House Revenue and Tax Committee
December 7, 2021
Jett [00:00:00] Good to see everybody. Rep. Maddox, you going to be good to roll on your tax cut bill, sir?
Maddox [00:00:05] Yes, sir.
Jett [00:00:06] OK, members, this is going to be House bill 1001 and this is the income tax cut and recognize yourself, sir. When you get situated, just go ahead.
Maddox [00:00:16] OK, thank you, Mr. Chair. John Maddox, Representative, District 20. I know all of you guys, so I don’t think I really need to introduce myself too much longer, but I hope this one goes better than the last time I was before this committee.
Jett [00:00:28] Do we kill something? I forgot.
Maddox [00:00:30] Yes, sir. Yes, you did.
Jett [00:00:34] Well, I feel good about this one for you.
Maddox [00:00:35] Well, thank you. So I’ll go ahead and proceed. I’m going to just really hit the highlights of this because as you guys know, this is probably the most vetted tax cut bill that’s ever been in the state of Arkansas. We’ve all had this bill for weeks. We’ve all read it, reviewed it, and we have over 70 co-sponsors. So again, I’m going to hit the highlights. I think it’s great legislation. I’m excited to present it. So what I want to touch on, first of all, and I want to be very clear about this, is this is going to cut the tax burden for every single Arkansan who works. And I think that’s critical to keep in mind as we go forward because I have heard different things and have had a few people complain about it, but I do want to keep that in mind.
Also, another thing it does that I think is very relevant is we are changing the name from the long term reserve fund to the catastrophic reserve fund, and we are going to make certain that that keeps a robust balance of 20 percent of net general revenue in the balance. As you all know, our general revenue was last last time around $6 billion. So that’s going to be a significant balance that we’re going to have for a rainy day for any economic downturns which could exist. So do keep that in mind. This is a fiscally prudent bill. So we are doing that. We are going to top off that catastrophic reserve fund. So wanted to touch on that. Another thing that I want to talk about is this is a simplification bill, in my opinion. We are simplifying the tax tables from three to two. I’ve heard other people say, and I completely agree, that Arkansas’ tax code is the most complex and complicated in all of the United States, and I think that’s correct. So we’re going to fix that. We’re going to work on fixing that today by simplification of the tax tables. Again, we’re going from three to two. So that’s a good thing.
As far as– one of the exciting things about this is the rate reductions. So I’m going to touch on that. In January of ’22, we go at the top rate from 5.9 to 5.5. And then in January ’23, we go from 5.5 to 5.3. And then there are additional cuts in ’24 and ’25 to 5.1 and then to 4.9, respectively. But that is based on our revenue staying at that level and not having to make any transfers out of the catastrophic reserve fund. So there are triggers as we talk about for those last two tax cuts. So I do want to keep that in mind as we move forward. Also, if we do transfer out prior to those last two, then those tax cuts do not ever occur. They’re just gone. They disappear. That is something that I’ve had numerous questions about.
Also, we are cutting the tax rate for pass through tax entities to correspond with the highest income rate, personal income rate. And when you say pass their tax entities, these are your Sub S Corps, these are LLCs. This is the vast majority of the businesses, at least in my district, and I think in the state of Arkansas. So this is going to benefit them also. There is a corporate tax cut in this from 5.9 to 5.7. That’s in January of ’23. Then there are further cuts in the corporate tax based on certain triggers. Again, I know you guys have all of this and you’ve read it and vetted it. But I do want to talk about it. Also something I want to touch on is there is a non refundable tax credit in this bill that is merely to smooth out the cliffs. Again, that is nonrefundable. This is not a refundable credit where you get money even if you don’t pay in. That is not this. This is a nonrefundable tax credit. So I believe that’s good policy. Big distinction there. And I think there has been some confusion or misinformation about that.
As I said earlier, this is a great policy. It cuts income taxes for everyone who goes to work. When we go home for Christmas, if we pass this, you can tell all of your constituents and friends that you cut their taxes. So I think that’s going to be a good Christmas present for them. Um, you know, one thing that, in all seriousness, when we make tax policy and divide it on arbitrary lines and say only these people, you know, if you’re, if you’re rich and you make over 75, you make over X, you don’t get the tax cut. But whatever that number is, it’s arbitrary and it’s unfair. And I think it divides us. So the beauty of this is it cuts everyone’s tax obligations.
One thing that’s very important to remember, I think, is that, of course, we’re relying on DFA and BLR. We also spent the money and hired Moody’s Analytics. They came in and gave a wonderful presentation. I know all of you guys saw it. I don’t know if everyone else has seen it. I would recommend it. And they unequivocally state that we can afford this. And I mean, for us to jump through that extra hoop to have the catastrophic reserve fund topped off at 20 percent of GR, I think we’re being very fiscally prudent and this is not slash and burn tax policy. This is much more tax policy, in my opinion, modeling, say, like what North Carolina did as opposed to tax policy, say, what Kansas did, which to all of our friends in Kansas, they didn’t do it right. And we learned some great lessons from them. So that’s what this is. I hope I didn’t offend anyone from Kansas, but that’s what this does. And there is the coronavirus food assistance, we’re just making it very clear that that is not taxable. So that if they ever change the name of that, that’s what that is. So that’s the– that’s the highlights of the bill. And I’d be glad to take any questions.
Jett [00:06:10] Thank you, members. Any questions. Rep. Garner.
Garner [00:06:19] Yeah. I’ve got so many, I don’t know where to start. First of all, you talk about lower income Arkansans getting their tax relief and it– and actually the, the lower income Arkansans are already paying the highest proportion of their income because of sales tax and other things like gas tax. So the tax burden is still heavily on those that can’t afford it. Wouldn’t you agree?
Maddox [00:06:54] Oh, I’m sorry. I didn’t know you were finished. Would I agree? No, not necessarily. But I would point out that we are– this is just an income tax reduction bill. We’re not addressing anything else. I would also point out that if you look at a percentage basis– and I think this is very important, I’m kind of glad you brought that up– from a percentage tax cut, lower and middle income folks are getting the largest tax cut of any one from a percentage basis. And I have all those numbers if you’d like to look at them.
Garner [00:07:25] Well, I’ve got that the top 20 percent of Arkansas earners will get about 73 percent of the personal income tax cuts. And so that’s, that’s– how can you say that the percentages for the lower income?
Maddox [00:07:41] Well, I’m saying that– that, that, that’s a great point. And I mean, I think that’s always the argument that we hear that this tax cut is only for the rich, which I disagree with. But I think we have to remember that the rich are, I hate to even say that, but some people do pay in a lot of taxes. They pay in, they pay in tens of thousands, hundreds of thousands of income taxes to the state of Arkansas. So of course, when there’s a cut, they’re going to get more than, say, someone who’s paying in, you know, $500 a year. It’s just the way it is, and it’s– your argument is good. It’s hard to refute. But I think what I’m saying is on a percentage basis, let’s say for someone in the $40,000 range, their percentage decrease is 13.8 percent. So it’s a massive percentage decrease of what they’re paying. So they’re getting significant relief. And I would argue that I live in a– well, I live in the best district in the state, but I live in a district where we have some poverty. And we have some people who work hard and, you know, folks who make $40,000 or $50,000 a year, you know, if they can get a little extra money every month in their paycheck, they’re going to feel it. And I think they’re going to appreciate it.
Garner [00:08:54] Yeah, I– Follow up, Mr. Chair.
Jett [00:08:56] Yes, ma’am.
Garner [00:08:58] When you talk about $40,000 refunds, we’re talking about very little money. If you make $100,000, you get basically a dollar a day back. I mean, you can’t even buy a cup of coffee at Starbucks for that. So, I mean, we’re not talking about a huge amount of money. The lowest income earners, we’re talking about giving them [00:09:18]an extra $29 a year. In one report, it was $17 a year. I kept at it at $17 a year. [8.1s] So we’re talking about very little money by percent, and then we’re talking about keeping– and I would argue that we– a lot of our programs are not even adequate, but we’re not even fulfilling that adequacy for a lot of our programs. And then we’re talking about cutting taxes minimally for most people and then taking that money away from the programs that those folks need the most, which philosophically is just something that is very difficult for me to understand. Why would we do that? Would you agree?
Maddox [00:10:12] No, but this is a conversation you and I could probably have for hours. We’re going to agree to disagree, frankly. But what I would say, I want to point out our catastrophic– what’s going to be the catastrophic reserve fund is going to be about 1.2 billion in it. We’re going to keep that at a high level. Our Medicaid trust fund has about half a billion in it right now. And our education monies are also about half a billion set aside right now. So we have money. Moody’s, Moody’s says that we can afford this and we’re still going to grow. We’re going to fund all of our services. As a lot of you guys know there’s no bigger public school advocate in this body than me. I’ve taken my lumps on that over the years. I’m going to make certain and do all I can that we continue to fund all of our essential services. And frankly, I think we can afford it. Moody’s thinks we can afford it. If I didn’t think we could afford it, I wouldn’t be sitting here today.
