Monday, March 25, 2013

Arkansas General Assembly - Winding Down?

The legislative session is rapidly winding down. Maybe quicker than anyone imagined. More than a few people suggested that the General Assembly would adjourn on April 5, which leaves just two weeks to either consider the nearly 2,000 bills that remain on the table or disappoint a lot of legislators who didn't have a chance to have their bill heard. Of course the General Assembly won't consider them all, but they do typically pass around fifty or sixty percent of introduced bills so that would mean they would need to consider and approve more than 900 bills before adjourning. No way that happens by April 5.

One of the big stories for the past week was HB1418, which would have phased-in a transfer of sales taxes from vehicle-related sources (batteries, tires, car sales) from the state's general revenue to the Highway Department. As originally conceived the bill would have phased-in a gradual transfer of this revenue so that in ten years the Highway Department would have had nearly $400 million per year in additional funding to pay for maintenance and construction. The Highway Department's main funding source - the federal trust fund and state gas taxes - have been flat while the cost of maintaining and building new highways has skyrocketed. This disparity prompted the proposal to shift sales taxes to the Highway Department

Governor Mike Beebe and the state's institutions of higher education led a very spirited opposition to HB1418 because of their fears that any transfer of general revenue to the highway department would result in cuts to universities and community colleges. A number of other advocacy groups joined in the opposition and were able to strip away co-sponsors from the bill. The bill's sponsor amended the legislation a number of times to reduce the potential impact to higher education, but an acceptable compromise could not be reached. The Transportation Committee heard the legislation on Thursday and the normally quiet committee was transformed into standing room only as supporters and opponents took over an hour to argue the merits and drawbacks of the bill.

The bill required 11 votes to pass out of committee and on to full consideration by the House. After a roll call, the bill garnered ten yes votes - one short and HB1418 failed to advance.

Also this week, the legislature received a consultant's report on the viability of the proposed Big River Steel project. The House and Senate Agri/Economic Development committees meet on Monday to discuss the report and make recommendations on incentives. The state is being asked to issue $125 million in bonds to fund a $50 million loan to Big River Steel and use the remaining $75 million for site preparation and issuance costs. The state is also offering various sales tax exemptions and income tax credits estimated at more than $200 million.

In return, Big River Steel will build a $1.1 billion steel facility in Osceola that will employ 525 people at an average wage of $75,000. The success of the facility depends in large part upon the global demand for steel. The report projects steel demand will increase by 8.7 million short tons a year and the new plant has a capacity for more than 3 million short tons or approximately 1/3 of projected increase in demand.

So how does the state benefit from this investment? The state will collect additional income taxes from the 525 jobs created, collect sales tax from purchases made by the plant both during construction and operation and corporate income taxes from the company itself. The report projects that by investing $125 million in bonds the state will likely recover their investment plus earn a return of more than $50 million in sales, corporate and income taxes.

If this "modest level of economic benefits," as the report describes it, is enough to prompt the state to issue the bonds we shall likely see next week.

This week could also see an announced agreement on tax cuts. Media reports say that legislative leadership and the Governor's office are hinting that an agreement is close on up to $100 million in total tax cuts. With so many tax cut proposals introduced (in the billions if all were approved) there appear to be a few that have the most support. The leaders seem to be cuts to grocery, income and manufacturing-related taxes.

There is so much to be decided between now and the end of the session. They have to make a decision on Medicaid/insurance expansion for Arkansans earning 138% or less of federal poverty limits, cobble together a budget and consider up to three potential constitutional amendments. I can't imagine a more frenzied finish to a legislative session than what the 89th is going to experience.

If you want to see a list of committees, their members and pending legislation you can find that information HERE.

Sunday, March 3, 2013

89th General Assembly - Week 7

The past week was full of new developments that possibly signals the start of a new emphasis on the major pre-session issues of Medicaid and tax reform. Those are the two key questions that everyone expected to consume the General Assembly in 2013, but which have not been the topic of much official debate. Although, apparently, legislators have been hard at work behind the scenes on both issues.

On the Medicaid front, Governor Mike Beebe met with federal Health and Human Services officials to discuss the possibility of using federal Medicaid funding to help subsidize private insurance premiums for Arkansans with incomes below 138% of the federal poverty limit. This option is finding quite a bit of positive feedback from Republicans who hold the majority in the House and Senate. Any decision to appropriate state funds for either adding Arkansans to the Medicaid program or subsidizing private insurance will require 75% of the House and Senate to agree.

By helping these neediest of Arkansans obtain insurance coverage with federally subsidized private insurance 250,000 Arkansans could receive insurance coverage while the state would not grow its Medicaid rolls and hospitals will be able to reduce losses from charity care.

Our state's hospitals are facing reduced reimbursement rates from Medicare patients and when this is coupled with continued massive losses from charity care, many of our healthcare systems are struggling to survive much less expand and improve care. Therefore, any efforts to reduce charity care by moving uninsured Arkansans into an insurance plan will be a tremendous benefit to hospitals. In Northwest Arkansas, our hospitals employ thousands and are a major quality of life component and driver of the local economy. The Chamber strongly supports efforts to reduce charity care losses for our hospitals, whether it is through an expansion of Medicaid or supporting private insurance coverage for low-income Arkansans.

Also this week, Speaker of the House Davy Carter told the Revenue and Tax Committee that he felt the General Assembly could pass up to $150 million in tax cuts during the session without cutting the state's budget.

This is the first person in legislative leadership to offer a value for total tax reductions. Governor Beebe has proposed cutting the grocery tax, but only as selected state funding commitments expire (like desegregation funding for Pulaski County public schools).

Proposed changes to state income taxes were also addressed this week when Representative Charlie Collins (R, Washington County) filed bills detailing his recommendations. Collins has long argued that reducing the state's income tax would make Arkansas more attractive for new businesses. He has offered two options for the legislature to consider. HB1586 would gradually lower all tax rates, including the highest bracket which kicks in at $34,000. For residents earning more than $34,000 their income tax would fall to 6% from the current 7% level. HB1585 proposes identical tax brackets as HB1586, but HB1585 would phase in the reductions more quickly. So what would this mean for someone with $50,000 adjusted annual income? Using a very simplistic analysis this may equate to around $20 more per paycheck.
There are a number of other tax cut options on the table as well. The Chamber endorses two tax cuts that support manufacturing in Arkansas and we encourage you to join us in advocating for their passage.

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 to see a list of committees, their members and pending legislation you can find that information HERE.