FINANCING STATE PROGRAMS IN

1. FINANCING STATE PROGRAMS IN Bureau of Legislative Research, 2008

2. A Discussion of the Revenue Stabilization Law and General Improvement Fund. A Presentation by the Bureau of Legislative Research

3. THE ARKANSAS BUDGET HOW BIG IS IT? WHERE DOES IT COME FROM ? WHO GETS THE MONEY?

4. Some Definitions

5. “GENERAL REVENUES” are those funds received by the State from fees and taxes levied on the general population of the state. The proceeds are not designated to be used for a particular purpose but are allocated every two years by acts of the General Assembly. Interest earnings are retained in the State Treasury.

6. “SPECIAL REVENUES” are those taxes and fees in the State Treasury which are designated or earmarked by law to be used for a particular purpose. The State Treasury retains most of the interest earnings.

7. “FEDERAL REVENUES” are those monies in the State Treasury received from the U.S. government either as project grants-in-aid or as reimbursement for eligible expenses. The Federal government retains any interest earnings.

8. “TRUST FUND REVENUES” are those funds in the State Treasury that are received by the State in which the State is a trustee and is acting in a fiduciary capacity. Trust funds retain their interest earnings.

9. “CASH FUND REVENUES” are those funds received by the State which are not required by law to be deposited into the State Treasury. Cash funds retain their interest earnings.

10. “APPROPRIATION” is the authority, granted by and limited by the General Assembly, to spend money under the control of the State of Arkansas.

11. SPENDING IS LIMITED BY THE AVAILABLE APPROPRIATION OR THE AVAILABLE MONEY, WHICHEVER IS LESS!

12. Types of Revenue and Their Distribution

13. ARKANSAS REVENUE COLLECTIONS1996-2008 FISCAL YEARS (Millions)

14. 107 %

15. TOTAL STATE REVENUE – 2008 $18 Billion Trust & Other Non Revenue 15% General Revenue 31% Special 9% Federal 24% Cash 21%

16. Three Methods of Funding Available • DEDICATED SOURCE • GENERAL IMPROVEMENT FUND • REVENUE STABILIZATION LAW

17. Three Methods of Funding Available • DEDICATED SOURCE

18. DEDICATED SOURCES OF FUNDS • State Dedicated Tax or Fee (Special Revenue)

19. The Constitution says “…no moneys arising from a tax levied for one purpose shall be used for any other purpose.”

20. SPECIAL REVENUES - 2008 $ 1.7 Billion

21. DEDICATED SOURCES OF FUNDS • State Dedicated Tax or Fee (Special Revenue) • Federal Grant-in-aid

22. FEDERAL FUNDS – 2008 $4.2 Billion Health & Human Services 68%

23. DEDICATED SOURCES OF FUNDS • State Dedicated Tax or Fee (Special Revenue) • Federal Grant-in-Aid • Cash Funds

24. DEDICATED SOURCES OF FUNDS • State Dedicated Tax or Fee (Special Revenue) • Federal Grant-in-Aid • Cash Funds • Trust Funds

25. TRUST AND OTHER NON-REVENUE FUNDS 2008 $2.7 Billion

26. DEDICATED SOURCES OF FUNDS • State Dedicated Tax or Fee (Special Revenue) • Federal Grant-in-Aid • Cash Funds • Trust Funds • Non-revenue Receipts

27. Three Methods of Funding Available • DEDICATED SOURCE • GENERAL IMPROVEMENT FUND

28. General Improvement Fund

30. General Revenue Collections Under or Over Maximum Allocations1993-2008 FY "Surplus"

31. 2006-2007 Recovered Fund Balances $11.2 M General Revenue Allotment Reserve Fund $581.9 M Previous GIF Session Account/Balances Budget Reserve Fund $155.3M Governor’s Discretionary Biennium $187.3 M Set Aside or Mandatory Obligations $489.9 M Legislative Biennium $40 M 1/2 Interest Earnings $56.7 M Excess Old GIF Projects $.6 M GENERAL IMPROVEMENT