Jett [00:11:08] Rep. Gardner, you done, ma’am?
Garner [00:11:08] I’ll get back in the queue.
Jett [00:11:11] Ok, members, also, we’re going to do, I’m going to ask Paul to go to the end of the table because we’re going to start throwing some numbers around and I do want correct numbers being out. And so Paul is going to start taking some of these number questions. Rep. Hodges, when Paul gets down to the end of the table, let him recognize himself, and you’re recognized. Paul, just recognize yourself, please.
Gehring [00:11:31] Thank you, Mr. Chair. Paul Gehring, DFA.
Jett [00:11:35] Rep. Hodges.
Hodges [00:11:36] Thank you, Mr. Chair. I hear you– I hear us talk about this $1.2 billion in long term reserve and this half billion dollars. Those monies, are a lot of those dollars federal dollars that, that’s in that pot and that, is that going to last? How long is that going to last? Are we going to always be getting that money? Eventually, wouldn’t it run out?
Gehring [00:12:04] Thank you, Rep. Hodges. We also have Robert Brech from our budget. I hate to pull in co-counsel, but he certainly is much more aware and has the information regarding the federal dollars that are a component of those fund accounts.
Jett [00:12:17] Rep. Maddox, you good with that, sir?
Maddox [00:12:19] Yes, sir.
Jett [00:12:20] Robert, if you don’t care, pull up a seat there for us. Robert, recognize yourself for the record.
Brech [00:12:31] Thank you, Mr. Chair. Robert Brech, Office of State Budget.
Jett [00:12:34] Rep. Hodges, want to repeat your question, sir.
Hodges [00:12:37] Yes. Thank you, Mr. Chairman. My question is, you know, I hear us talk about this $1.2 billion, this half billion dollars, but out of that, out of that 1.2 billion, how many of those dollars are from, from, from our federal government? And are we being realistic that, you know, we’re not going to always see a surplus of this magnitude? So you eventually, I mean, you know, and I may be off base, but will this money eventually, you know, this, this type of reserve going to run out? So could you, could you talk to that point and how much of this is realistic as far as dollar wise?
Brech [00:13:17] Well, there’s little doubt that the $1.2 billion is a result of all the federal monies that have flowed into the state. We have looked at the tax cuts and the impact that it would have on the current RSA and next year’s RSA. That’s all we really have to go off of right now. There is a proposed RSA that you’ll take up in, in February. If you look at those, we’re in good shape this year, even with the tax code, so we should have around $128 million surplus. If you look at FY 23, we would, we would have about $120 million surplus. And it’s really going to come down to, you know, how much spending– and that’s with increase in spending. And so it’s really going to come down to in the future of what the spending is. I mean, for me, from a, from a budget standpoint, it just comes down to how much money you want to increase spending and how much you want to decrease possible revenues and taxes. But it looks like for the foreseeable future, we can afford these tax cuts.
Hodges [00:14:27] Thank you.
Brech [00:14:27] You’re welcome.
Jett [00:14:31] Rep. McClure, you’re recognized, sir.
McClure [00:14:36] [00:14:36]So I’m going to ask a different question. My wife is disabled, 100 percent disabled. I have several constituents that are also disabled. I live in a school district that I think we’re at about 78 percent qualify for the free lunch program. What cuts can I expect to any services to my family, my constituents, because we’re giving this income tax reduction? [30.6s]
Brech [00:15:11] [00:15:11]I can only address for this year and the proposed RSA for next year. There are no cuts that are proposed. With the RSA that was approved during the last regular session, preliminary, but, but there are increases in spending for FY 23. And even with those increases in spending, we’re looking at a– it’s still a surplus of $120 million. So obviously you could spend more if you didn’t cut taxes, I suppose. But we’re, we’re in a very good position right now where you can cut those taxes with no decreases in spending. [37.4s]
McClure [00:15:50] So do you feel absolute certain if we have a major economic downturn that with our reserve funds and our budget forecast that we’re going to be able to meet all of those needs without any interruptions for at least the foreseeable few years?
Brech [00:16:07] Well, that’ll be up to the General Assembly. If there are– if there is an economic downturn that is significant enough, the long term reserve or the Catastrophic Reserve Fund, which it will be renamed, can certainly be tapped into to meet those needs. And that’s exactly what it’s set up for. If you look at the statute that allows for monies to flow out of the catastrophic reserve fund, that is during times of economic downturns, and it is to make sure that essential services are met and that educational adequacy is met.
Jett [00:16:45] Members, you have any questions? Rep. Garner.
Garner [00:16:48] Yes. Thank you, Mr. Chair. I’ve got another question about one of the earlier Moody’s Analytics version of the bill. They found that the bill would grow the economy by less than one tenth of one percent over the next decade. Do we have any information about this version? Did Moody’s give us that information? I couldn’t find it.
Jett [00:17:22] Rep. Garner, I might take a stab at it if you don’t care. The Moody’s Analytics is completely outside of DFA. Moody Analytics got hired back to the, the bill that we passed last session, so that’s coming strictly out of BLR. And I don’t have a report here.
Garner [00:17:36] So we need to ask that?
Jett [00:17:37] We need to ask BLR to get our hands on that. So it’s completely unfair to DFA on that, on that question.
Garner [00:17:42] Perfect. I’ll get that information later. And kind of on that same note, if I could have a follow up. You know, we keep hearing that– since Reagan, I guess, we keep hearing that the tax cuts are going to make Arkansas more competitive and that we’ll be able to compete with the surrounding states in new jobs and businesses. Are there any data to back this up?
Maddox [00:18:08] Rep. Garner, I do not have any data. But I would say that, that I completely agree that we have to stay competitive with all of the surrounding states. And you know, I’ve talked to a lot of you individually what Texas, Tennessee, now Oklahoma, even Missouri and Louisiana, we’re trailing all of them now. We’re really just trying to keep up. And I do believe that individuals and businesses look at this when they’re making a determination about where to locate. And that includes the corporate income tax and that includes the individual. I mean, I truly believe that, and I feel that Arkansas is having major successes in the last couple of years with what we call inbound migration. I don’t have that data in front of me, but I have read it previously and we’re having some what I would call some huge wins. But I think people look at that. I really do. I’ve certainly spoken to some people who do, and we want to be as friendly a tax climate as we can. So but competition is a real thing, and we’ve got to at least try to stay close to our surrounding states. Thank you.
Garner [00:19:06] Follow up, Mr. Chair.
Jett [00:19:07] Yes, ma’am.
Garner [00:19:09] I guess, you know, when I talk to people in my district in Fayetteville, where we’re one of the fastest growing districts in the state, we’re home to thousands of young professionals and many new businesses, and they don’t talk about taxes. When they come to look at our area, they talk about great schools, new infrastructure, vibrant culture. Wouldn’t you agree that that is more important than lowering the taxes?
Maddox [00:19:43] I don’t know if I’d agree that it’s more important. They’re all certainly important. Again, we’re going to fund education. We know adequacy and we’re going to fund education adequately. That’s something I think we’re all proponents of. Infrastructure, certainly we are proponents of. You know, the voters of Arkansas were very receptive by making the gas tax, by making that permanent. You know, we are funding roads. We are funding those things. This is to keep our eye on the ball on this. I’m not saying you’re not, but this is an income tax cut and this is going to cut the tax for hardworking Arkansans. And I think it’s good policy.
Garner [00:20:19] Thank you, Mr. Chair.
Jett [00:20:20] You’re welcome. Rep. McClure, do you have another question? Are you done? Members, any other questions? Rep. Jean.
Jean [00:20:32] Thank you, Mr. Chairman. Representative Maddox, you’ve been here almost as long as I have, but refresh my memory. Did we not, a couple of terms ago, have a, about a $50 million low income tax cut and then maybe a session after that had a little over, maybe a 90 to 100 million middle, middle income tax cut? And under this governor, under this legislative body– and I see this as a combination of continuing the governor’s vision with, with your help. So we have not forgotten the low income, the middle income. We’re just dealing with this year. I think a lot of people have forgotten what we did in the past to help all phases of the income. Would you not agree that, that that’s kind of the roadmap that we have taken in this legislative body?
Maddox [00:21:31] Yes, sir. That, that is completely accurate. That was my first term when we did the low income tax cut and then we did the middle last time. And yes, sir, now we’re doing more. And you’re exactly right.
Jett [00:21:42] Rep. Hodges.
Hodges [00:21:44] Thank you, Mr. Chair. Going back to my, my good friend next to me, Rep. Jean’s question that he just asked. OK, we did those tax cuts. We have Paul here, you know, and I like to– see, I’m a banker, I like to see the numbers. I like to see the bottom line. So in dollars and cents, when we say we’ve helped the middle class, we helped the lower class, I like– when we talk about those tax cuts, what are we talking about often in dollar and cents? Because I asked the question during the session where we had those tax cuts and it was very minuscule. The dollar amount was very small for the lower class in what they would save. If I recall, it was like six dollars or something. Do you have the number of what this tax cut, what they’re going to save with this tax cut broken down by category?
