Beebe says no regret over tax cuts despite $107 million cut

LITTLE ROCK Gov. Mike Beebe said Wednesday that he doesn't regret signing a $121 million tax cut into law last year despite a revised budget forecast released this week showing agencies will have to cut about $107 million in the coming fiscal year.

"Giving people money back through tax cuts is not a decision I regret at all, and I want to continue to do it if we can," Beebe told The Associated Press.

Beebe said he believed it was best to take a conservative approach given the national economic trends, but said he still believes Arkansas' economy is faring better than most states.

"It's not based on what's happening right now in Arkansas. We're continuing to run a little above the forecast, but (the Department of Finance and Administration) is worried about what's going on nationally and what the national forecasts are," Beebe said. "Hopefully, we have erred on the side of being conservative. ... It's better to be safe than sorry and it's easier to adjust it upward than it is to cut it after the budget year begins."

Arkansas Department of Finance and Administration Director Richard Weiss said Tuesday that officials revised their forecast for the fiscal year beginning July 1. The state will only be able to fund 53.9 percent of appropriations listed in the B category of Arkansas' $4.3 billion budget for the coming year.

The state's two-year budget prioritizes spending based on expected revenue. The A category programs are funded first, followed by the A1 category, then the B category. Only the B category services and programs were affected by the revised forecast, posted Monday on the DF&A Web site.

Weiss noted that the cuts do not include any decreases in the state's public school fund, which are listed in the A category of the state budget. He said Medicaid, the state's program to help cover medical costs for needy and low-income Arkansans, will "take a pretty good hit," as will colleges and universities.

Weiss said the cuts come from forecasts nationwide and regionally that predict a slowdown in the state's economy.

"It reflects the slowdown nationwide," Weiss said. "There are a bunch of states that are making drastic budget cuts. A bunch of states are looking at pretty substantial percentages."

The state's revenues have come in above forecast, despite the Legislature cutting the state's sales tax on groceries in half. Beebe has said he would eventually like to eliminate the remainder of the grocery tax. The $121 million cut in sales tax on groceries went into effect last July 1. It was Arkansas' largest tax cut ever.

Legislative leaders said they're not surprised by the cuts in the budget forecast, given the gloomy national economic outlook.

"We all knew this was coming eventually. Hopefully the revenue from other sources will make up for the shortfall," said Senate President Jack Critcher, D-Batesville.

House Speaker Benny Petrus said he doesn't regret backing the tax cuts enacted last year and said he holds out hope that the state's revenues won't dip as far as expected.

"It's not surprising because people just don't have a lot of disposable income. When that happens, there's less sales tax to pay. The state of our economy is cutting back some," Petrus said.

Weiss said he originally wanted to reveal the numbers at a May 7 meeting of the Legislature's joint committee on economic and tax policy, but the forecast was inadvertently posted on the state's Web site Monday.

The biggest share of the B category is $65.9 million that goes to the the Department of Human Services for the Medicaid program. Julie Munsell, the department's spokeswoman, said the department is trying to figure out how to move money around to cushion some of the cuts.

"We've got flexibility to move funding around to areas that are most needed. How that is going to all play out in terms of programs, we don't know yet," Munsell said.

Other agencies said they were evaluating how the cuts would affect their budgets in the coming year. The University of Arkansas at Fayetteville said the $4.7 million cut it faces could eliminate the school's ability to offer raises to faculty and staff.

"Some difficult decisions will have to be made," Chancellor John White said.

Dina Tyler, a spokeswoman for the Department of Correction, said the agency hopes to continue with two construction projects under way despite the $13.8 million cut in the coming year.

"We do think, at a first look, we'll be able to keep everything open and we won't have to do any layoffs but the full impact we don't know yet," Tyler said.

Arkansas State Police, which is projected to lose $6.9 million from its budget in the coming fiscal year, began Wednesday looking at ways to prepare for the cuts.

"If a reduction in the budget is to occur it's important to ensure that cuts aren't randomly made which may indirectly impact or jeopardize statutorily required operations," State Police spokesman Bill Sadler said. "There are no expectations from DF&A for us to turn around a new budget this week."

Beebe said it's too early to say how much or even whether he'll be able to push for a further cut in the state's sales tax on groceries when the Legislature meets in its 2009 regular session. The governor has said he's willing to cut the state's budget to pay for it, but won't touch education, human services or law enforcement.

"The less revenue, the harder it is to do but if the revenue continues to come in we'll be able to do more," Beebe said.