32. Three Methods of Funding Available • DEDICATED SOURCE • GENERAL IMPROVEMENT FUND • REVENUE STABILIZATION LAW

33. ACT 311 of 1945 The Revenue Stabilization Law

34. “Arkansas’ Present System of Tax Allocation and distribution is as archaic as the old tasseled surrey - -complex, confusing, inefficient. The system itself is a burden on the taxpayers.” - Governor Ben Laney, 1945 Governor Ben Laney

35. “…I propose as our next step that our archaic and hydra-headed system of over one hundred state funds be forever eliminated,” – Governor Ben Laney, 1945 Governor Ben Laney

36. What It Did • Removed the dedication from major broad-based taxes • Provided a fund distribution from a pool to various operating funds • Allowed the legislature to set their funding priorities every two years • Prevented deficit spending • Reduced funding instability due to changing economic conditions • Assured agencies of even cash flow

37. What It Also Did • Permitted the approval or mandate of a program without providing funds to implement it, raising unrealistic expectations • Allowed the Governor to manipulate financing and timing of legislative enacted initiatives • Permitted agencies and the Governor to determine programmatic priorities within funds and disregard legislative intent • Created uncertainty in the agency financial plan for the year

38. What’s this A and B Stuff?

39. The Steps The Legislature, with consultation with the Governor: • Determines the Maximum General Revenue support to be distributed over the next two years • Determines the maximum amount each general revenue fund is to receive from general revenues for the next two years • Determines the number of priority categories (A,B,C…) • Sets the minimum level of support required for each general fund and designate it as “A” • Sets the next level of support for each fund and designates it as the next priority (A-1 or B) • Continues the steps until the maximum level is reached

40. A B C Revenue Stabilization Law Revenue Flow

41. Can we see an example?

42. Refunds/Claims $497.6 M Debt Service $26.2 M Public School Desegregation $58.7 M Educational Excellence $298.4 M Central Services & Constitutional Officers $167 M City/County Tourist Promo $7.2 M Aging Transport $2.1 M Educational Adequacy $26.4 M General Revenues 2007-08 FY Other 1% Income 56% Insurance 2% $5,618 Million Plus $4.7 M Transfers Sales/Use 38% Luxury 3% Take Out $1,093.2 Million Economic Development Incentive $10.3 M

43. $4.5 Billion Net Available GenGov 4% Other 3% HiEd 16% DHHS 25% Public School 43% Reserve $176.5 M Gen Ed 2% Gen Ed 1% Corr 7% Gen Gov 9% Corr 22% Public Schools 100% Other 9% Hi Ed 42% DHHS 15% Public Schools 2% B A A1 $133,266,794 $4,149,395,153 $70,000,000

44. The legislature does not specify which programs are in which priority. The Governor and his agency heads decide priorities within the funds.

45. For the 2007-2008 year the Stabilization looks like this:

46. Revenue Stabilization Law A • Take all General Revenue collected • Add $4.7 Million in Transfers • Take out $1,050 Million for Claims, Refunds, Desegregation Costs, Educational Excellence and Processing Fees • Distribute $4.1 Billion as follows: 43% to Public Schools 25% to Health & Human Services 16% to Higher Education Institutions • 7% to Corrections 4% for General Government 3% to Local Aid and Misc • 2% to General & Workforce Education THEN

47. A1 • Take Next $70 Million for Public Schools • THEN

48. B • Take Next $133 Million and spread: 42% to Higher Education Institutions • 22% for Corrections • 15% to Health/Human Services • 10% for Misc. Gov’t Functions • 9% for General Government • 2% to Public Schools • Then $176.5 million surplus to General Revenue Allotment Reserve Fund

49. GENERAL REVENUE PROGRAMS

50. GENERAL REVENUE PROGRAMS2007-2008 FISCAL YEAR(Millions) Gen Ed $99.3 2% General Gov $164.8 4% Higher Ed $709.9 16% Corrections $339.9 8% Other & Local Aid $138.9 3% Health/Human Services $1043 24% Public School $1856 43%