Aug. 9: Senate Revenue and Tax committee transcript

Senate Revenue and Tax Committee

August 9, 2022

 

Sample Call the Revenue and Tax Committee meeting to order. Senator Dismang, you’re presenting Senate Bill number 1, is that correct? 

 

Dismang Thank you, members. You know, we’ve sent out quite a bit of information about this bill already. It’s been worked on for a while. And in large part, we’ve already had a broad discussion about the tax cuts, you know, its implication in a previous meeting as we passed in the last special session. And so, first, I’d like to say this bill does three things. The first thing it does, it creates an individual income tax credit of $150 per payer. And that’s $300 per couple for the 2022 tax year. We are making that retroactive effective Jan. 1, 2022. And the reason for that is that will trigger an automatic change in the withholding table. And essentially that $300 or $150 will have to get made up in the final 2 to 3 months of the fiscal year, which means every, every individual that’s working is going to see an increase in their take home check for those last remaining months of the calendar year. Second, it does advance the income tax cuts that were already in place. That’s both for the individual and federal. It’s going to bring down the top rate to 4.9%, again, effective Jan. 1, 2022. That’s going to benefit positively every payer that makes above $24,600 in the state. Second part to that, it does also advance– because as we’ve discussed in here before, we wanted the corporate to trail the individual income tax cuts. So it’s going to lower the corporate rate to 5.3%, and that will be effective on January 1, 2023. The third thing it does, it brings our section 179 expense deduction in line with that that occurs on the federal level. That’s going to have a huge benefit to our small business owners here in the state in particular. And the reason for that, it was actually when I first started practicing accounting. One of the first tax returns I did in that year was when the feds increased their Section 179 expense. We were at $25,000 at the state level then. I’d made a phone call at that time, actually, as a staffer to DFA asking if we were going to conform with the federal guidelines and was told at that time we would. That was incorrect. We never conformed. And so we’ve been set at $25,000 worth of limitation from then, which I think was roughly 2005, I think. It’s a long time ago, a long time ago. And so this would allow us to, to mimic what happens, bring some conformity with section 179. That’s going to save a lot of headache for tax preparers and taxpayers and also provide a benefit to our small business owners here in the state. And the Section 179 expense, for those that may not be aware, that’s where you’re allowed to expense the total amount of an asset purchase, a particular equipment, instead of having to expense it over the useful life of that equipment. So it may be 5 to 7 years depending on what type of industry you’re in. So again, you get the upfront benefit of a full deduction in the first year. This, again, just mimics it back to the federal level. And with that, I’d be happy to take any questions. 

 

Sample Members,are there questions? Senator Ingram. 

 

Ingram Question for DFA, please. 

 

Sample If you would, give your name. 

 

Gehring Thank you, Mr. Chair. Members of the committee, Paul Gehring, DFA. 

 

Sample Senator Ingram. 

 

Ingram I’ve got a copy of a memo that was provided by Robert Breck regarding the possibility of income tax affecting our ARPA money. And at one time I think the term might have been used that it was the possibility existed of it to affect $80 to $90 million, then, then that figure jumped from $80 to $90 to $800 million. Can you comment on that for us? 

 

