Week In Review

State Capitol Week in Review

LITTLE ROCK – The new year began with good financial news for state government, although budget officials were careful to temper their statements with sober caution about potential long-term problems.

First, the governor and the director of the Human Services Department reported that the state Medicaid program appears to have enough money to get through the next fiscal year without a major shortfall.

Medicaid officials had been concerned that the health care program would fall short of revenue by about $60 million next fiscal year, in part because of increased enrollment. They expected increases in Medicaid enrollment of 5 percent a year because more people become eligible when unemployment worsens. However, enrollment growth has remained at about 2 percent a year.

Another piece of good news came in the December revenue report, which showed impressive growth over the same month last year. Net revenue for December was more than 9 percent greater this year than last year. Tax rates have not gone up, so the increase is a very accurate indicator of increased economic activity.

State revenue officials cautioned that the December revenue report reflected only one month's activity. It gives state agencies a small cushion against an economic downturn, but until the economy gets stronger we should not expect every month to produce such good numbers.

The long term prospects for Medicaid finances are mixed, paradoxically, because of the improved economic situation in Arkansas. Medicaid is a government-subsidized health care program that last year helped pay for medical services for 770,000 Arkansas residents.

The federal and state governments share in the costs of Medicaid. In poor states the federal government pays a higher percentage than in relatively prosperous states.

Per capita income in Arkansas grew faster than in many other states, and as a result the federal government share in Medicaid funding will drop from 71 to 70 percent in October. That decrease of 1 percent amounts to the loss of about $50 million in federal matching funds for Arkansas Medicaid. State government will have to come up with an equal amount, or else cut $50 million in services.

In other state budget news, the governor said he would ask for a supplemental appropriation of $2.7 million for the state Forestry Commission to get through the current fiscal year. The legislature will consider the request at the fiscal session, which convenes on the second Monday in February as mandated by the state Constitution.

About $1.2 million of the Forestry Commission appropriation would pay back a grant from the federal government that the Commission has already spent on operations. The other $1.5 million would pay Commission expenses until the end of the fiscal year, on June 30.

Also, the governor has said he may recommend asking for two other supplemental appropriations - one for the Correction Department and one for the Department of Community Correction. If the legislature approves the supplemental appropriations, they would authorize additional spending for the current fiscal year.

During the fiscal session, legislators will approve budgets for all state agencies. In preparation for the session they will conduct budget hearings in late January. State general revenue is projected to be about $4.6 billion for the current fiscal year. The bulk of that revenue is from state sales taxes, individual income taxes and corporate income taxes.