Jett [00:22:48] Yeah. Paul, if you would, talk on percentage base or John– or Rep. Maddox, one of you talk on a percentage base. And Senator Dismang is also the Senate side sponsor helped draft the language. Can you please take a seat also and join the conversation? But Paul, if you don’t care, somebody at the end of the table, talk about the percentage and start at the low bracket– or the top bracket in the low table and work your way up. That way, I think it’s going to clear what you’re asking for.
Hodges [00:23:19] OK. When we say percentages is it going to, is it going to– does it have– am I going to have a dollar amount? I mean–
Jett [00:23:25] No, because– well, let Paul explain because I ask this question way early on in the process of us putting this package together. So Paul, work through that and see if it answers the representative’s question. If it don’t, Rep. Hodges, we’ll come back around to you, sir.
Gehring [00:23:40] Thank you, Mr. Chair, and thank you, Representative Hodges. So essentially, what we have under this bill, it’s going to create a standard income tax table and then an upper income tax table. So for purposes of looking at how this, these income taxes are going to affect people in those two different groups– so for the, those that are in the, essentially in the standard table, which would be anybody that has taxable income between zero and up to the, about the $82,000 level, we’re talking about the percentage of the total tax cut in this bill is approximately 46 percent receive the benefit of this cut. And, and separated by income range– so right now, if you are in between zero and 22:9 of income tax, we collect $87 million from approximately 800,000 taxpayers. So of those $87 million of people in those income ranges, they’re going to receive a $22.8 million of the tax cut. So that’s essentially a 26 percent, 26.2 percent reduction for the people that are in those ranges of the tax that we collect. I’m sorry, did you have a question?
Hodges [00:25:08] Yes, OK. That’s still not answering my question. So if I make $22,000 a year, how much am I saving with this tax cut? .
Gehring [00:25:19] Sure. So we don’t, we don’t have the– on the 22, we don’t have that.
Hodges [00:25:22] I just, I just threw that number out there. You know, you got a range from zero to $82,000, zero to $22,000, whatever. I want to know dollars and cents what I would save.
Gehring [00:25:32] So right now if we just use $20,000, your current burden is $438. Your proposed tax burden would be $363 dollars, which is a reduction of $76 and a 17.25 percent reduction on that person’s tax bill. If it’s $30,000, you’re going from $1,072 down to $865, which is a reduction of $207, which is a 19.31 percent reduction in your, your tax burden on your return.
Hodges [00:26:07] So, all right. Thank you.
Jett [00:26:13] You good, Representative Hodges? Members, any other questions. If not, Rep. Maddox, you got anything you want to add before we start taking questions from the audience?
Maddox [00:26:26] No, sir.
Jett [00:26:28] OK, members, we’re going to go to the audience now. We’re going to go against, for. Members in the audience, please, I mean, it’s obviously your right to be here to speak for or against the bill. We’re going to stay here as long as possible. But if we start chasing rabbits, we start hearing the same things– the list is long. If we start hearing kind of the same thing, I’ll, I’ll ask you to speed up a little bit. But first up is Rich. Rich, you in the room? Rich, if you don’t care, when you get to the end table, recognize yourself.
Huddleston [00:27:02] Rich Huddleston, executive director, Arkansas Advocates for Children and Families. Thanks for the opportunity to come speak to the committee today and I do want to talk a little bit about some of the tax impact numbers that we’ve already talked about. According to the Institute on Taxation and Economic Policy, ITEP as they’re often called, according to them, it really is going to be the wealthy that are going to be the huge beneficiaries of this plan. According to their estimates, the top 1 percent of taxpayers alone, those making more than $500,000 a year, would receive about 30 percent of the total benefits from the tax cut package. The average tax cut for somebody in the top 1 percent would be about $10,000. In contrast, the lowest 20 percent of taxpayers, those making less than 22,000 would, would only receive about 1 percent of the total benefits from the tax cut. The bottom 20 percent would receive an average tax cut of less than $20. It would be more for some, less for others, depending on where you are in that zero to $22,000 range.
And I will say about the nonrefundable credit– I think Rep. Garner mentioned this earlier– is that if you don’t owe anything in state income taxes because you earn too little that the nonrefundable tax credit is not going to help you. Now we think that’s the best part of the plan. It just doesn’t go deep enough. But I think it ignores the fact that those in the bottom 20 percent of taxpayers pay a lot in sales tax, and so that’s a high percent of their income in terms of the tax burden. And then the other thing in terms of who benefits from the plan, I think it’s important to note that one of the big winners in the plan is going to be out of state corporate shareholders because with a corporate income tax cut, the benefits ultimately get passed on to corporate shareholders. According to ITEP, they estimate that about 81 percent of the benefits from the corporate tax cut are going to go to out-of-state shareholders. And for them, they estimate that to be around $60, $62 million a year. And so, and so that’s money, that’s leave– that, in fact, is leaving the Arkansas economy. But I think for us, it is the impact on the state budget that, that is the big issue.
It also estimates that they think the cost of the tax plan is going to be $600 million when it’s fully phased in each year, not $500 million. I mean, there are reasons for that that I can discuss. But that’s a $100 million difference. And that’s, I mean, that’s a huge difference. And that starts over time to make this package really, really expensive. And I think really, really is going to hurt the state’s ability to meet, not only the basic needs of its citizens, but to make investments in things like health care, education and infrastructure that are really needed to help all Arkansans thrive and succeed, I mean, to really make our communities what, what, what they need to be. I mean, we already do have too many items in the state budget that are either underfunded or haven’t been funded at all. And I’ll just– I mean, I’ll just give a really quick list of some of those things. One is early care, birth to age three, very little funding there. We barely made a dent over the last 10 years in terms of funding for pre-K in terms of the ABC program. We still have a disability waiver wait list. We have not funded the Positive Youth Development Act of 2011 in terms of funding for afterschool and summer programs. Juvenile justice programs, there’s been flat funding there for as long as I can remember.
We don’t have enough DHS Medicaid caseworkers to, to, to keep up with the backlog of Medicaid applications. And then there are things that we should be doing that we’re not doing like we currently only offer two months of postpartum care for new mothers under the Medicaid programs. Everybody says that we need to offer 12 months in terms of the experts. And we still in recent years, we’ve, we’ve seen an increase in uninsured kids prior to the pandemic at least. We don’t have numbers for what’s happened during the pandemic. But in the years prior to the pandemic, there was an increase in uninsured kids, and there are policy steps that we can take to to alleviate that that we’re very concerned that this tax cut package would take away the state’s ability to do.
And then finally, in terms of federal funding, what I would just say is that the American Rescue Plan, a lot of that funding is going to end in two or three years. And then the Build Back Better initiative, which is due to pass Congress at any point in time now, I think it’s important to note that for states to fully take advantage of all the new federal money that’s going to be in the Build Back Better initiative, the state is going to have to come up with a state match for many of the components of that initiative. And so once you start talking two, three, four years down the line, if we want to be able to take advantage of all the federal money that we’re going to be the benefits of relative to other states, we’re going to need the state match to, to be able to take advantage of, of that initiative. And so with that, that, that’s it. And thanks again for, for, for allowing me the opportunity to come before this committee.
Jett [00:32:25] You’re welcome, sir. Will you take questions?
Huddleston [00:32:26] Sure.
Jett [00:32:28] Rich, my first question is, is, is several years ago, we used, this body actually used ITEP to help us work through a tax plan and I thought at that time they did good work. But when we start throwing numbers out from my ITEP, I went back and double checked several of these numbers because we were relying on DFA and we were relying on Moody’s. And the ITEP numbers are coming back totally skewed from two different independent groups, right? So one of the numbers I keep hearing and that keeps getting thrown out here is anybody making above $500,000 is getting a $10,000 tax cut.
So I’ve asked DFA and Paul at DFA, and I’ve asked him probably ad nauseum to check this number because I knew this question was coming. And the number that we’re getting back from DFA that’s going to be in code, that’s actually going to be in tax books that CPA is going to put out across the state is $4,913. So $4,900 is over 100 percent away from $10,000 that we keep hearing these numbers, and that’s just one issue. And I can sit here and go through three or four issues from ITEP, but that’s just one example. So can you square with this committee that we have two different independent outside, one outside group and from DFA that ITEP is so skewed from their numbers that they’re missing these numbers by over 100 percent?
