- Associated Press - Tuesday, January 27, 2015

LITTLE ROCK, Ark. (AP) - Arkansas’ public schools, prisons and Medicaid program would receive boosts in funding while most other state agencies would see a small cut under a $5.2 billion budget plan Gov. Asa Hutchinson presented to lawmakers on Tuesday.

Finance officials outlined a plan that taps into the state’s surplus to fill funding gaps as lawmakers advanced Hutchinson’s campaign promise to cut income taxes for the middle class by about $102 million a year. Hutchinson, a Republican, was sworn in as governor earlier this month.

“It’s a very lean budget,” the governor said later Tuesday.

Hutchinson proposed increasing the Medicaid budget by $80 million and boosting money for public schools by nearly $51 million. He proposed keeping funding for the state’s colleges and universities flat, while most other state agencies would see a 1 percent cut in funding. The budget would increase state spending by 3 percent, or nearly $150 million.

Hutchinson also called for a 1 percent cost-of-living pay increase for state employees.

The governor is proposing using about $153 million of the state’s $216 million surplus to shore up funding for several agencies. Most of that would go toward Medicaid, which would receive $90 million in one-time money, and Hutchinson also called for setting aside $40 million for school facilities.

Hutchinson’s proposal increases funding to the prison system for needs such as reimbursing county jails for holding state inmates, but doesn’t call for additional bed space. Prison officials have said they need a $100 million prison to ease overcrowding across the state.

Lawmakers expressed some concern about relying on one-time money for ongoing needs.

“I just want to make sure we don’t eat our seed corn … and keep enough in reserve that we’ve got that to fall back on in case we hit a bump in the road,” said Senate Minority Leader Keith Ingram, D-West Memphis.

Hutchinson also proposed using nearly $41 million from the surplus for economic development incentives and $5 million for his plan to expand computer science classes in high schools. His proposal would not leave any surplus money aside for him and lawmakers to divvy up for various capital projects around the state.

Hutchinson said he wasn’t worried about relying on the surplus, saying he believed revenues would later grow to pay for those ongoing needs.

“It’s conservative in terms of good tax cuts, constraining the growth of government, but also it’s conservative in terms of fiscal management,” he said.

A House panel, meanwhile, advanced Hutchinson’s proposal to cut income taxes by 1 percent for those making between $21,000 and $75,000 a year. But the measure was amended by the House Revenue and Taxation Committee to restore a portion of a capital gains tax break it originally called for repealing - a move that will add about $9.7 million to the cost of the package.

House Speaker Jeremy Gillam said he believed the state could afford to keep part of the capital gains tax break. Gillam said he expected the House to vote on the bill, which was approved by the Senate last week, as soon as Thursday.

“At the end of the day I think we’ll be able to make sure there are no services cut with this whatsoever,” Gillam, R-Judsonia, told the panel.

Hutchinson said he supports scaling back the capital gains repeal, but cautioned against any further adjustments to his proposal.

Members of the panel who voted against the proposal said they were worried it didn’t do enough for low-income residents and that it’s unclear how the state will pay for the reduction.

“I think we should have tax relief, but we have to make sure that we can afford it and we have to make sure it’s as progressive as it can be,” said Rep. Vivian Flowers, D-Pine Bluff.

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Follow Andrew DeMillo on Twitter at www.twitter.com/ademillo


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