Analysis: Revenue dip complicates Arkansas tax cut push – McClatchy Washington Bureau

Less than 24 hours after signing into law an income tax cut he said would boost the state’s economy, Arkansas Gov. Asa Hutchinson came back to report grim news: Several state agencies needed to plan for possible budget cuts after the state’s revenue dipped $57 million below forecast.

The specter of budget cuts and sluggish tax collections are prompting new concerns about the state’s finances, and show the difficulty Hutchinson and fellow Republicans in the Legislature will face as they try to craft a plan to slash rates even more in the 2019 session.

Hutchinson’s $50 million plan to cut taxes for those making less than $21,000 a year won’t take effect for another two years, but the timing of the latest revenue figures doesn’t help counter the argument that the state’s recent tax rate reductions are coming at the expense of other services.

“We’ve sounded warnings for the past two years that we could be headed down the road of states such as Kansas, Oklahoma and Louisiana,” Senate Minority Leader Keith Ingram said, referring to states that have faced large budget shortfalls after enacting large tax cuts. “These fears seem to be well-founded.”

Legislative leaders say the numbers should help draw the line on any further tax cuts beyond the income tax reduction and an income tax exemption for veterans that Hutchinson plans to sign into law in the coming week. That exemption on veterans’ retirement benefits is being paid for by raising taxes on soda, candy, unemployment benefits and digital downloads.

Hutchinson said he’ll decide by March whether any adjustments in the state’s forecast for the current fiscal year are needed. The programs affected by any budget cuts would be in the “B” category of the state’s budget, which prioritizes funding based on expected revenue. The $127 million in that category isn’t set to go toward the agencies until June, Hutchinson said. He said he didn’t expect any layoffs from the potential cuts. The bulk of the money in the category goes toward the Department of Human Services, which was set to receive $88 million. Other agencies told to make plans include the departments of Education and Correction.

Finance officials expect some rebound next month, attributing about $22 million of the drop in January to a change in payroll timing.

Hutchinson said the latest numbers validate his proposal to not cut more taxes until 2019, despite a push from some conservative lawmakers who wanted to see deeper reductions that would take place sooner. The governor’s tax cut measure also forms a legislative task force that will recommend bigger changes to the state’s tax code by fall 2018.

“This is exactly the reason I wanted to make sure that our tax cut was responsible and on the conservative side and recognizing that there could be ups and downs on the revenue stream,” Hutchinson told reporters.

The coming weeks will test whether the grim revenue picture will help stave off any efforts to cut taxes further in the coming fiscal year or to increase spending beyond what Hutchinson has proposed in his $5.6 billion budget. It’ll also likely overshadow any talk about tax cuts proposed for the 2019 session. Lawmakers are eying efforts to force Amazon to begin collecting sales taxes in the state, a move they say could generate millions that could be used to fund future income tax cuts.

But until that happens, legislative leaders say the task force will need to look at closing existing exemptions to pay for any additional cuts.

“I think it probably places a greater importance on not focusing on ongoing revenue or increased future revenue but on the exemptions we have in place and making sure they’re actually productive for the state of Arkansas,” Senate President Jonathan Dismang said.

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Andrew DeMillo has covered Arkansas government and politics for The Associated Press since 2005. Follow him on Twitter at www.twitter.com/ademillo

An AP News Analysis

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