounts.

In 2007 the legislature reduced the food tax by half, from six percent to three percent. That saved consumers about $130 million a year. In 2009 the food tax was lowered again, from three percent to two percent. That saved another $40 million for taxpayers.

The legislature can remove almost all of the sales tax on groceries but not all of it. That is because in 1996 Arkansas voters approved Amendment 75 to the Constitution to levy an eighth of a cent in sales tax on all items, with the revenue going for conservation programs.

Also, the legislature cannot remove local option sales taxes approved by voters in many cities and counties for jails, hospitals and economic development.

The state's top budget officials predict growth in the Arkansas economy, and therefore in state revenue, of about 2.8 percent next fiscal year. They propose an increase in the state budget of about 2.5 percent, which equates to an additional $125.4 million next year.

One of the major concerns will be the Medicaid program, which has been taking money from a trust fund to make ends meet. The state's top Medicaid officials predict that the fund would be depleted in two years.

Medicaid pays for health care services for low-income families and people with disabilities. Also, it pays for about 75 percent of the costs of nursing home care for the state's elderly.

Medicaid officials told the legislature that they were trying to hold down costs so the program doesn't continue to grow by five percent a year. Medicaid is one of many services provided by the Human Services Department, which is budgeted for a funding increase of 0.6 percent under the governor's proposal.

The governor proposed increasing school funding by 2.9 percent.

The state Correction Department, which runs state prisons, would get a budget increase of 2.2 percent under the governor's plan. The Department of Community Correction, which operates work release programs and drug courts and supervises convicted offenders on probation or parole, would get a 6.1 percent increase in funding.

State general revenue spending would amount to about $4.6 billion next year.

Arkansas operates under a balanced budget known as the Revenue Stabilization Act. If the economy worsens during the fiscal year causing state revenue to drop, state agencies must cut spending proportionately. However, public schools are protected from budget cuts because of provisions in the constitution that require the state to provide an adequate education to all children.