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Arkansas’s budget basics
According to the National Association of State Budget Officers (NASBO), Arkansas’s total expenditures in fiscal year (FY) 2020 were $27.8 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.
Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.
Per the US Census Bureau, Arkansas’s combined state and local direct general expenditures were $24.7 billion in FY 2017 (the most recent year census data were available), or $8,226 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.
Arkansas’s largest spending areas per capita were public welfare ($2,477) and elementary and secondary education ($1,709). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.
Arkansas’s combined state and local general revenues were $25.6 billion in FY 2017, or $8,524 per capita. National per capita general revenues were $9,592. Arkansas uses all major state and local taxes. After federal transfers, Arkansas’s largest sources of per capita revenue were general sales taxes ($1,513) and charges ($1,255), such as state university tuition and highway tolls.
Governor Asa Hutchinson, a Republican, was elected in 2018 with 65 percent of the vote. The next gubernatorial election is in 2022.
Republicans control both the House of Representatives (78 Republicans to 22 Democrats) and Senate (28 Republicans to 7 Democrats), with veto-proof majorities in both houses. Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in Arkansas. All Arkansas House seats are on the ballot in 2022 because representatives serve two-year terms. Senators serve a combination of two- and four-year terms during each decade’s legislative district apportionment cycle. This 2-4-4 term system ensures all Senate seats are up for election after new legislative district boundaries are drawn. All senators are therefore up for election in 2022.
Arkansas’s budget institutions, rules, and constraints
Arkansas uses a biennial budget. The legislature must pass a balanced budget, but it can carry a deficit into the following year. Arkansas also limits annual revenue increases and requires a three-fourths legislative supermajority for any legislation that increases property, excise, privilege, or personal income taxes. The state does not have any limits on either debt service or authorized debt.
(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)
Arkansas’s recent fiscal debates
- Arkansas is one of only a few southern states to accept the Affordable Care Act’s Medicaid expansion. However, instead of adding people to the state’s Medicaid program, Arkansas created a “private option” called Arkansas Works. Under Arkansas Works, residents who are eligible for Medicaid under the Affordable Care Act expansion get subsidies to private health plans in the state’s marketplace. The Centers for Medicare & Medicaid Services approved Arkansas’s plan in 2013. In 2018, Arkansas was the first state to enact work requirements (as encouraged by the Trump administration) as a condition for receiving Medicaid. In March 2019, however, a federal court blocked work requirements in Arkansas and other states. The ruling will probably be appealed to the Supreme Court. According to the Kaiser Family Foundation, roughly 18,000 people lost coverage in 2018 after failing to meet the work requirements.
- Based in part on the recommendations of the Arkansas Tax Reform and Relief Legislative Task Force, a state tax commission created by the legislature in 2017, Arkansas approved four major tax bills in 2019: SB 211, SB 447, SB 561, and SB 576. SB 211 lowered the top individual income tax rate from 6.9 percent to 5.9 percent over four years. SB 447 increased the state’s property tax homestead deduction from $350 to $375. SB 561 shifted tax administration from the secretary of state to the Department of Finance and Administration and required the department to prepare biennial tax expenditure reports. SB 576 lowered the state’s top corporate income tax rate from 6.5 percent to 6.2 percent, switched the state’s apportionment calculation to single-sales factor, and established rules for the collection of online sales taxes.
Arkansas’s current budget
Governor Hutchinson released his FY 2021 budget proposal in March 2020. The proposed budget ($5.8 billion) increased spending by 2 percent ($89 million) over FY 2020 spending. In his budget presentation, Governor Hutchinson focused on increasing the state’s savings in the Long-Term Reserve Fund.
Arkansas enacted its FY 2021 budget in April 2020. Due to COVID-19, the governor and legislature actually reduced overall spending to $5.7 billion. The budget cuts included lower spending levels on K-12 schools, higher education, and corrections.
Governor Hutchinson released his FY 2022 budget in November 2020 and gave his State of the State address in January 2021. In his budget address, the governor said Arkansas is exceeding its revenue forecast and called for additional income tax cuts (tax legislation enacted in 2017 has lowered the state’s individual income tax rate each year since then).
For more on Arkansas’s budget, see
Arkansas’s economic trends
Arkansas’s per capita income (per the Bureau of Economic Analysis) was $44,845 in 2019, ranking 45th among the states. It was below both the national average of $56,663 and the Southeast regional average of $49,145. The state’s median household income (five-year estimate) was $45,726 in 2018, ranking 48th among the states and below the national average of $60,293. Arkansas’s poverty rate was 17.6 percent in 2018 (five-year estimate), above the national rate of 14.1 percent.
Although Arkansas’s averages tell a story about the entire state, Arkansas is composed of diverse localities. For example, the city of West Memphis’s median household income was $31,662, and its poverty rate was 27.8 percent; the city of Bentonville’s median household income was $81,934, and its poverty rate was 7.5 percent.
Arkansas’s unemployment rate historically tracks the national average, though it was below the national average following the Great Recession. (See how COVID-19 is affecting state employment and earnings data.)