Huddleston [00:33:47] Well, I think I would disagree that the estimates that we’ve been getting from ITEP in recent years are more skewed. I mean, if you remember, a few years back, and I can’t remember if it was back before the ’17 session, the ’17 session of the ’19 session. There was– there, there, there was a big tax cut package that came out of that tax reform commission that the governor supported and it was ITEP that came back and found that, that it was DFA’s estimates on that initial package that were wrong. OK, so that was, so that had to be corrected–
Jett [00:34:20] Ok, hold on a second. That’s not answering my question, sir. I mean, that’s not– we all know that and I know you’re kind of deflecting there, but I just want a straight up and down answer. Do you feel like ITEP numbers are skewed because DFA is eventually going to put that number in a book and there’s 15,000 tax filers pays above $500,000 in the state of Arkansas. So that number is going to be black and white in a book, and that number is going to come out here pretty soon if we pass this package. And ITEP keeps saying– you’re going to defend ITEP at $10,000. I’m trying to square that because I do think ITEP had done good work for the state before, so I’m trying– I just want you to square that with us. Do you really feel– I mean, you’re going to go to your grave even seeing ITEP number at $10,000 when DFA puts this $4,900 in a tax code book and going to spread it out all over CPAs across the state of Arkansas. Are you still going to be good with that?
Huddleston [00:35:14] Yes, I mean, I will– I mean I will address that question, though, in this way. And that, and that and this gets both to the, to the, to the impact on taxpayers at the top, but also to the total cost of the package. When, when ITEP did their analysis and they found that it was going to cost $600 million more, which means a higher estimate of who is going to benefit at the top, they, they were using projected 2022 income levels. And it’s my understanding that DFA was using 2019 income levels. Well, the one thing that we do know about what’s happened during the pandemic is that those at the top have done really well during the pandemic in terms of the wealthy and profitable corporations. And so, so you’re talking about a three year gap in incomes in terms of what the projected tax cuts, tax cuts are analyzed against. I mean, once you start talking three years, especially for those at the top, that, I mean, that’s a big difference.
And so just off the top of my head, I think that’s one possible explanation, but I think I would need to, need to, need to– I need to get with ITEP to look at this a little more. But I think that’s a potential explanation. And then the other thing I will say is that ITEP in their micro simulation model, which is one of the few in the country, they, they do compute their income ranges based on total gross income and so, and so they’re looking at it from the perspective of what a higher income taxpayer makes in total and not just taxable income. And so I think that, that, that’s another possible source for the difference, but we’ve been using ITEP estimates going back 20 years, and we rely on them heavily and have a great deal of faith in their estimates.
Jett [00:37:10] Thank you, sir. Appreciate your time. Oh, I’m sorry. Do you want– Rep. Wooten, do you have a question for Rich?
Wooten [00:37:17] Yes, if I may.
Jett [00:37:18] Do you have time for another question? Mr. Huddleston, do you have time for another question?
Huddleston [00:37:22] Yes, sir.
Wooten [00:37:23] Let me ask you a question. Am I in Little Rock or I’m in Washington, D.C.? Well, I’ve been hearing from this witness all about Washington. Let me ask you, well, how much do you folks want? How much do you want? Won’t give me a dollar amount of what you want, and I hope the tax cut is 600 million. I don’t care whether you’re wealthy or poor, and I hate to use the word poor. Let’s use the word lower income. Everybody deserves a tax cut, a break from big government, a break from big government being involved. But how much do y’all want? How much do you want for DHS? How much do you want for a pre-K? How much do you want for 0 to 3? What do you want for postpartum? We’re doing the best we can do, but tell– give me a number. How many billions? When I was at DFA, the budget was a billion dollars. It’s almost 7 billion now. And I hear the same stories then that I hear now. You’re never satisfied. How much do you want? Tell us. Please, tell us how much you want. Don’t give me any– I want a dollar number. How much do you want? Or you give me a percent of the budget that you want? We’re giving 56 percent of our budget to education now and about 30 percent to DHS. That’s almost 80 percent, over 80 percent. So tell me how much you want us to do, if you would, please. And excuse my voice. But I’m a football coach and I’m tired of hearing the same old stories. Now you tell me what you want. How much? How much do you want?
Jett [00:39:12] Rep. Wooten, I think he’s, I think he’s fixing to do that, sir.
Huddleston [00:39:18] Well, I cannot give you a dollar number today because we would have to go back and look at the long list of things that have not been funded– are not being funded adequately.
Wooten [00:39:28] I’m not asking you–
Huddleston [00:39:28] But we’re happy to– but we’re happy to come before the committee at some point. I mean, I mean, give our estimate–
Wooten [00:39:35] Mr. Chairman, he’s not answering the question. How much do you want? A dollar amount. That’s all I’m asking for. You say everything’s unfunded–
Huddleston [00:39:43] Well, the first, the first, the first dollar amount would not be to do this $600 million tax cut. So it’s, so at least– it’s at least $600 million.
Wooten [00:39:54] That’s irrelevant. I’m asking you how much you want. You don’t know because there is no top dollar. You’re never pleased. You’re never satisfied. Never. Thank you, Mr. Chairman. And I apologize to the committee, but I’m sick and tired of doing and doing and doing, and we keep getting the same thing more, more, more. And I’m telling you the public is fed up with it. Thank you, Mr. Chairman.
Jett [00:40:20] Rep. Lundstrum, you’ve got a question.
Lundstrum [00:40:22] Yes, sir. I’m– following up with Representative Wooten, I actually went and asked how many or how much have we spent on income based programs the taxpayers have put into it. And the list of programs for [00:40:38]DWS, TANIF, county operations, medical services, child care, early development, health, education, WIC, AR Better Choice, School Lunch Program– these are all income based programs and these are the programs that the taxpayers have been paying for. 2.7 billion was what we paid in FY 2020 and then in FY 2019 was 2.2 billion and change and they weren’t done. This was just the tip of the iceberg. There was even more that the taxpayer’s been paying for. So to say that the taxpayer has not been generous and doesn’t deserve a break is a little bit disingenuous, [37.4s] wouldn’t you, wouldn’t you agree?
Huddleston [00:41:18] Well, and what I would, and what I would say is that if we are going to do tax cuts, the tax cuts need to be focused on the folks at the bottom who, relative to their income have the highest tax burden, and, and to folks in the middle. What they don’t need to be focused on are folks at the top and to our most profitable corporations.
Lundstrum [00:41:38] The people who pay the taxes.
Huddleston [00:41:38] Because I think because, because I do think that if we want to continue to grow, grow as a state and be a beacon for economic development, cutting taxes is not going to do it. It’s going to depend on your digital infrastructure, your roads, your access to markets and the highly skilled work.
Lundstrum [00:41:58] You’re still not answering the question. You still didn’t answer the question. You just–
Huddleston [00:42:00] So what’s your question?
Lundstrum [00:42:02] Everybody deserves a tax cut. These people are paying for– everybody’s paying for this. Well, then and people that are paying taxes need a break. I don’t think that’s too much to ask.
Huddleston [00:42:12] Well, I just told you who I thought should be the biggest beneficiaries of the tax cut and who shouldn’t be. So I think– so I think I–
Lundstrum [00:42:20] I think we’re just going to disagree but–
Huddleston [00:42:21] I think I answered your question.
Lundstrum [00:42:22] I think you should acknowledge the fact that the taxpayers have been trying and have been doing everything they can to help people that are lower income and that need assistance. The taxpayers have been doing the very, their damn level best to take care of those in need.
Jett [00:42:39] Thank you. Rich, I’m going to let you sneak off while you keep doing good, buddy. So thank you for your time.
Huddleston [00:42:46] All right. Thank you, sir.
Jett [00:42:47] Members, we don’t have anybody signed up to speak for the bills. Anybody in the audience want to speak for the bill? OK, next up is Mr. and Mrs. Freeman. Are you in the audience? Mr. and Mrs. Freeman, you want to speak against the bill? If you folks would, please recognize yourself when you get situated for the committee.
C Freeman [00:43:10] Charnette Freeman.
F Freeman [00:43:19] I’m Fredrick Freeman. We’re from Forrest City, Arkansas. Thank the chairman and the committee for this opportunity to make a few brief remarks. For the representative who asked what we want. We want $37 million to clear up the DD waiting list. That’s what we want. Period. End of story. That’s the reason we’re here. Charnette is a 30 year old biracial person adopted from Harrison, Arkansas. She’s 100 percent disabled. She lived in Harrison, Arkansas, for three and a half years, lived in Little Rock for six years, and she’s resided in Forrest City since she was six years old. We oppose this tax cut because the state of Arkansas is not doing what it should do to fund the disabled community and other entities that support persons that are disabled. She is currently being housed at an agency– because she’s not on the DD list, she’s currently being housed at an, by an agency that is not being paid to do so, a nonprofit entity because she’s not on the DD list. At age 24, six years ago, she was number 3,500 on the DD list, DD wait list. At age 30, she’s number 1,500 on the wait list. So I guess she’ll be 60 years old before it’s time for her to receive, to be approved for the DD waitlist.
That’s the reason we are against the tax cut. The tax cut, if I’m not mistaken, will bring in close to a half a billion dollars over four years. I’m told the DD wait list is about $37 million. That could be taken care of now. Some of you, I guess, have been here two years, four years, but some of you have been here longer than that and you’ve heard this story. But still, we have many Arkansans on the DD waitlist. And so that’s the reason we’re here to speak against it. Never spoke against or for a bill before, but time is of the essence. Gentlemen, we have a lot more important issues that we need to address as it relates to the quality of life of Arkansans than a tax cut. We can do this and a tax cut, and I’d encourage you to do so. Again, she was number 3,500 several years ago. She’s number 1,500 now. And I guess at the rate we’re going, I’ll be gone but she’ll probably be 60 years or older before she gets approved for the DD wait list. Thank you for the opportunity to speak and would take any questions.
