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Arkansas officials say COVID-19 relief funds won't be used to offset tax cuts

Michael Hibblen
Next month, lawmakers will decide whether to accelerate the tax cuts approved in 2021 to lower the income tax rate and corporate tax rate.

Arkansas lawmakers have been notified by the state Department of Finance and Administration that the U.S Treasury is trying to rescind COVID-19 relief funds that are used by states to supplement tax cuts.

During next month’s special session, legislators will consider Gov. Asa Hutchinson's plan to accelerate the tax cuts passed in 2021 that will lower the personal income tax and the corporate tax rate while including a low-income tax credit.

In an interview with KUAR News, Senate President Pro Tem Jimmy Hickey, R-Texarkana, said lawmakers have been working with state finance officials to find out how much could be rescinded. He said the number has ranged from slightly less than $100 million to $800 million.

Hickey explained the state isn’t using funding from the American Rescue Plan Act (ARPA) to supplement tax cuts.

“Our tax cuts are actually being done because of the growth in the economy that has been created,” Hickey said. “It’s not that we’re using ARPA funds to supplement it, we’re actually using the growth that’s there to be able to do that.”

Scott Hardin, director of communications for the Department of Finance and Administration, said the department reevaluated the guidelines and don't feel the Treasury will be able to rescind.

“We are confident the recoupment provision will not be triggered. The state’s tax cuts have been absorbed totally within existing revenue collection without the need to consider an outside funding source (ARPA),” Hardin said in a text message.

In a memo to Hutchinson and Department of Finance and Administration Secretary Larry Walther, State Budget Officer Robert Brech wrote that the reduction of excess revenue will be used to cover the tax decreases. Brech also wrote that if the Treasury does rescind funds it would be a limited amount.

According to Talk Business & Politics, the surplus created in fiscal year 2022 was a result of the growth in the income tax revenue and sales tax revenue. Currently, the state has a $1.6 billion surplus, which led to Hutchinson calling the special session.

Hickey said lawmakers have factored in the possible loss of COVID-19 funds in their decision to cut taxes.

“That’s kind of a risk or reward deal. Well if you give a $500 million or $600 million tax cut to your citizens that probably outweighs the cost of getting the federal money because the way [tax cuts] churn in the economy,” Hickey said.

An ongoing court case could decide whether the federal government has the authority to rescind COVID-19 relief funds from states who use them on tax cuts.

Last year, Arkansas Attorney General Leslie Rutledge joined the state as a plaintiff in the lawsuit that was filed suing the Treasury to stop the federal government from rescinding COVID-19 funds used for tax cuts.

“President Biden’s latest COVID spending bill blocks our state from reducing Arkansans’ tax burden,” Rutledge said in a press release at the time. “Biden, Harris and Pelosi don’t have the right to control Arkansas’s tax laws and the Constitution does not allow such blatant federal overreach.”

According to Brech's memo, the attorney general's office also believes the potential for the Treasury to pull COVID relief funding is low.

Hickey said it would be prudent to go ahead with the special session. He added that is just his opinion and there isn’t a consensus among lawmakers on how to move forward.

Ronak Patel is a reporter for KUAR News focusing on state and local government.