Special session called by governor

Gov. Asa Hutchinson on Friday issued a call for the General Assembly to convene in a special session, starting Tuesday, to provide immediate tax relief to taxpayers in Arkansas and set aside $50 million in a reserve fund for a school safety grant program.

"As inflation rises and the cost of living increases, Arkansans need more money in their pockets," the Republican governor said in a news release.

"With a record surplus in the last fiscal year, we have the ability to provide financial relief and ensure our children can be protected in their schools," Hutchinson said.

The state collected a record general revenue surplus of $1.628 billion in fiscal year 2022 that ended June 30, and the state Department of Finance and Administration is projecting a $914 million general revenue surplus in fiscal 2023, which started July 1 and ends June 30, 2023.

Hutchinson's call for the General Assembly to convene in a special session, starting at 11 a.m. Tuesday, doesn't include teacher pay raises.

In the past month, the governor has repeatedly said he wouldn't put teacher pay raises on the call for the special session because of the lack of support in the Republican-dominated Legislature to consider teacher pay raises in the special session.

Republican legislative leaders said they want to consider teacher pay raises in the regular session, starting Jan. 9, after completing the biennial educational adequacy review this fall. But House and Senate Democrats said they support boosting teacher salaries in the special session.

The 27-member Senate Republican Caucus said Friday in a news release that "We're delighted as a Senate Republican Caucus to be working collectively toward real tax relief for all Arkansans.

"The legislation being proposed will provide an individual tax credit to hard working Arkansans and will advance the tax cuts we previously passed," the Senate Republican Caucus said.

"This will lower our overall tax rate, while at the same time giving meaningful relief to job creators in Arkansas who are dealing with the repercussions of inflation," the Senate Republican Caucus said in its release. "The people of Arkansas need relief from burdensome taxes, and we as the Senate Republican caucus are excited to work with our colleagues in the House and our governor next week to do just that."

Arkansas Advocates for Children and Families have urged Arkansans to call lawmakers about all the needs they see in their communities that should be invested in "before we give away state dollars to those already well-off."

With a general revenue surplus of more than $1.6 billion, the group said that Hutchinson and some lawmakers "want to hurry to give another round of tax breaks for the wealthy this summer" and "they are likely to give very little help for everyday Arkansans.

"All this while families are struggling to make ends meet with soaring prices and an ongoing pandemic," Arkansas Advocates for Children and Families said.

Senate Democratic leader Keith Ingram of West Memphis said Friday that it's a shame with the teacher shortage across the nation that "we don't address the problem immediately" by raising teacher salaries in the special session, despite having sufficient state surplus and reserves to do so.

"Our parents and our students will pay a heavy price because of the inaction of not raising teacher salaries at this time," he said.

Hutchinson issued his call for the special session next week after state Department of Education Secretary Johnny Key sent out a memo to school district officials about the Legislative Council last month recommending school districts use available federal American Rescue Plan Elementary and Secondary Schools Relief Fund (ESSER) monies to finance retention and recruitment bonuses for teachers and staff.

The four-pronged tax cut package that Hutchinson and Republican legislative leaders have agreed upon for the special session is projected to reduce state general revenue by $500.1 million in fiscal 2023, $166.6 million more in fiscal 2024, $69.5 million more in fiscal 2025, $18.4 million more in fiscal 2026 and $8.4 million more in fiscal 2027, according to the finance department.

The tax package includes:

• Accelerating the implementation of cutting the state's top individual income tax rate from 5.5% to 4.9%, retroactive to Jan. 1, 2022. The state's top individual income tax rate is scheduled to be cut to 5.3% on Jan. 1, 2023, to 5.1% on Jan. 1, 2024, and to 4.9% on Jan. 1, 2025, under current state law.

• Accelerating the reduction in the state's top corporate income tax rate to 5.3% on Jan. 1, 2023. Arkansas' top corporate income tax rate is 5.9%. The rate is scheduled to drop to 5.7% on Jan. 1, 2023, to 5.5% on Jan. 1, 2024, and to 5.3% on Jan. 1, 2025, under current state law.

• Granting a temporary, nonrefundable income tax credit of $150 for individual taxpayers with net income up to $87,000, with a phase-out of the credit for filers having net income up to $101,000 in tax year 2022 and of $300 for married taxpayers filing jointly with net income up to $174,000, with a phase-out of the credit for filers having net income up to $202,000 for tax year 2022. These taxpayers will be required to be full-time residents of Arkansas to receive the tax credit.