Jett [00:46:20] Thank you, sir. Thank you for your testimony. Rep. Mayberry. Do you have a question, ma’am?
Mayberry [00:46:23] Yes. Thank you. I so appreciate your testimony in bringing this up. This has been a conversation we’ve had for far, far too many years. And I do very much agree with you. I will say that this administration has worked at trying to bring more funding to this list to, to narrow it down. We have had bills in recent years that have taken some people off that list. We have made steps. Do we need more steps taken? Absolutely. So I want you to know that I’ve been asking BLR to put together some information so that we, as legislators, can attack this in the next legislative session and really come up with a concrete solution. I have been told that it is also more than just money that even if they had all the money, they don’t have all the workers that they need right now. It’s very, very difficult to find the people to service those on the DD list. So it’s a very complicated structure. It, it is actually more than just financial, although obviously financial is a huge part of it.
I very much understand what you’re saying, and I pledge to you to work as hard as I can to come up with even more solutions in the next session. But this tax cut, I think, is not going to make a difference to that list. I think there might be some other sources out there. We saved the Medicaid Trust Fund and we might be able to look at that because we did not, you know, cut that last time. Maybe we can look at that and some other solutions. I appreciate your testimony. And I don’t know how to make that into a question, but I just wanted to make sure that on record that you know that I believe that there are a lot of people, a lot of legislators who care greatly about your daughter and about all these others on the DD wait list and it is conversation I hear from a lot of legislators up here saying, What can we do? And we will work on it.
F Freeman [00:48:36] Thank you. May I respond, Mr. Chairman?
Jett [00:48:37] Yes, sir.
F Freeman [00:48:38] So, Madam Representative, just as this body has come together to deal with this tax cut that’s going to pass, the body’s had ample time to deal with clearing up the DD wait list. Because this has been a discussion for many, many years, and I appreciate working with you in the future on that.
Jett [00:48:58] [00:48:58]Would– Rep. Mayberry, Mr. Freeman, would you guys want to get together? Would it be appropriate to do? If you don’t care, you guys just hook up at the end of this meeting and see if we can’t start getting you some help. OK? [13.1s]
F Freeman [00:49:12] Thank you very much.
Jett [00:49:12] You’re welcome, sir. God bless y’all. OK. Nobody signed up for the bill. We have a– is there a doctor, I believe it’s Evan? I apologize. Looks like a doctor wrote her name on this. Please recognize yourself. I’m assuming you’re speaking against the bill, right?
Evans [00:49:36] Yes, sir. My name is Dr. Syard Evans. I am the CEO of Arkansas Support Network and the president of the Arkansas Waiver Association. Arkansas Support Network is a statewide home and community based provider. We provide DD waiver services. I appreciate the opportunity to speak to you today. I especially appreciate the opportunity to follow that discussion and the discussion that we just had in the Senate committee, in which Senator Rapert made a similar commitment to Representative Mayberry’s commitment about the waiver waiting list. But I want to take some time to really help you understand that the funds, the $37 million that we talk about funding the waiver waiting list, has the same error that this tax bill has. And that is that it’s projected based on the current funding of services and growth and all of those factors moving forward from today. What I want you to hear from me today is the state of, not crisis, but catastrophe, of the direct support workforce. In DD services, I can speak specifically to that. And I will share some numbers with you to really drive home that point. But when I talk about the direct support professional workforce, I’m also talking about services for folks with behavioral health needs, and I’m talking about adult and aging services. I’m talking about that safety net of support that allows all of us to live the highest quality of life possible. And we have for decades starved this workforce.
We’ve treated this workforce as if it is an unskilled entry level position, putting this workforce in direct competition with fast food, retail and all other mechanisms within a nonprofit structure that allows for competitive wages. But we’ve locked this workforce into Medicaid reimbursement rates and completely undercut our ability to fund the workforce. So at Arkansas Support Network, we provide services to approximately 500 Arkansans across the state every year in their homes, in their communities. We currently have about 850 employees doing that. Our employees are reimbursed at a low level. I, I have employees that are making on average $25,000 to $32,000 a year unless they’re working an ungodly amount of overtime. And they’re working an ungodly amount of overtime. Our workforce has conversations on a daily basis. We hear from people routinely and regularly as our historical perspective.
But today, now more than ever, we hear from people that say things like, when I calculate how much money it costs me to access child care, when I calculate the money that it costs me to put gas in my car to not only come to work, but use my personal vehicle as a means of transportation for the person that I’m supporting, when I look at insurance on my car, when I look at the investment that it takes me to work, I lose money to work. Folks cannot afford to be in this workforce. So when you talk about 3,000 people that are waiting for services, I tell you today, I can’t support them and I have committed 22 years of my life to supporting them. I have worked at Arkansas Support Network since I was 19 years old. We show up every day, committed to supporting people, and we can’t do it. And it’s getting worse every day. On average, Arkansas Support Network over the last 10 years has maintained 85 to 90 open positions every month. We’ve also walked in the door about 100 to 110 applications each month to try to meet that demand. We typically will not hire more than 34 percent of those applicants for various reasons.
Since February, we have watched our openings climb and we have watched our applications drop. And in October of this year, we were looking at 175 open positions and we walked 64 applications through the door. We are in crisis at our current level of funding. I’m sorry, we’re in catastrophe. Crisis is unexpected. Crisis is sudden. We have seen this brewing for a long time, and the pandemic has put us in a place that just investing that $37 million into that waitlist is insufficient. We’re going to see our entire home and community based service system crumble out from under us without some intervention, and because of those reasons, I ask that we reconsider giving the wealthiest Arkansans tax cuts when we need to be investing in the infrastructure of our state. And I appreciate your time.
Jett [00:54:51] Thank you, ma’am. Is Miss Holtzclaw in the audience? Speak for the bill. I apologized. I just wow recognize that you was signed up to speak for the bill. I was supposed to go in order and I apologize about that. But if you don’t care, ma’am, when you get to the end of the table, recognize yourself. And you’re speaking for the bill.
Holtzclaw [00:55:09] Thank you, Mr. Chairman. Abby Hughes Holtzclaw from Hot Springs County, currently a resident of Pulaski County, and I’m here on behalf of the Arkansas Asset Funders Network to speak in favor of specifically the low income tax credit part of the bill. We’re really, honestly very glad to see that that is part of the bill and thank this legislative body for your willingness to put it in there. We believe that working Arkansas families should be included in any conversation related to tax relief. We’re very grateful for the governor and our legislative body that have included this individual tax credit for low income earners in the overall bill. The credit will effectively eliminate the tax, the state income tax for 100,000 tax filers and impact half a million Arkansans. We believe tax credits are a straightforward way to provide meaningful relief to low income earners.
Also, we believe that this tax reform bill will increase the individual tax credit to $60 for working Arkansans making less than approximately $23,000 a year. Also, two tax brackets affecting families making under $80,000 per year will be combined, significantly lowering taxes for approximately 800,000 Arkansas taxpayers who earn between $23,000 and $82,000 a year. The Arkansas Asset Funders Network, which was launched in our state in 2016, is a regional chapter of grant makers or philanthropy that invest in opportunities to help low and middle income individuals and their families build financial stability, grow and protect their assets and gain economic mobility. Some of our funders that are part of this group include the Winthrop Rockefeller Foundation, Southern Bancorp, which is a CDFI, Arkansas Community Foundation, the Women’s Foundation, and Entergy Charitable Foundation. Thank you, Mr. Chairman.
Jett [00:57:28] Thank you, ma’am. I appreciate your time. All right. Is there a, I think it’s Mrs. Seals in the audience? Please recognize yourself, ma’am.
Seals [00:57:40] Good afternoon. My name is Kymara Seals. I am the policy director at the Arkansas Public Policy Panel. And I live in Pine Bluff, but we are a statewide organization. So I’m speaking against the bill. But I’m, I’m coming from a grassroots perspective. Our organization has members all across the state of Arkansas. Many obviously couldn’t be here because they work in factories and, you know, teach and other things that can’t be here through the day. So I’ve changed the way I’m going present because I’ve heard everything that has come before me. The numbers aren’t working. But let me, let me share, let me share this. First of all, I’m happy to hear, representative, that there are no cuts to services that are currently being serviced, provided. So I’m glad to hear that. That’s great. And I appreciate you giving the highlights of that bill because that helped me understand a little bit more about the bill and, and really kind of how to approach this for this testimony. I want to come from an angle– because I’ve talked to a lot of our people– OK, and here’s what we’re concerned about. We are genuinely concerned about quality of life.
