Sunday, February 24, 2013

89th General Assembly - Week 6

The legislative session is nearing the halfway point and 932 bills and joint resolutions have been filed so far. While that sounds like a lot of legislation this is a significantly slower pace than in the previous session and assuming it continues the 89th General Assembly will wind up filing nearly 20% fewer bills this time.

There have been 143 of the 932 bills enacted into law so far. Eighty-nine are Joint Budget Committee bills and represent the 2013-2015 budgets for state agencies and departments. None of the remaining 54 bills represent major business-related legislation and only a few of the Acts have received much in the way of press coverage. By far, the leading headline-grabber was the bill that allowed concealed handguns to be carried inside churches, which is now Act 67.

All the signs are there that the session will begin to consider some of the major business issues of the session soon. The Arkansas Economic Development Commission delivered the official report requesting legislative approval of the $125 million in state support for the Big River Steel project last week. This starts the twenty-day clock for either approval or denial of state support for the $1 billion superproject.

The most anticipated pre-session issue - Medicaid expansion - has seen some movement this week as well. Governor Beebe met with federal officials to discuss a partial expansion of the Medicaid program in Arkansas and Republicans announced the hiring of a consultant to provide information on cost and benefits of expansion.

Finally, the past week saw the final anticipated piece of tax reform legislation filed when Representative Charlie Collins submitted a bill, currently without any details, that will likely propose a reduction in the state's income tax rates. This bill filing might signal a willingness of the General Assembly to begin considering which tax cuts might be feasible and, if so, how much the state can afford to cut.

There are four main tax cut types that seem realistic options for consideration.

Grocery Tax - one of Governor Beebe's goals is to eliminate the state tax on groceries. Since 2006, the state's grocery tax has been reduced from 6% to 1.5%. SB135 would elminate the remaining 1.5% if certain revenue conditions are met and when select state spending on bond payments and other extraordinary items are phased out.

Income Tax - Representative Charlie Collins (R, Washington County) has long advocated for reducing the state's income tax, which kicks in the highest bracket at just $33,200 in income. While the bill, HB1442, is only in shell form at this time, in the past Collins has recommended that the income tax reductions be phased-in based on revenue increases to reduce the impact to the state's current budget. This would require the state to maintain the flat budgets until the entire reduction is enacted, which might be several years depending upon revenue growth.

Agriculture & Manufacturing Taxes - There are nearly ten separate bills seeking to exempt equipment, supplies or utilities from state sales tax. These items range from utilities used in agricultural structures like chicken houses, baling wrap for cotton and timber equipment to utilities and replacement parts for manufacturers. The Chamber endorses eliminating the sales tax on utilities and repair/replacement parts and equipment for manufacturers. More on that below.

Business Taxes - There are two major business tax cuts to be considered this session. The first is a reduction in the capital gains tax assessed on the sale of Arkansas investments and property. A similar bill passed the House in 2011, but did not pass in the Senate. The bill has been refiled and will likely be discussed in detail, although it doesn't have the champion in the current legislature that it has had in the past. The other major business tax cut would double to ten years how long businesses can carryforward prior year losses to offset current profits. Many states have even longer carry-forward policies so Arkansas' current five-year restriction is much too short.

As mentioned above, the Chamber strongly supports two of the tax reductions under consideration and we encourage you to join us in advocating for their passage in the coming weeks.

HB1218 - Eliminates the state sales tax on utilities used by manufacturers. Only one of our surrounding states tax manufacturer's utilities, which places Arkansas at a competitive disadvantage in both recruitment and retention of manufacturers. In order to have a diverse economy, Northwest Arkansas must continue to support and protect its manufacturers by creating an operating environment that allows them to be the most competitive in the world. This bill continues a steady reduction in this tax and improves our ability to recruit and retain jobs.

SB334 - Eliminates the sales tax on parts used to repair or replace equipment used by manufacturers. This reduction is important to retain industry in Northwest Arkansas since many of our local manufacturers not only have competitors from around the world, they also have other facilities in the United States When a company is looking to expand production or make their facilities more efficient we want them to choose their Northwest Arkansas location to improve and expand instead of moving production to somewhere less costly. Reducing the sales tax on repair and replacement parts and equipment gives the state an advantage that might save hundreds if not thousands of existing jobs.

If you want more information on how HB1218 or SB334 might benefit your business please contact Also, we need your assistance to make sure legislators understand the potential benefits of these bills. Please reply to this email if your business would be positively impacted by a reduction in the tax on utilities and repair/replacement parts.

Friday, February 8, 2013

89th General Assembly - 4th Week

We are essentially a month into the legislative session and much of the major business-related issues remains sidelined. The Revenue and Tax committees in the House and Senate are not even holding meetings because they don't have anything to consider despite the fact that they are four weeks into the session. That is a telling sign that the 89th General Assembly is taking things very methodically.

