Arkansas Legislature OKs shift of tobacco act's cash

“Now, I’m sticking out my neck, governor. You got to keep your word,” Rep. Bob Ballinger (shown) said Wednesday in giving his support to Gov. Asa Hutchinson’s proposal to shift more than $100 million in tobacco settlement money to a state reserve fund.
“Now, I’m sticking out my neck, governor. You got to keep your word,” Rep. Bob Ballinger (shown) said Wednesday in giving his support to Gov. Asa Hutchinson’s proposal to shift more than $100 million in tobacco settlement money to a state reserve fund.

The state House of Representatives on Wednesday approved Gov. Asa Hutchinson's proposal that would shift more than $100 million in tobacco settlement proceeds in the Arkansas Healthy Century Trust Fund to a reserve fund that could be used to shore up state programs in future economic downturns.

The House voted 70-24 to send Senate Bill 5 by Senate Republican leader Jim Hendren of Sulphur Springs to Hutchinson on the final day of a three-day special session. The Senate voted 26-7 to approve SB5 on Tuesday.

Sixty-seven votes were required in the 100-member House and 24 votes in the 35-member Senate for approval of SB5 because it changes Initiated Act 1 of 2000, which is known as the Tobacco Settlement Proceeds Act. The act specified which agencies would administer funds received from tobacco companies in a settlement.

At a news conference, Hutchinson, a Republican, said providing funding to the Long-Term Reserve Fund "should put us in a better financial position and a better position as we are reviewed by the financial markets, industrial prospects and bond raters as well."

Because of a 1998 settlement agreement with tobacco companies, billions of dollars have been paid to Arkansas and other states. Arkansas has put the money toward health-related programs. The state received its 2017 share of proceeds, about $50.5 million, and the total amount received since 2001 was $947.3 million, according to Attorney General Leslie Rutledge.

An initiated act enacted by voters in 2000 specified that the Healthy Century Trust Fund's beneficiaries would "be the State of Arkansas and its programs, and other projects related to health care services, health education, and health-related research, as such are now in existence or as such may be created in the future." The fund's balance is about $102.8 million, state officials said.

Arkansas has maintained a AA bond rating by S&P Global Ratings for the past 51 years, said Aaron Burkes, president of the Arkansas Development Finance Authority.

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Rep. Joe Jett, House sponsor of SB5, cited potential savings in interest costs through an improved credit rating for the state.

The state has about $1.5 billion in outstanding general obligation debt and improving Arkansas' credit rating from AA to AAA would allow the state to borrow money at a lower interest rate, potentially saving $1.8 million a year in interest costs, said Rep. Joe Jett, R-Success, the House sponsor of SB5.

Rep. Bob Ballinger, R-Hindsville, told his colleagues that the state needs to provide funding to the Long-Term Reserve Fund. He said any needed changes regarding that fund can be made in the next regular session in 2019.

"The question is, can we trust the governor between now and 2019 not to spend this money? Can we take him at his word to say that he is truly wanting to set this money aside for a long-term reserve to help shore up the economics of this state until we come up and take some of these great ideas that have been presented and incorporate it into this fund to make it even more safe, to make us more sound?" Ballinger asked the House.

"I think the answer to that from my standpoint is yes," Ballinger said. "Now, I'm sticking out my neck, governor. You got to keep your word. You got to to keep this money set aside, or I am going to be looking pretty stupid coming down here and speaking for this."

Afterward, Hutchinson said he told scores of lawmakers in the past few days that he doesn't intend to use the funds transferred to the Long-Term Reserve Fund.

"Obviously, we don't know what the future holds, and it has to be there for unforeseen circumstances. But it is not my intent to use it or my desire to use it. I like it being in the Long-Term Reserve Fund," he said.

SB5 would change current law to require a two-thirds vote of either the 60-member Legislative Council or the 56-member Joint Budget Committee for the state's chief fiscal officer to use funds out of the Long-Term Reserve Fund.

Rep. Michael John Gray, D-Augusta, said he doesn't subscribe to the theory that this bill is linked to Hutchinson's $70 million in cuts to the state's $5.33 billion general-revenue budget for fiscal 2017. The cuts, for the budget year ending June 30, are due to lagging state tax revenue. The state also is cutting $43 million from the $5.49 billion budget for fiscal 2018.

"I personally I understand the motive to create a long-term reserve fund in the event of an economic calamity. I think it is probably prudent to set aside money to do something like that," Gray said.

Gray said he wasn't urging representatives to vote against SB5 because "it is a so-called slush-fund creation for the governor or the ulterior motive would be to spend it as soon as we get out of the [state Capitol] building and get the authority to put it into the account."

He said he opposed the bill because he favors requiring a vote of both the House and Senate to use funds out of the Long-Term Reserve Fund, instead of committees.

"I do not think it would be in any of our best interest on either side of the aisle to surrender the power that the people that voted for us and sent us down, when we can still accomplish the same thing [by] the legislative body," Gray said.

Ballinger said he wishes the bill required the full House and Senate to decide whether to use funds out of the Long-Term Reserve Fund, but noted that the bill requires two-thirds of the Legislative Council or Joint Budget Committee.

"I trust you guys," he said.

SB5 "will help us have money when we end up getting hit in the mouth with a financial downturn, where we won't necessarily have to make drastic cuts that hurt our people. We'll actually have some money to tide us over until we get back out of whatever downturn," Ballinger said.

Under current state law, the chief fiscal officer, with approval of either the Legislative Council or the Joint Budget Committee, could use the funds out of the Long-Term Reserve Fund in times of a revenue shortfall for public education and state agency operations. Also, with the approval of either body, the chief fiscal officer could use the funds for Amendment 82-defined economic development projects even when there is no shortfall.

Ballinger said he would like to change the law's revenue shortfall definition, to require even slower growth in tax revenue for the go-ahead to use the Long-Term Reserve Fund. He also would like to either ban the use of funds on Amendment 82 projects or only allow the use of those funds for those projects if the fund has a balance $250 million.

Under state law, the governor also would have to certify that no other funds are available that could be used in lieu of the Long-Term Reserve Fund.

SB5 also would require the chief fiscal officer to replenish the reserve fund after it is tapped by transferring up to 50 percent of surplus money or an amount equal to all transfers in the previous fiscal year, whichever is less. It also would eliminate the current $125 million cap on the Long-Term Reserve Fund.

A Section on 05/04/2017

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