Taxes are essential for communities to thrive. We know that, right. I’ve already– I heard you, representative, talk about the tax burden and what Arkansas has done over the years and that, that we’re generally trying to do those service, services. I heard the other representative– I’m sorry, I don’t know your names– but you know, I heard you asked Rich how much? How much? So I don’t have a number, so don’t ask me how much? OK. I don’t have a number, but what I want to say is quality of life. And we, and we all, like I said, we know it is taxes that causes our communities to thrive because that’s how you fund these programs. So the question is, is Arkansas thriving? Some parts are thriving. Some people are thriving. Some communities are thriving. But not all of the communities are thriving. So I come to speak on behalf of those who aren’t thriving. And just to give it to you from a whole different perspective. Like I say, I had a little speech rolled out, but you’re not hearing that. You know, you’ve heard plenty of speeches. So I’m just speaking from the heart at this point. OK. And so, so we are concerned about pre-K. We really are. There’s too many Arkansas kids who are in pre-K. Now with the cut, and I know the cut is like, what, 600 million a year.
But, but the cut, and I’ve heard the numbers, how the cut will give people earning $20,000 a year and other, you know, it’s a relatively small number. But every little bit’s a help, like my grandma used to say. Every little bit’s a help. So I hear you on that. But what I also know is that when you combine those taxes, we can do more as a whole then we can individually. So I hear you on the tax cut and it, you know, gives some, some relief to families making $20,000 and you know, on on up the list, OK, I hear that. But that’s what we are concerned about is that concerted effort, how much more we can do for our communities who are not thriving. OK, we have food insecurity in Arkansas. And the statistics show one in five children, you know, come home, one in five in Arkansas, in 2021. So obviously that group of people aren’t thriving, OK? And you’ve heard some other areas. But like I said, I just wanted to speak.
We’re grassroots. We’re a grassroots organization, so, so that’s what we’re concerned about and, and health care. We’re concerned about children and health care, education. And like I said, the pre-K because the pre-K really needs to be funded more, because that’s the foundation, that is the foundation of learning for our children. We want all Arkansas children, we want all Arkansas children to compete, OK? Every Arkansas child should be able to compete in education, in the workforce, in technology, in whatever they’re doing. And we’re got to fight like hell to catch some of these students up because with that year of verbal– not verbal– virtual learning, there were a lot of kids, y’all, a lot of our kids, okay, that lost learning, education. Virtual was good for some, but not for all, you know. Now my grandson was virtual, but guess what? He lived in my household and we made sure he got what he needed. And what he didn’t need, oh, I got him a tutor who could teach it. You know, you’d think I could teach a kindergartner, right? But it’s a little bit more challenging on some things, but not every household can afford that. OK, so that’s all we’re saying.
That’s all we’re saying is, you know, we’re, we’re kind of tired of being last in everything. You know, I was– I’m about to wrap up. You know, I was in the Senate Tax and Rev committee earlier today. I got there too late to sign up to speak, but I heard one of the, one of the senators say we were 49th in law enforcement pay. I’d never heard that. I know we’re 49th in a lot of other issues, but that was one added to the list, you know. So, so that’s all we’re saying is just think about those things just, you know, like I say, quality of life. You’ve heard the gentleman talk about the disability waiver, you know, that was on my list. But, but, but those are things that we really need to consider, you know, when we talk about tax cuts. Thank you.
Jett [01:04:43] Thank you, ma’am.
Seals [01:04:44] Any questions? Y’all have a great day.
Jett [01:04:48] It looks good. Thank you, ma’am. To speak against the bill, Miss Tomlinson, you in the audience? You share something that’s not been shared, ma’am?
Tomlinson [01:05:08] My name is Ally Tomlinson. I’m from Conway. I’m the director of the Arkansas Alliance for Disability Advocacy. I’m just going to take just a couple of seconds of your time. I want to follow up on the Arkansas waiver. I know you’ve heard so much about that, but it is a very important issue. I want to make sure that you have the right numbers on that. We’ve got 4,800 people right now that are using the home and community based services. And so I know that you have said that we’re not cutting any services on that. And I know you’re so tired of hearing about that, I’m sure. But the truth of the matter is this is disability policy, because every single piece of policy, every piece of legislation that comes through these doors are going to impact people with disabilities because people with disabilities are 100 percent a part of our communities 100 percent of the time. And we need to make sure that we are looking at this like that.
And so right now, we still have 3,000 people who need services who have obviously been on that list for years. I have a 15 year old son who I need to make sure can have the services that he needs to be able to have the skills to get a job, live an independent life, to have quality in his life because he deserves that. That’s not something that’s being just handed to him. He is using these services and he is working. He’s working with those services. So something is being supported, you know, the state is supporting him in that, but that’s going to help him all the years of his life. I want him and he wants to grow up to be a taxpaying citizen. But he cannot do that if there’s no new services created, if this waiver list is not cleared out. So we talked about education and you seem to be a great advocate for education. So I was really listening to you and I want to make sure that I was learning.
But I would beg each and every one of you to reach out to your constituents just right now on social media and ask them to go to an IEP meeting with them. Just ask, you know, annual reviews are coming up. They have to have that if they have a child that’s having special education services. Walk into that room with them and don’t tell them what you do for a living. Don’t, don’t ruin it. But hear them say, hear the teachers say, I can’t provide that for you. Hear the administration say, we can’t do that here. We don’t have the funding. And if you don’t know someone or you’re not taken up on your offer, I promise that I can set you up with an IEP meeting there in your district. This is not something that we’re saying doesn’t need to happen, but what we’re saying is we are not meeting the needs of the people that we have right now. People are struggling in their absolute daily life. And so Arkansans with disabilities have the right to be represented by you today. And so I hope that you can champion for them. Thank you so much.
Jett [01:08:00] Thank you very much, ma’am. Thank you for coming by. Mr. Michael Thornton, you in the room? Thank you for being respectful of our time. We appreciate that, sir. All right, members, that’s it for the sign up sheet for and against. Rep. Maddox, you want to close for your bill, sir?
Maddox [01:08:24] Yes, sir. Thank you, representative. I will close my bill very briefly. Obviously, I went over it in pretty significant detail. I think we all understand the bill. Like I said, this is the most vetted tax cut bill that’s ever been in the state of Arkansas. You’ve all had this for weeks, numerous co-sponsors. The only thing I do want to touch on that I didn’t earlier is I know in my district– and I don’t want to beat a dead horse, I know we all know this– but the number one problem I’m hearing right now is employers not be able to find employees, and I bet every one of you have those things in your district. And again, even in my district where we’re not the wealthiest district in the state, that’s a huge problem. What this bill is going to do is it’s going to put more money in people’s paychecks. It’s going to reward and incentivize work. That’s what it does, and it’s going to help nudge some folks back into the workforce, which we all need. So with that, I’m closed for my bill.
Jett [01:09:20] Members, do we have a motion? We have a motion from Rep. Warren. Any debate on the motion? All in favor, say aye. Opposed, no. Congratulations, sir, you passed your bill.
Maddox [01:09:33] Thank you. Thank you, committee.
Jett [01:09:35] It’s a lot easier this time than it was last time, huh?
Maddox [01:09:37] That was not easy. Thank you.
Jett [01:09:40] All right. Members we want to switch it up. I want to run House Bill 1006 and 1007. I’m going to slide over here. So we’ll take 1006 up first.
Fortner [01:10:28] OK, Representative Jett, when you’re ready, you can present Bill 1006.
Jett [01:10:35] All right. Thank you, Mr. Chairman. Committee members, this is House Bill 1006. What this is is, I think a lot of you guys recall back during the session we did a tax fairness bill and the way it was set up coming out of the gate, we got three, three– there can be three commissioners and they’re going to serve a nine year term. So the terms are going to be staggered. So first the, the first commissioner would have a three year term. The second commissioner would be a six year term. The third commission would be on a nine year term. And we staggered because when they roll over on the terms, we don’t want all three commissioners coming off at the same time. So through the complication process was, I think it was like we did two bills to make this work. I think both bills were like 30, 40 pages long. It was highly complicated. It took about close to a year to put the thing together. But after we passed what we, what we saw in the bill was, was the commissioners when the first gets appointed to this, then the language of the bill was not in sync with the commissioners in their second term if that makes sense. So in other words, the way we hook up the commissioner’s first term, they come off, they roll off, the language of the bill was not in sync with the commissioners coming off the second time if that makes sense. So with that, I’ll answer any questions.
Fortner [01:12:07] Are there any questions, committee members?
Jett [01:12:08] Bottom line is this is just a simple clean up language bill.
Fortner [01:12:13] I guess you explained it splendidly.
[01:12:15] Yeah, well, I confused myself.
Fortner [01:12:17] All right. Is there anyone in the audience to speak for or against the bill? Doesn’t look like it. Do you want to close for your bill?
Jett [01:12:29] I’m closed, Mr. Chairman.
Fortner [01:12:31] Do I have a motion? OK. We have a motion. All in favor. Any opposed. Congratulations, your bill’s passed.
Jett [01:12:41] Thank you.
Fortner [01:12:42] Now if you’ll shift gears and present House bill 1007.
