LITTLE ROCK Arkansas should set aside some of its nearly $260 million surplus as a "rainy day fund" to avoid budget cuts or tax increases when the economic downturn hits the state, Gov. Mike Beebe said Friday.
With two weeks to go until he presents his balanced budget proposal to legislators, Beebe said he wants to set aside some surplus money to help the state in case the nation's financial crisis hits the state's revenues.
"If we are hit by the national economy, if you don't have a rainy day fund and you don't have some of that money accumulated and put back to be able to meet some essential services ... you've either got to raise taxes or conversely you've got to cut those services out," Beebe said on his monthly call-in radio show. "What I'm trying to do at this juncture is I want it put back as a rainy day if things get like they claim they're likely to get."
The state already has $259.5 million available in the state's General Improvement Fund a surplus typically used to fund one-time projects.
The governor's office began working on the idea of a reserve fund over the past few weeks as the signs multiplied that the nation's financial crisis would affect the state's economy, Beebe spokesman Matt DeCample said.
The governor has not decided on how much money should be set aside for the fund, DeCample said.
"I think it's fluid enough right now with the numbers we're getting with (Department of Finance and Administration) and some of the models we're seeing right now," DeCample said.
The governor has already said he wants a further reduction in the state's sales tax on groceries. The tax was cut in half by lawmakers last year. Beebe indicated Friday that an additional tax cut might be possible along with the reserve fund proposal.
"I think we ought to have some more tax relief, but I think we also ought to have some rainy day fund money for these contingencies when the economy gets this bad," Beebe said.
DeCample said Beebe is still holding off on deciding whether to restore money cut from some agencies' budgets earlier this year. In April, state finance officials cut $107 million from state agencies' budgets for the current fiscal year.
Earlier this month, lawmakers began fall budget hearings in preparation for the legislative session that begins in January. Both the budget proposal and forecast for the next two-year budget cycle are expected to be released Nov. 13.
Legislative leaders for next year's session said they would support setting aside some surplus funds, but also said they hoped Beebe would again use some of the money for a fund he created to attract new businesses to the state.
"Certainly setting aside a portion of that would help us weather the storm that economists seem to be telling us is coming our way," said Rep. Robbie Wills, D-Conway, who will be House speaker next year.
Last year, the state built a surplus of more than $1 billion, about half of which lawmakers set aside for a program to build and repair school buildings. They also set aside money to fund various projects.
Sen. Bob Johnson, who will serve as the Senate president next year, said he supports creating a reserve fund. Johnson, D-Bigelow, said he also thinks lawmakers next year should re-examine the way money from the General Improvement Fund is doled out.
Johnson said he doesn't have a specific proposal, but said the Legislature may want to consider giving Beebe's office more control over the money.
A $400,000 appropriation for street improvements in Bigelow sponsored by Johnson was ruled unconstitutional by the state Supreme Court because it went toward a strictly local project. That ruling prompted lawmakers to revamp the way GIF projects are funding, mostly funneling money toward state agencies and commissions to be divvied up across the state.
"The point is I think that surplus dollars should be re-examined as to who should have the discretion to house and oversee the dollars and determine how the dollars are spent," said Johnson, D-Bigelow.
