Taxes dominate special session

Friday, May 2, 2003

The tax debate is starting to shift in the House and Senate as state legislators head into their first special session of the year on Monday.

"Signals" are being sent by Gov. Mike Huckabee and some lawmakers that a tax hike for Arkansans is very likely if any agreement is to be reached.

Sen. Randy Laverty, D-Carroll County, said Wednesday he hopes to break up the deadlock that sent legislators home April l6 without a state budget or an extended General Assembly.

Laverty said his message to other lawmakers and the governor is that it may take a combination of taxes, government cuts and less spending if a budget is to be agreed upon in the few days available in the special session.

He said a five-eighths or penny increase in the state sales tax, coupled with an increase in the tobacco tax, would be a good place to start.

Huckabee's signal Wednesday is that he's open to various tax ideas to solve the state's estimated $220 million revenue deficit.

Any tax plan will probably have to please the coalition consisting of 27 out of 30 Republicans in the House, and seven of the 70 Democrats. The House coalition wanted to use money normally reserved for one-time capital improvements to help cover the deficit projected for 2004 and 2005.

Senate leaders wanted to preserve about half the general improvement funds for local projects and raise the tax on tobacco products by 15 percent. No tobacco tax made it through the General Assembly in the regular session.

But Laverty said he didn't expect that the proposal by Sen. Brenda Gullett to raise retail tobacco taxes 15 percent would ever make it through the legislature, because it would require big grocery stores and mom-and-pop convenience stores to buy new cash-register software and upgrade equipment.

Gullet has since backed off when that proposal stalled, and Laverty said the public could expect a wholesale tax instead of a retail tax on tobacco that would raise more than $40 million. Also, an increase in state retail taxes would be very difficult to avoid, Laverty said.

"I've talked to tobacco wholesalers, and they are not opposed to a wholesale tax instead of a retail tax," he said.

"I'm prepared to do any of the above," Laverty said, "As long as we fund Medicaid and the state prison system."

On the five-eighths-cent tax increase, Laverty said there may be some reluctance in the legislature because some lawmakers may want to save the funds for education, which will be addressed in a separate special session in the fall.

The main battle will be on appropriation bills, which would seek funding for lawmakers' local projects from general improvement funds that are normally reserved for capital improvements.

"The money isn't there (for small so-called pork barrel projects) this year," Laverty said.

Lawmakers seek such funds for projects in their home districts, such as improving local buildings and infrastructure.

"These appropriation bills are like plumbing," Laverty said. "You have to have it and you can put it in, but you might turn the faucet on and not a drop of water will come out," he said, referring to available funds as the water and plumbing as the appropriations bills.

"Right now, everything under the sun is in an appropriations bill, where someone wants to fix a gazebo in their hometown and things like that. You can file it, but chances of funding it are nil," Laverty said.

"What we've got to fund and protect are our senior citizen centers and our child care, Medicaid and prisons," Laverty said. "Any way we can get to that point will be fine with me."

Laverty also said he will protect funding for rural fire departments and life-saving equipment, but beyond that, he wouldn't venture a guess as to what taxes or cuts will make it through.

Rep. Phil Jackson, R-Carroll County, has said he favors a five-eights increase in the sales tax, but opposed the tobacco tax if it would make small retailers bear the burden by having to change their cash register systems.

He also opposed the retail tobacco tax proposal because he believes it would send tobacco users to Missouri, which makes border counties such as Carroll carry the load.

Raising revenue for Medicaid and prisons will be the main issue when legislators begin the debate Monday.

The spokesman for the coalition that blocked the legislature from extending the general session said Thursday that his group sees the need for new taxes, but a consensus isn't in sight.

"There's definitely a spirit of compromise," said Rep. Marvin Parks, R-Greenbrier.

Gov. Huckabee said in a press release that he is ready and willing to entertain any tax-increase plans. "I think they're (legislators) going to come down here and do the job," Huckabee said.

Jackson said last week, "There are too many state agencies that are too big and too bureaucracy-heavy. I think we'll get a version of the governor's reorganization plan passed. I think it has to be done," Jackson said.

He added, "We have to get an agreement that will slow down growth of government by taking a percentage of new revenue and setting it aside for future downturns in the economy, which would level off the impact of those downturns."

The fiscally conservative Jackson has always been strong on the idea of putting away revenue "for a rainy day," and cutting the growth of government and administration.

"If we do some kind of tax increase, it would have to be sunsetted (held to a strict timetable, then ended)."

The May 5 special session could be positive and productive.

It is scheduled to run a few days, but the productiveness and cohesiveness needed to get the work done has to materialize, Laverty and Jackson said.

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