Jett [01:12:47] Yes. And Mr. Chairman, with your permission, Mike, or whoever you want to bring, Jim or both y’all want to come down here. They’re better looking and probably a lot smarter than I am too, so.
Fortner [01:13:00] Well, it wouldn’t take much there, but go ahead and introduce yourselves.
Jett [01:13:06] Yeah, I’ll remember that. I will pay you back.
Preston [01:13:09] Thank you, Mr. Chairman. Mike Preston, Secretary of Commerce, Executive Director of AEDC.
Hudson [01:13:15] Afternoon. Jim Hudson, Deputy Director, AEDC.
Jett [01:13:18] Before they get started, I just wanted to tee this up for a little bit. I think a lot of folks thought I’m really still confused about can we talk about the project, call the project by name or not? [01:13:26]I know I was instructed not to do that, and once again, the Senate couldn’t help theirselves. And Senator Hickey in Joint Budget this morning referenced the name of the project about 15 times. [10.5s] So I’m really confused whether we need to do this or not, reference the name of the project, but I do want to mention the timing of the bill because there was a little bit of angst, I guess you would call it, about the timing of the bill. From my understanding, these two gentlemen to my left can speak more about this just here shortly, but, you know, whenever– I think we’re all in tune of when there’s a super project or a major project, the players decide that project, they want heightened confidentiality. You know, it’s not, it’s not– they don’t want their names thrown about there because, you know, lack of a better way of saying it sometimes I think they game the system and so be it because the state games the system, too, to try to land these projects. And so with that being said, they want, they want to keep everything kind of close to the vest, kind of really quiet.
So we got the language, a rough draft of the bill. I think I’ve got it towards the end of beginning last week, I think. These days kind of run together. We had this, another tax cut bill and these other bills, you know, we’re trying to do. But so we get the bill and worked through the process with DFA, through the process with Mark Preston, his shop and BLR trying to get the bill drafted, and then the bill had to go back and forth. And then we spent one day– the consultant on the bill that works for the company is, they was gracious enough to sit down on a conference call with Nucor and the Nucor folks. And so we spent I think it was all day Thursday with Nucor folks and gave those folks pretty much 12 hours once we get a rough draft of the bill to tell them kind of what’s in it to get back with us. And I think I got word back from, from Nucor folks. I think it was around about 10 o’clock Thursday night, if I’m not mistaken, that their folks were good with it. So that’s one of the things that we was trying to do due diligence, and it’s not to do harm to our neighbors. And I think Mr. Preston is going to talk briefly about the competition. And he explained to me pretty good, kind of made sense to me. But, and so we rolled into Friday, had a medical emergency with my family back home. I didn’t have a lot of time to deal with it Friday. We got it, got a call, I think, from BLR, I believe it was yesterday about the bill was out of review. And so we got the bill filed this morning. So I know there’s a lot of animosity– I’m going to back up. Animosity is probably too strong a word. But I do know there were some issues with Mr. Preston’s shop. I think he took some unfair hits and I’ll take all the responsibility for not getting the bill out in what some folks consider a timely fashion.
But I’ll tell y’all this is a multimillion dollar bill and I think putting a bill together in five days and we’re sitting here is pretty darn quick. So I just wanted to clear that up. And with that, I think I’ll just let Mr. Preston and Mr. Hudson here talk about the bill.
Preston [01:16:31] Thank you, representative. I appreciate your willingness to sponsor the bill. And I think most everyone is probably in committee this morning and kind of get the gist of the overview of a project blueprint and the potential impact this would have in terms of a 900 job project at an average wage of $106,000 per year. A significant investment in the state. Really, the way this came about and the way that we’re doing it and rather going the Amendment 82 process was to figure out what we have in the books that we’re accustomed to to build a project that would put us in the, really in the driver’s seat to win this project that is competitive with a couple of other southeastern states. So with the bill that you have in, in front of you is related to the, the recycling tax credits.
This is legislation that’s been around for many years. It’s been updated several times by this body, most recently in the 2021 legislative session, to expand it to, into the timber industry for pellet mills. Specifically to this project, this company, it was done back in 2015, again in 2017 to utilize these tax credits. So the language that you see in front of you is very similar to what you’ve seen previously. It just updates it to reflect the project that you have and discussing that type of investment of the $3 billion investment in wages and jobs that I mentioned before. What it will allow this company then to do is to utilize these tax credits to offset their corporate income tax liability. And they have the ability to monetize those tax credits. It is right now currently structured $11 million for the course of 14 years. It’s capped at that amount. Now that $11 million will actually be with a 80 percent buyback to the state. Makes an 8.8 million hit on the state that they would be able to, to then utilize those tax credits over the 14 year period. There are some questions in the legislation about the the additional 27.5 number, and that’s to offset any additional corporate income tax liability. When we do the cost benefit on the project, we’ve assumed no liability for the company. So if there is anything above that, it would just be additional benefit into the state. We actually, in previous legislation, that has never been written in there. There’s not that cap. So we wanted to make sure that we are protecting the state. So if they were wildly successful and we did actually realize a corporate income tax benefit from it, we weren’t boxing ourselves in to not be able to, to capitalize and utilize on that. So that was a provision that was maybe a little bit different than versions that we’ve seen before. I think that kind of explains the, the overall tax credit portion of the bill. Jim, is there–
Hudson [01:19:20] Just real quickly as well, just to remind you that we only enter into this if there is a positive cost benefit to the state. And so that positive cost benefit really, it’s both AEDC running its econometric models, but then DFA, independent of AEDC, running its own model as well. So both of those have to attest that it will be positive benefit, meaning we’ll get more benefits than we’re paying out before we do the project. So that’s in there as well. And in terms of clawback provisions, if for some reason the project does not perform according to expectations, we want the benefit of our bargain. And so we will claw back typically on a proportionate amount the miss that’s kind of with the projects. So if they miss on the wages or if they miss on the number of jobs, we have the ability to pull that money back.
Preston [01:20:14] I would just say we, we appreciate the willingness of the body to consider this. It’s certainly a good way that we’re able to do this. I think the recycling tax credit is something that’s allowed us to benefit in the state of Arkansas to compete on these projects. We’ve really positioned ourselves well in the steel industry to, to be a leader. You know, this is, you know, 3 million tons of additional steel going into production in the state of Arkansas, $95 million in annual payroll. The impact on this is significant. It will be one of the largest economic development projects in the country all year, I believe the largest investment of any project in the history of our state. So we’re happy to be able to, to bring it forward on this day and certainly happy to entertain any questions that you might have.
Fortner [01:20:59] Thank you. Is there any questions from the committee? Representative Hodges.
Hodges [01:21:04] Thank you, Mr. Chair. I heard, Rep. Jett, you had mentioned something about talking to Nucor about the issue that he would allude on the fact that they’re not concerned about competition and all that. Can you just kind of touch base on that. I know doing Amendment 82 there was a lot of issues with Big River and Nucor, but I think that’s all kind of squashed. And they’re OK now, right?
Jett [01:21:30] OK, there we go. Yes, we talked– actually, to be honest with you, we probably spent a couple of hours with Nucor, folks. I think that’s probably right, Julie, right? Probably spent a couple of hours on the telephone with four folks here in Arkansas that’s associated with Nucor. And then we sent them the rough draft. Obviously, we didn’t have the bill drafted yet, but we sent the rough draft. They sent it to New Jersey, I believe, is where their home office is, sent it up to their legal department, took a look at the bill. They said it’s no conflicts with them. And that’s one of the issues that I raised with Mr. Preston when he first called me several months ago about this project, a couple of months. I don’t know. Time runs together. But I was concerned about competition too, you know, unfair– you know, are we setting up somebody, you know, to compete somebody else right, you know, next door, you know, and cannibalize, you know, what’s going on. But, but when he told me this, it really made sense was, well, they’re going to go someplace. And I think right now, I think it’s probably Mississippi, Alabama is in the hunt. They’re going to go someplace regardless. I mean, they’re going to, they’re going to set up shop regardless, whether we do this or not. And there’s still going to be a competition for Nucor regardless where they go to. So I mean, you know, it’s– when Nucor signed off and said Nucor was 100 percent good with it. They might not like it, you know, because you’re expanding, you have competition expanding. But, but this is a whole different business model that Nucor does not use. And to the point, without really getting in Nucor’s business, it’s my understanding they built a whole new facility here a while back, that’s not in a state where they could, you know, could have took advantage of something like this as well. So to answer your question– long answer to a short question. Yes. Everything I’ve been told, Nucor is good.
Fortner [01:23:16] Alright, thank you. Representative Lundstrum, do you have a question?
Lundstrum [01:23:20] Yes. Jim, you had mentioned clawbacks. Could you talk about that just a little bit, about the protections that are in there for the state?
