Week In Review

State Capitol Week in Review

        LITTLE ROCK –  The governor presented a balanced budget for next fiscal year that forecasts encouraging economic growth for Arkansas.
        The governor’s top officials say it is a very conservative budget.  Legislative leaders will work to make it even more conservative during the 2013 regular session, which convenes in January.
Under the Arkansas system of government, the governor proposes a balanced budget before a legislative session begins.  Using the governor’s proposal as a starting point, the legislature has final disposition over the details and the final amounts that state agencies will be allowed to spend.
        The governor’s plan includes a method of repealing the remainder of the state sales tax on groceries in such a way that state revenue would not decrease. 
A repeal of the food tax would only be triggered by an increase in state revenue resulting from consistent declines in government expenses, such as bond payments and payments the state makes for desegregation of Pulaski County schools.  If the federal courts end the state’s obligation to make annual desegregation payments, the repeal of the remaining grocery tax would likely take effect.
Even if a repeal of the sales tax on food is enacted, there would still be local option sales taxes and the 1/8 cent sales tax that goes for conservation levied on groceries.  Arkansas voters approved the conservation tax in 1996 in a statewide election in favor of Amendment 75 to the state Constitution.
        The administration’s economic forecaster predicted low inflation combined with modest but improving recovery over the next two years.
 He noted that the Arkansas economy is less volatile than most other states, meaning that although we didn’t enjoy the economic boom that characterized some states, we also didn’t suffer the severe economic woes that afflicted them during the recession.
        Private sector job growth is encouraging, he said, adding that further growth is expected as business expansion spreads to the areas of the state hardest hit by the recession.
        Considerable risks threaten the continued improvement of the Arkansas economy.  One is the unknown effect of the so-called “fiscal cliff” that may occur next year, which will depend on how the Congress in Washington addresses the growing federal deficit.
        Europe’s economy is on shaky ground and a prolonged European recession could affect us.  Energy prices have been trending downward, which is good for consumers and businesses, but we still rely heavily on petroleum supplies from unstable foreign countries.
        In spite of the risks, the governor’s economic forecast was more encouraging that those he has presented in recent years.  First of all, the forecast for this fiscal year was revised upward because tax revenue is expected to increase by $99.5 million more than previous predictions.  We are in Fiscal 2013, which ends on June 30.
        Next fiscal year state revenue is expected to increase by 2.5 percent over this year.  In the following year, economic growth is expected to increase state revenue by another 3.7 percent.
        State general revenue is from sources like the sales tax, the individual income tax, the corporate tax and taxes on things like alcohol, tobacco and gaming.  They are forecast to bring in $4.9 billion in Fiscal Year 2014, which begins on July 1.  In Fiscal Year 2015 they are estimated to generate $5.1 billion in net available revenue.