It’s not February, but it’s feeling a bit like Groundhog Day at the Arkansas Capitol as the governor calls lawmakers into a special session this week to cut income taxes for the second time in nine months.
Gov. Sarah Huckabee Sanders has said she wants to phase out the state’s income tax and legislators have chipped away at that goal by slashing rates three times since last April.
While a special session focused on tax cuts was anticipated for later this year, lawmakers’ failure to pass an appropriations bill for the Game and Fish Commission last month necessitated an earlier session.
The bill failed to garner enough votes in the House the last week of the fiscal session after some legislators voiced opposition to a proposed increase to the agency director’s maximum salary. Lawmakers must approve the commission’s budget before the start of the new fiscal year on July 1 to avoid potential service interruptions.
To meet that deadline, lawmakers will convene at noon Monday in Little Rock to discuss the Arkansas Game and Fish Commission’s budget, income tax cuts, the homestead tax credit and gubernatorial appointments.
Tax cuts
Senate Bill 1 seeks to cut the top corporate income tax rate from 4.8% to 4.3% and the top individual income tax rate from 4.4% to 3.9%.
These cuts would reduce the state’s general revenue by a cumulative $483.5 million in fiscal year 2025, which begins July 1, and by $322.2 million each fiscal year afterward, according to the state Department of Finance and Administration’s fiscal impact report on the bill.
Twenty-eight of 35 senators and 79 of 100 representatives, all Republicans, are sponsoring Senate Bill 1. The two tax-cut laws that passed in 2023 met opposition solely from Democrats.
House Minority Leader Rep. Andrew Collins, D-Little Rock, said he opposes SB1 because the state has many urgent issues that need attention and “another tax cut for the wealthy” shouldn’t be the priority.
“Although we may technically have a surplus, that doesn’t mean that we’re fully funding everything in our state, and in fact, I would argue that there’s a lot more that we need to be doing in some areas,” Collins said. “I think if your schools are not excellent, if crime is an issue in your neighborhood, if your roads have problems, if your water isn’t clean, you would certainly say there’s more we need to be doing to make Arkansas better.”
Arkansas’ consistent income tax cuts “brings us closer in line with our surrounding states,” said Sen. Jonathan Dismang, R-Searcy, co-chair of the Joint Budget Committee and the primary sponsor of SB1.
Neighboring Missouri and Mississippi have also reduced income taxes in recent years, while Texas and Tennessee have no income taxes at all.
Former Gov. Asa Hutchinson approved a series of tax cuts that benefited low- and middle-income Arkansans, as well as the state’s highest earners. Since then, tax cuts have largely benefited high-income families, Collins said.
In April 2023, state lawmakers approved more than $100 million in cuts to the top individual and corporate tax rates. During September’s special session, legislators lowered the top individual and top corporate income tax rates from 4.7% to 4.4% and from 5.1% to 4.8%, respectively. They also created a one-time, non-refundable $150 tax credit for those earning up to about $90,000.
“I think that the idea of targeted, meaningful tax relief to working-class and middle-class Arkansans would be a conversation worth having, but this particular tax break is primarily going to the wealthy, so that’s why I don’t think this particular bill is the right bill for Arkansas,” Collins said.
SB1 will require $290 million in general revenue to be set aside in a reserve fund on July 2 “in case there is a shortage or need in ongoing expenses” to make up for the decrease in revenue due to the tax cuts, Dismang said.
“Based on the forecast and the spending authority that was set through the [FY25 budget] in the recent fiscal session, that is generally not a concern,” he said.
SB1 has an emergency clause, meaning it would go into effect immediately upon Sanders’ signature. If it becomes law, individual and corporate income tax rates will have both decreased by a percentage point since April of last year.*
Lawmakers expect the special session to be “fairly quick” since tax cuts and the Game and Fish Commission appropriation are the only issues at hand, Dismang said.