Hudson [01:23:31] Well, we haven’t negotiated the agreement, you know, yet. And obviously, we want to get the project awarded and this is a good first step on that. But I’ll tell you, just in general terms of our approach, as I mentioned earlier, we want the benefit of the bargain. And so they’ve made representations, obviously, as to what their targets are. We hardwire those typically in the agreement and we will have regular rigorous reporting requirements, both in terms of the number of jobs and the wages that are actually paid. And if there’s a miss on that, then we have a conversation about how to correct, how the miss is going to be corrected. And that could be sometimes they need more time. It could be something that’s happened like a Covid event, for example. Or just could be something going on in the business cycle. But ultimately, you know, we will pull the money back to the state if they’re just not fulfilling their, their requirements for the project. And we, we do track that.
Preston [01:24:22] I’ll add to that, too, that this is, you know, an entity that has a very strong track record. When this was first entered into an agreement when this phase one was done in 2014, it was 525 jobs at an average wage of $75,000 per year. They’re well up to 650 jobs now and their average wage is over $200,000. So they’ve well outperformed what we had set up in the original agreement. We have no doubt that they will continue to do so.
Lundstrum [01:24:50] Follow up. This is very exciting. I’m, I’m– obviously I, I think this is a great deal. I just want to make sure Arkansas, once we get started with this and get down the aisle and get to the honeymoon, we don’t get disappointed later on. Is there a bonding process in that claw back? What– how does that work out? I’m not familiar with this type of high stakes situation.
Preston [01:25:13] The original process was that it was done through bonds, through the issuance of general obligation bonds to the state, through the Amendment 82 process, not so through this because we have these programs in place and that’s done– and the tax credit’s done on a yearly basis. So they have to meet those objectives as well in order to get that rebate. So we have protections essentially built in, not only in the legislation, but then what Mr. Hudson explained too what we’ll do in the further negotiations with the company to lay out those clawbacks.
Lundstrum [01:25:44] OK, thank you.
Fortner [01:25:48] Representative Wooten, do you have a question?
Wooten [01:26:02] So right now, we’re in competition, if I understood you.,
Jett [01:26:08] Hold on. Hold on just a second, sir. Somebody turn their mic’s off. We’ve got too many mics on.
Wooten [01:26:12] OK, there we go. So if I understood correctly, Rep. Jett, we’re in competition with Alabama or other states. So this will really put us in the hunt is what you’re telling us.
Jett [01:26:26] Yes, sir. Mr. Preston can speak more about this than I can. But from my, from what they’re telling us, we met with them this morning, probably about an hour or so. From everything we hear that if we was to pass this legislation, that I think– I’ll let these guys speak for it– but they tell us that the board of directors for this company has already approved it and they’re waiting on the CEO for us to pass this. And if we pass this, then we can actually expect word back this week that this project is coming. Is that fair?
Preston [01:26:57] Yeah, that’s a fair statement. And you know, it’s, it’s publicly held companies. So, you know, there’s a decision process that they have to go through. And we’ve been working very closely with them and this is the offer that we’ve put out on the table. Now we have to deliver on our end and that is taking it through the legislative body and then hopefully that is enough to get it done. I’m very confident that it will, but we’ll, we’ll see what they ultimately decide. But this, I think this keeps us in the game and gives us a good opportunity to win the project.
Wooten [01:27:23] Follow up, follow up, if I may.
Fortner [01:27:25] Yes, go ahead.
Wooten [01:27:26] So you’re both satisfied that this protects the state of Arkansas. I’m like Representative Lundstrom, I want to be sure. And I know you all are, but you’re, you’re certifying and telling us that we’re protected.
Preston [01:27:41] Yes, sir. That’s correct. OK, thank you, Mr. Chairman.
Fortner [01:27:46] Representative Lundstrum, did you have a question?
Lundstrum [01:27:48] Yes. And how many jobs would this be?
Preston [01:27:53] 900.
Lundstrum [01:27:54] 900. And the average pay?
Preston [01:27:55] $106,000.
Lundstrum [01:27:56] OK, thank you.
Jett [01:27:58] Let me, let me add also, because I might mess this up and if I do, correct me. It’s 600 jobs at $120,000–
Preston [01:28:06] 700.
Jett [01:28:07] 700 jobs at $120,000 and another 200 jobs at $60,000. So this is a significant, I’m talking about significant income raise level. I don’t know, and I apologize because I’ve been– people texted me and stuff– did you talk about the leakage of the jobs? Touch on that real quick if you don’t care.
Preston [01:28:24] Yeah. So when we do the, conduct our cost benefit analysis and our standard just econometric modeling, when you look at a border community like Mississippi County, there’s a leakage that we take into account. And we do that, that we know that some of those people are going to live outside of the state of Arkansas. And they obviously all live in Arkansas and, and pay a portion of their taxes here, but we do take that into account. But so there’s some standard numbers used on that. But we wanted to take it a step further and actually looked at the current roster at the facility and based our modeling on that data to assume that. So this has already accounted for any leakage that would potentially impact the project. So we’ve included that into our cost benefit, which remains positive. We also took this a step further in anticipating that maybe y’all would pass some tax cuts this week, that it would be reflective of that new tax rate as well. So we’ve kind of troubleshot that from, from all angles to make sure it was covered.
Fortner [01:29:25] Representative McCollum, did you have a question?
McCollum [01:29:28] Thank you, Mr. Chairman. Thank you, Mr. Preston, again, for taking all the time you’ve taken today to answer multiple questions, and I’m sorry if I missed this earlier in our discussion. Sometimes when you’re delegating a conversation, you miss the details. Is the cost benefit analysis that you mentioned, is that going to be a public document or maybe after the fact public so that the state can see just, I guess, maybe even after the fact, how good of a deal it is?
Preston [01:29:59] That’s something that we hold as confidential in the fact that if we were to put out what our cost-benefit analysis was, then every company and consultant that we’re dealing with kind of knows our secret sauce and formula of what’s going into it. And they’d probably take that to stretch out whatever incentive they possibly could. We’re always trying to get the best deal that we possibly can. So that cost-benefit analysis is something that we hold as proprietary. I will tell you this that we do run it on a 10 year model, which is important to note. I think other states will look at it at a 20 or 30 year snapshot, which obviously gives you more of a runway to be able to actually realize the benefit. We do it at 10 years, knowing a $3 billion investment isn’t going away in 10 years, but essentially that’s what our assumption is in our analysis that after 10 years, we’re not looking at it. But we know as a state it’s going to yield additional benefit. If we took it out over 15, 20, 30 years, you know, it would potentially allow us to do more as a state, but we want to keep it as conservative as we possibly can.
Hudson [01:31:01] Just add to that real quickly, Leg Audit audits our incentives every single year, so the leg audit team comes in behind us. They run the same models that we run to verify our work.
Fortner [01:31:15] Representative Garner, do you have a question?
Garner [01:31:16] Quick question. Thank you, Mr. Chair, and thank you guys for being here again. I just have a quick question about– I know that we talked a little bit this morning about– I think you used in your analysis that 75– or did you say 75 or 85 percent live in Arkansas?
Preston [01:31:32] 70 percent.
Garner [01:31:32] 70. Okay, 70 percent live in Arkansas. Are those folks that are recruited from other states that move to Arkansas? Or do we have the workforce in Arkansas to place Arkansans in those jobs?
Preston [01:31:46] You know, I’d like to think that we have the workforce here. There’s certainly the ability and I think through, you know, some of the funds that we talked about this morning, there’ll be training available. The community college up there has done an outstanding job to stand up the Steel Academy for the state to train our workforce to be able to do it. But you know, someone will probably have to move in the state. It’s just that sheer volume of 900, which, you know, I’m happy more people moving into our state and calling themselves Arkansan. As a, as a transplant who moved here and now calls himself an Arkansan, I welcome more individuals moving into the state as well.
Garner [01:32:20] Follow up, Mr. Chair.
Fortner [01:32:22] Yes.
Garner [01:32:22] I was– I’m excited as well. I just wanted to know that we are doing everything we can to make sure that Arkansans are getting as many jobs as they can.
Preston [01:32:31] Absolutely.
Garner [01:32:31] And what can we do to make that happen?
Preston [01:32:33] Yes, ma’am.
Garner [01:32:34] Thank you.
Fortner [01:32:35] Rep.Hodges, did you have a question?
Hodges [01:32:37] Yes. Thank you, Mr. Chair. To kind of piggyback on what Rep. Garner said, those that do still come here and work at the steel mill from other states, they are still paying Arkansas income tax.
Preston [01:32:52] That’s correct. Yes.
Hodges [01:32:54] Thank you.
Fortner [01:32:56] Representative Lundstrom, did you have a question? Oh, that’s amazing. Are there any other questions? All right. Would you like to close for your bill, Representative?
Jett [01:33:10] I think I’m closed.
Fortner [01:33:12] All right. Is there anyone in the audience that wants to speak for or against the bill? All right, I’ll accept a motion. Representative–
Fortner [01:33:41] OK. We have a do pass. All in favor. Any opposed? Congratulations, your bill passed.
Jett [01:33:51] Thank you.
Fortner [01:33:53] All right. I think that does it. We are adjourned.