Gehring Sure. Certainly. So the– as a part of the American Rescue Plan Act that was passed in March of 2021, there was language inserted into the ARPA bill concerning the– a state’s ability to receive ARPA funding with these conditions that the ARPA funds would not be utilized to either directly or indirectly offset a reduction in tax revenue. As a part of that legislation in ARPA, the Congress gave Treasury the ability to promulgate regulations and rules for interpretation and application of that provision. What the Treasury rules provide for is that there’s a potential recoupment or clawback of ARPA funding in the event that a state improperly uses the ARPA funds to indirectly or directly offset a tax reduction. So DFA, as a part of their requirements to receive the ARPA funding is required to annually certify to the Treasury those tax reductions that have been enacted since the March 2021 signing of ARPA into law. And a part of that model is that the 2019 tax year is utilized for purposes of what our tax collections are as a state. And then as a part of that future modeling to see if any tax cuts were either directly or indirectly used to offset a reduction or an improper use of the ARPA funds, the state has used, has to use the CPI, the inflation figure, to adjust that 2019 baseline year. So when we were dealing with the pandemic over the last couple of years, we had a situation where we had normal inflation or maybe slightly elevated inflation between 3-4%. Our baseline then was growing at a very similar rate to what was ordinary inflation and also what would ordinarily be reflected in our increased natural collections of taxes and also our, our budget. But during 2022, we have had very rapid increases in inflation worldwide, particularly here in the United States, anywhere from 8-9% inflation. That caused our baseline to increase for that first part of the ARPA test where we compare our baseline tax collections scaled for inflation and then we have to take out those tax reductions in the first part of the test. So to your, to your question, Senator Ingram, as we have tracked that baseline, the rapid rates of inflation have changed our baseline so that the potential recoupment from ARPA, originally in the tens of millions of dollars of potential liability of recoupment, has grown to a potential liability of the higher figure that you mentioned. DFA, and as you point to the memo that our Budget Administrator prepared on this particular issue, we did a very close look at the Treasury regulations, as well as the litigation that has been filed in the state of Alabama that the state of Arkansas is a party to try to get a better understanding of how this is going to work and what our potential liability is going to be. So in looking at the ARPA test, you have the 1% de minimis that you can cut taxes that there is no impact whatsoever on recoupment. But if you do fail the, the second– the first component of the ARPA test that, according to our baseline, we’ve cut too much taxes and risk recoupment. The second part of the test is, is that have– is the state using ARPA funds to basically pay for items in their budget that they otherwise would pay for out of tax revenue but they have cut tax revenues to a point that they’re using ARPA to plug in those holes. That’s not what we are doing with this legislation. Our, our reductions in this legislation are coming from the increases in tax revenue. So we, we took a hard look at this issue. Our budget administrator provided the memo to the, to the General Assembly. We spoke with our representatives from the attorney general’s office in the litigation to get a very, a more clearly demonstrated picture of what our actual risk would be for recoupment. We made a determination, after taking a very close look, that the the risk of recoupment of ARPA funds is minimal. We analyzed the, the pleadings that the U.S. Treasury filed in the Alabama litigation that we’re a party to. And they gave some very good examples of improper uses of ARPA funding. So if the General Assembly had appropriated monies for specific appropriations for COVID testing or possibly for water improvements in their budgets, and then the, and then the General Assembly after the fact cut that funding for those, for COVID testing or for, for the water improvements, and then turned around and cut taxes and then used the ARPA money to pay for the COVID testing or for the water system improvements, those would be very specific examples where there is an improper use of the funding. So we’re confident that that we are not using these ARPA funds incorrectly with this tax litigation– I’m sorry, tax reduction bill. Now, the Alabama court has permanently enjoined the enforcement of the tax mandate. Any provisions of the ARPA law that provide for recoupment have been stayed by the federal court. We won’t have a decision from the U.S. Court of Appeals likely until sometime this fall or early spring. There is nationwide litigation on this issue. So ultimately, it would be decided by the U.S. Supreme Court. But at this point, given all of the information and the, and the, the research that we have done and speaking with the, the, the interested parties that are involved, which include other states, we do not think that there’s a risk of recoupment with, with this, with this reduction bill. And even if the tax mandate were upheld by the U.S. Supreme Court or the Court of Appeals, we do not believe that there is an improper use of ARPA funds. 

 

Ingram So I think the income tax is treated differently than tax holidays that other states had for gasoline or clothes or anything like that. They sort of got the federal government’s blessing on that. That doesn’t impact ARPA funds. There’s no threat of that being recouped, correct? 

 

Gehring There, there, now, if there was a, a tax reduction, like, if, in your example, Senator Ingram, the sales tax holiday for back to school, that was already enacted. But anything that was enacted post March 2021 that provided for a rate reduction, a credit, a rebate or delaying the implementation of a previously enacted tax, those are going to be subject to having to be reported to the Treasury on an annual basis. One item that is in this, in this bill is the section 179 conformity with federal law. That is not included in our, in our count, because the Treasury specifically stated in March of 2021 that a state can continue to conform with recent changes in federal tax law. So that would not be included. But we certainly are going to report to the Treasury that we have reduced our income taxes both on the individual, the corporate, as well as this one time credit for the 2022 tax year. 

 

Ingram So you said that, that the hearings, the appeals that are going on now or this fall, my information is that the Arizona case, as well as the case in Atlanta that we’re a party to, will be heard in September, mid-September. So I mean, I mean, it’s not very far from now that we would probably know certain whether we were impacting ARPA funds or not. When you say ‘some,’ are we talking about– when your early estimate was, what are we talking about that we are potentially ARPA funds being negatively impacted? How much are we talking about there, Paul? 

 

Gehring We do not believe that there is any ARPA funds at risk for recoupment. And you are correct, the briefing in the Alabama case that’s in the U.S. Court of Appeals that we’re a party, briefing is complete. They’re– it’s, it’s possible that they will have oral argument this fall. And then how long it takes for the court to render its decision, that’s an unknown. But given the information that we have, even applying the tax mandate two-part test that’s required for us to do, we’re not doing what the Treasury is, is prohibiting in terms of using our ARPA funds to plug in holes in our budget for previously budgeted items. So, so I think that based upon the information that we have, even if the tax mandate as it’s called in the ARPA bill and in the litigation is finally upheld, we are going to continue to take the position and we feel confident in saying that we are not utilizing ARPA funds improperly that would subject the state to recoup. 