The Arkansas Legislature meets for regular legislative sessions in odd-numbered years and fiscal sessions in even-numbered years. In the interim, the governor may call legislators into special session and set the agenda. Lawmakers may consider legislation outside of the governor’s call with a supermajority vote, but that’s uncommon.
When Arkansas lawmakers were last called into special session in September, they cut income taxes, banned vaccine mandates for state employees and limited what state government records are available to the public.
Game and Fish
On Friday morning Dismang filed Senate Bill 2 to fund the Arkansas Game and Fish Commission for the 2025 fiscal year, a primary reason why the special session became necessary.
The draft appropriation bill sets the director’s maximum salary at $170,437 while other employees’ salaries remained at previously proposed amounts.
The bill includes a salary increase restriction that would require legislative approval for any director pay increase that’s more than 5% of their June 17, 2024, actual salary, effective through the end of the upcoming fiscal year. The bill describes this oversight as “necessary and appropriate.”
Lawmakers failed to pass the Game and Fish budget during May’s fiscal session because of disagreements about the maximum salary for the agency’s director, Austin Booth. The proposed salary cap of $190,000 first caused issues on May 2 when Rep. Frances Cavenaugh, R-Walnut Ridge, said the amount was higher than several cabinet secretaries.
On the final day of the fiscal session, the Senate adopted an amendment to the appropriation bill that changed the salary cap to $157,216. The House of Representatives had already adjourned and did not consider the bill.
As a result, Game and Fish was left without a budget for the 2025 fiscal year, which starts July 1. Though whispers of a special session to fund the agency started almost immediately, and lawmakers reassured commission officials that there wouldn’t be a lapse in appropriations, the state wildlife agency was left in limbo.
Without a budget, the commission’s 644 employees would be without jobs and all programs would cease: enforcement on the state’s waterways, the ability to obtain fishing permits, receive available scholarships and much more.
Homestead tax credit
State lawmakers this week will also consider Senate Bill 3, which proposes increasing the homestead property tax credit from $425 to $500. Lawmakers previously increased the tax credit from $375 to $425 during the 2023 legislative session.
The Homestead Tax Credit, which reduces the property tax liability of homeowners, was created when voters approved a constitutional amendment in 2000 and the General Assembly enacted a half-cent sales tax to pay for the credit.
The credit is available to property owners on the property that is their primary residence, reducing their real property tax liability, which is paid at the county level.
The bill proposes that on or before Jan. 30 of each year, the state’s Chief Fiscal Officer will submit a report that states the balance of the Property Tax Relief Trust Fund, whether the fund could support an increase of the homestead property tax credit, and if so, how much of an increase the fund could support.
If approved by lawmakers, the bill would become effective for assessment years beginning on or after Jan. 1, 2024.
Gubernatorial appointments
The final item on the special session agenda is for the Senate to consider gubernatorial appointments. While legislative approval of nominees generally garners no discussion, the selection of former state lawmaker Jason Rapert to the state library board generated much debate in December.
A bipartisan group of 10 senators opposed the appointment of Rapert, a Conway Republican who runs a national organization promoting conservative Christian public policies.
He ultimately garnered enough votes for an appointment to the seven-member board, which comes during a conservative-led push to keep children from obtaining or seeing certain books, especially those with LBGTQ+ characters.
Among Gov. Sanders’ recent appointments, one that has the potential to generate conversation this week is the nomination of Maria Sullivan to the Arkansas Educational Television Commission. She’s the wife of Jonesboro Republican Sen. Dan Sullivan who’s been a vocal critic of Arkansas Educational Television, now known as Arkansas PBS.
Most recently, Sen. Sullivan introduced an amendment in April to the network’s appropriations bill that would have reduced the agency’s spending authority for private funds by 20%. It was rejected by the Joint Budget Committee.
In 2022, he introduced a bill that would have cut the network’s appropriations for both private and state funds by a cumulative 25%. That bill died in committee at the end of the fiscal session.
*CORRECTION: An earlier version of this story included an incorrect figure regarding the cumulative percentage decrease of tax rates since April 2023.
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