• Adopting the 2022 federal Section 179 depreciation schedule as it existed Jan. 1, 2022, which provides an income tax reduction for the expensing of certain property.

In his call for the special session, Hutchinson also wants the General Assembly to transfer $50 million from the state surplus to a restricted reserve set aside fund for a school safety grant program, consistent with the recommendations of the Arkansas School Safety Commission. This program will provide funding for school districts to increase security measures on campuses.

In its news release, the Senate Republican Caucus said "with the start of the Arkansas school year just days away, it is imperative that we ensure the safety and security of our kids," and "we are looking forward to passage of $50,000,000 in grants that can be used across our state to secure our schools."

The governor also asked lawmakers in his call for the special session to confirm gubernatorial appointees as required by state law and to provide for the payment of per diem and expenses of the House and Senate for the special session.

SCHOOL EMPLOYEE BONUSES

Earlier this week, Key sent out a memo to school district officials about the Legislative Council recommending school districts use available federal American Rescue Plan Elementary and Secondary Schools Relief Fund (ESSER) monies to finance retention and recruitment bonuses for teachers and staff.

On July 21, the Legislative Council voted 41-7 to rescind its June 17 approval of $500 million in spending authority for the state Department of Education to disburse funds under the federal American Rescue Plan's Elementary and Secondary Schools Emergency Relief Fund. The council subsequently voted to grant back $42 million of that spending authority.

The council recommended the federal funds be used to give a $5,000 bonus to full-time teachers, a $2,500 bonus to full-time classified staff, and a bonus to part-time classified staff in amounts that are half of those awarded their full-time counterparts.

The purpose of the American Rescue Plan Elementary and Secondary Schools Emergency Relief Funds is to help state education agencies and local school districts to safely reopen and sustain safe operations of schools and to address the academic, social, emotional and mental health impacts of the coronavirus pandemic on the nation's students, the state Department of Education said in a June report to lawmakers.

In a memo dated Wednesday to school districts, Key said the federal American Rescue Plan's ESSER monies may be used for retention and recruitment payments to public school employees to address staffing challenges that have increased as a result of the covid-19 pandemic under guidance from both the U.S. Department of Education and state Department of Education.

Under federal law, the state Department of Education may not direct how school districts choose to use these federal funds, but will assist school districts as needed to develop plans and priorities, he said in the memo.

As directed by the Legislative Council, the state Department of Education will coordinate the delivery of specific Elementary and Secondary Schools Relief Fund plans for each school district's use of these federal funds, Key said.

"If the school district is unable to meet those recommendations due to locally developed priorities, that district is also required to provide a comprehensive statement as to why the school district is unable to utilize the ARP ESSER funds in this manner," he said in his memo.

"Please note that prior and plans for future additional payments from other funding sources including ESSER II and/or ARP ESSER funds will be considered as part of a district's justification," Key said.

Districts should review the Legislative Council's recommendations and review their current use of these federal funds plans and confirm whether their current plans meet the council's recommendation, will be revised to meet the recommendation or cannot meet the recommendation due to plans for addressing higher priority needs as determined locally with justification provided, he said in his memo.

Asked when Key would have a better sense of roughly how many districts would be able to meet the council's recommendation and roughly how many wouldn't be able to, Department spokesman Kim Mundell said Friday that "districts are re-evaluating their plans, engaging with stakeholders, and updating their local boards, so it likely will be a few weeks before we have more information."

Key said in his memo the state Department of Education's request for spending authority for reimbursement of school districts based on the locally developed plans will be submitted to the Legislative Council's Performance Evaluation and Expenditure Review Subcommittee, once confirmation is received.

The Department of Education may not reimburse districts for American Rescue Plan ESSER expenses until the department's appropriation request has been approved by the subcommittee, he said.

The school districts have spent $354 million of their federal ESSER funds on salaries and bonuses, but "we are only able to pull amounts paid out as salaries but can't separate from one-time bonuses or ongoing salaries," said Mundell.

The schools have been allocated a total of $1.77 billion ESSER funds, including $119 million in ESSER I, $502 million in ESSER II, $23.2 million in ESSER II supplemental and $1.13 billion in American Rescue Plan ESSER funds, she said.

"Because of current ALC action, [the Department of Education] cannot reimburse districts for anything related to ARP-ESSER," Mundell said. "Districts can only be reimbursed for eligible expenses under ESSER I, ESSER II, and ESSER II Supplemental for a total of $91.63 million."

She said $780.9 million of the $1.13 billion in American Rescue Plan ESSER fund allocations haven't been spent.

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