My assumption is that leadership in the House and Senate have agreed to focus on social issues in the first month before turning their attention to taxes, Medicaid and other business-related legislation. The past two weeks have seen a lot of committee time spent debating abortion and guns. Next week should see the final resolution to many of these issues.

On Tuesday (February 12), the House Education committee will consider Representative Charlie Collins' (R, Washington County) bill to authorize college staff and faculty to carry concealed weapons on campus. Many universities oppose this measure and the Education committee will no doubt hear from them that allowing concealed weapons on their campuses will not make them safer and will result in higher liability insurance for academic institutions.

There are also two abortion bills that are moving through the House and Senate and their final form should be decided in the next week as well. Once those are done it seems more likely that the General Assembly's energy will focus on taxes, Medicaid, funding the Big River Steel plant and a host of other issues.

Leadership has hinted that all tax cut related legislation will be considered at the same time and after spending levels are more certain. So, instead of passing individual tax cuts they will weigh the merits of each and then decide which they can afford. In 2011, the House passed four tax cuts fairly early in the session that then got held up in the Senate and used as a negotiating piece for other legislation. One might guess that House members may want to hang on to some leverage by working jointly with the Senate to ensure their main priorities are enacted. If so, it will be March before Revenue and Tax has anything to vote on.

If the General Assembly is focused on social issues, it raises the question what types of bills are being filed and is there a backlog waiting to be heard. While clearly not a scientific analysis, keyword searches of filed legislation produces the following insight:

219 bills are related to revenue (out of approximately 580 total bills filed)
72 bills are related to tax
24 bills are related to Medicaid
20 bills are related to economic development
8 bills are related to concealed weapons
6 bills are related to abortion

So the issues with the fewest number of bills are generating the most debate!

89th General Assembly - Week 3

This is the first full week of the legislative session even though it was the third overall and it turned out to be quite busy in the Capitol as Governor Beebe announced the largest economic development project in the state's history - a proposed $1.1 billion steel plant in Northeast Arkansas.

The proposed plant is projected to create 2,000 construction jobs for 20-months and 525 permanent, high-wage jobs at the plant, which will be located in Osceola. Recruiting these types of major projects requires a substantial commitment from the state and local entities through incentives. The state will be considering whether to offer $125 million in Amendment 82 bonds to support the project. Amendment 82 refers to the voter-approved addition in 2004 to the state's Constitution that authorizes the state to sell bonds in an amount up to 5% of general revenues to attract a designated "super-project."

The $125 million bond issue will be used to provide a low-interest $50 million loan to the steel plant and pay for $75 million in site preparation and issuance costs. Over the next three weeks, the General Assembly will be reviewing the proposal and will have to determine if the commitment of general revenue to repay the bonds is a good investment of scarce state resources. In approximate terms, if the state issues a 20-year bond issue at current tax exempt rates of 3.5% this equates to a payment of $9 million per year. The private developer will be repaying $50 million so that would like reduce the commitment of general revenues to around $5.2 million per year. This is compared to almost $40 million in annual payroll produced by the plant.

It seems likely that the General Assembly will agree to the bond issue as a means of bringing high-wage jobs to a part of the state that has been struggling with double-digit unemployment over the past few years.

With three weeks in the books, the General Assembly has slowly been filing bills. A typical session sees around 2,500 bills filed with a little more than half actually enacted into law.

Sometimes you can see what is important in a legislative session by comparing how many bills are filed with each committee. The way the state legislature works is that non-budget bills are routed through one of about ten A or B committees. The committees review the bills and recommend passage or issue a do not pass recommendation. Often, making it of committee with a "do pass" recommendation is enough to ensure its passage on the floor.

So what are the committees with the most bills after three weeks?

Public Health - 34 bills
State Agencies - 31 bills
Judiciary - 21 bills
Education - 17 bills
Insurance & Commerce - 7 bills
Transportation - 5 bills
City, County, Local - 5 bills
Agri & Econ Development - 4 bills
Revenue & Tax - 4 bills
Aging, Children & Youth - 3 bills

Public Health is an obvious choice with healthcare representing such an important if not THE important issue of the 89th General Assembly. The committee also reviews topics as diverse as abortion, unemployment insurance and wage law.

State Agencies has a number of bills pending that will change how a state agency like Natural Resources or Alcohol Beverage Control might operate as well as a few voting laws. It is also the committee that can refer up to three constitutional amendments for inclusion on the 2014 general election ballot.

Judiciary often focuses on crime and punishment in the state. There are a number of proposed laws pending that deal with criminal penalties and capital punishment.

Education deals with public and higher education issues and currently has a number of school choice and charter school related bills pending. The choice bills would address the ability of public school students to transfer to a school outside of their home district while the charter school legislation most often seeks methods to increase the number and viability of charter schools as an alternative to traditional public schools.