THREE BUDGET ALTERNATIVES: 2011-2013 BIENNIUM

(December 2010) Arkansas Gov. Mike Beebe has called on tax cut proponents to identify spending cuts. But spending cuts are not required to cut income, capital gains or grocery tax rates. Three 2011-2013 budget alternatives that increase state spending at lower percentage rates or freeze spending at current levels would provide an extra $57 million-to-$109 million in savings for tax cuts.

First Alternative: Freeze Spending

The first alternative is to freeze spending at current levels, saving the $109 million increase proposed by Gov. Beebe and applying it to tax cuts for taxpayers. Beebe is proposing a 2.5% increase in state spending from $4,478,900,000 to $4,588,800,000. Under a freeze these fund accounts would not receive his proposed spending increases:

· Public School Fund (2.9%)

· Total General Education Fund (0.8%)

· Total Human Services (0.6%)

· Total State General Government (3.4%)

· Total Other Funds (2.5%)

Spending increases proposed by Beebe for the following departments would be frozen: Agriculture (1.2%), Labor (2.7%), Economic Development (0.4%), Corrections (2.2%), Community Corrections (6.1%), and Miscellaneous Agencies (14.1%).

Second Alternative: Freeze Non-K-12 & Corrections Spending

The second alternative is to increase state appropriations at lower annual percentage rates, limiting hikes to the Public School Fund and Corrections. Proposed spending increases for the School for the Blind (2.3%) and the School for the Deaf (0.7%) would also be preserved.

The proposal would freeze all other funds, departments and agencies but increase spending for the Public School Fund (1.5%) and Corrections (1.1%). This alternative would save $56,908,103 for tax cuts, a scenario not included in Beebe’s budget proposal.

Third Alternative: Freeze Non-K-12 Spending

The third alternative also increases the Public School Fund appropriation but provides for a lower percentage increase (1.1% versus Beebe’s proposed 2.9% hike). All other state spending including Corrections would be frozen at current levels. The plan would save $69,312,685 for tax cuts, a scenario not included in Beebe’s proposal.

Summary of Savings

First Alternative ($109,900,002)

Second Alternative ($56,908,103)

Third Alternative ($69,312,685)

Conclusion: Apply Savings to Tax Cuts

Gov. Beebe has proposed a half-cent reduction in the grocery tax. Enacting his modest proposal ($15,500,000) would still allow state capital gains and income tax rates to be reduced by applying savings from three alternative budgets. These are $94,400,000 (first), $41,408,103 (second) and $53,812,685 (third).

--Greg Kaza

The Policy Foundation has also identified an additional $74 million in savings from efficiency, not spending cuts. These include restructuring the educational service cooperatives into one unit, restructuring K-12 administration functions into 134 units, expanding privatization, and restructuring state retirement systems into one system.