Mike Wickline at the Arkansas Democrat-Gazette reported today on a Pew Charitable Trusts report that put Arkansas near the bottom among the states in terms of reserve funds, with $153 million only enough to cover about 10 days of state operations.
Not normally a glass-half-full kind of guy, I find myself in that camp on this item, in part based on Wickline’s reporting. Gov. Asa Hutchinson himself said what I immediately thought — that the rainy day fund figure is not the whole story on money the state has squirreled away, unobligated for daily expenses.
In a written statement Friday to the Arkansas Democrat-Gazette, Hutchinson said, “While the report may not consider all of our surplus funds, it is absolutely correct that we need to do more to build our reserves.
“Reserve funds help improve bond credit ratings and lower interest fees,” the Republican governor said. “More importantly, the reserves help the state weather emergencies like we are currently experiencing.”
Pew itself put the state’s total reserves at $448 million, including $295 million in unobligated general revenue.
So a half-billion is a start. I asked the ever-helpful Scott Hardin at the Department of Finance and Administration early this morning by email for a specific rundown of the various accounts with unobligated money, not expecting a response until Monday. But he instantly supplied a partial response, with more to come next week:
The Restricted Reserve Balance is $42,274,039 while the Long Term Reserve (rainy day fund) is $152,585,491. The Budget Stabilization Trust is approximately $200 million (prior to the $30 million Disaster Assistance Grant announced by the Governor last week that will be sourced from it).
There’s more money lying around, including the governor’s quick action closing fund for economic development and the attorney general’s fund that contains lawsuit settlements. Those reserves came up with $7 million on the spur of the moment last week for loans to small businesses to cope with the coronavirus crisis.
Arkansas’s bonded debt is tolerable, too, I believe. I’ve been told the last highway bond issue could have been paid off early, had this not been barred by the terms of the issue as a means of guaranteeing the sales tax supporting it would remain in place for the full 10 years. It produces money above bond repayment.
It’s always hard in these national surveys to compare states because individual circumstances are so different. Some states, for example, have perilously undersupported public retirement funds. Ours are in relatively good shape, at least they were before the market crash.
And, yes, the world is suddenly very different from the day the governor presented a budget for next year that anticipated adding $50 million to the rainy day fund and who knows how much for the other hidey holes. He was talking then of building toward another income tax cut (aimed at high-end taxpayers).
With the state still delaying on whether to join the federal government in postponing the income tax filing deadline because of the short-term revenue hit, I’d say the short-term prospects for another tax cut are poor.
The existing reserves might help weather a tax filing delay. It will be mildly chaotic to require Arkansans and their accountants to file by April 15 for Arkansas but July 15 for the IRS, when the returns are related.
Pew, by the way, last week issued some ideas about state budgeting in the coronavirus crisis.
To be better prepared, a handful of states have begun using “budget stress tests” to examine different scenarios and estimate potential shortfalls from adverse events—such as the fiscal and economic effects of a fast-spreading disease, for example. By using these estimates to plan, policymakers can reduce the impact of a fiscal crisis and keep long-term priorities on track.
Arkansas, at least, because of a low severance tax and the bust of the fracking industry isn’t suffering as some energy industry-dependent states are (and didn’t plan for). On the other hand, to name just one particular fallout from coronavirus, in addition to the general economic blow, the state legislature in 2019 diverted casino taxes to highways. That deprived general revenue for state operations, but now it hits highways, too. The casinos are closed.
UPDATE: Hardin provided an updated list Monday.
General Revenue Allotment Reserve Fund – $173,610,631.96
Quick Action Closing Fund – $90,994,662.23
Restricted Reserve Balance – $42,274,039.00
Long Term Reserve – $152,585,491.00
Budget Stabilization – $200,000,000.00 (prior to the $30 million for COVID-19 response announced last week)
So that’s $657 million on just the funds I requested, not counting the attorney general’s settlement fund. I’ve asked that office for that figure. There are also unspent balances for most agencies every year and, I”d wager, some other arcane corners of the $6 billion state budget that provide other leeway.