 

Ingram Right. So you’re willing to– DFA is willing to say, hey, we’re, we have such confidence that $500 million in tax cuts, we’re willing to take the risk of losing $900 million in ARPA funds because we believe that’s the way the law reads. 

 

Gehring And that certainly is not a decision in our analysis that we would take easily or without a great deal of care and research and analysis and consultation with the attorney general and the other states. But, yes, based upon our, our, our final conclusion on this issue, risk of any recoupment of the ARPA funds contemplated by this tax reduction bill, we believe is, is minimal or close to zero. 

 

Ingram One last question, Mr. Chair. And I’m sorry, Paul is always so thorough. I’m asking questions, but he’s given great, thorough answers, and I appreciate that. Now, there was talk that we would take the ARPA, the 800 or 900 million that’s the balance, and we would not expend it until after the case is decided. Is that something that the administration is, is prepared to do and to wait so that we don’t spend it and then have it clawed back? 

 

Gehring Well, certainly there are going to be continued needs for use of the ARPA funds. We have projects for water improvements and for broadband. I can’t speak for the governor’s office, but certainly our hope would be that these continued improvements and use of the ARPA funds would continue with the, with the approval of the General Assembly. In terms of the, the near future plans of the ARPA steering committee, I can’t speak to what is coming up soon. But in terms of delaying spending the final allotment in the ARPA, I can’t say that there are any plans to delay any future projects for ARPA funding until that litigation as it comes to a final conclusion, which may take, it might be 2024 until the Supreme Court receives that case, does the briefing and is able to issue a decision. And that by that time, the window for using the ARPA funds would be coming to a close and we would still have the needs here in Arkansas, develop and use the ARPA funds for appropriate projects. 

 

Ingram Maybe somebody very close to me might enlighten us on whether he thinks that’s necessary or not. Mr. Chair, thank you. Paul, as always, thank you. 

 

Gehring Thank you, Senator. 

 

Sample Thank you. Members, are there other questions? Senator Teague. 

 

Teague Paul, could you send us that document that the AG’s office so brilliantly enlightened you on? 

 

Gehring So, Senator Teague, what I, what I have are the pleadings from the, both the Alabama Federal District Court– 

 

Teague I thought you said that our AG’s office provided you some, some light into the darkness and you– through some document or something. 

 

Gehring We reviewed the pleadings in the federal district court case, the, the memorandum decision of the federal district court judge. We also have the appellate briefs that have been filed by the parties. I’d be happy to share those with you. But we didn’t get a specific letter or guidance directly from the AG. But we had, we had conferences wherein we spoke with our counsel. 

 

Teague I have serious doubts that I would understand any of it, but if you would email it to me, I’d appreciate it. 

 

Gehring Absolutely, Senator. 

 

Teague Thank you. Thank you, Mr. Chairman. 

 

Sample Thank you. Members, are there other questions? We have the impact statement on the desk. Are there questions about the impact statement while Mr. Gehring is still here? Senator Johnson. 

 

M Johnson Thank you, Mr. Chairman. Mr. Gehring, thank you for your hard work on this, as always. When I’m looking at the impact on page 2 of the green sheet, are these impact in general revenues as, like, before any of the tax cuts or are these numbers adjusted for what we have here in SB 1? 

 

Gehring So what you have in the fiscal impact statement, Senator Johnson, are going to be the, the fiscal year impacts based upon these specific tax changes. 

 

M Johnson Not, not counting what we did last year or whatever. This is– is it from last year to these changes or is it from the baseline to these changes? 

 

Gehring These, these changes are exclusive to what is included in the bill–

 

M Johnson SB 1. 

 

Gehring –in SB1 and also House Bill 1002, the identical bill in, in the House. 

 

M Johnson So to not put words in your mouth, but to kind of extrapolate. This is not all we have cut taxes of the 500 million in FY 23. This is additional tax cut from what we, where we, when we started this process last year. 

 

Gehring That is correct. We have, we have the, we have the special session tax cut in December, as well as the tax cuts that were enacted post March 2021 that are being reported as a part of our ARPA report. 

 

M Johnson Yes, sir. Now this is my question. I’m going to smile when I ask it. I’ve had lots of emails from certain constituents saying that people really don’t need this money. They don’t want it in their pocket. If, if you had to pull a number out and say the– and I know there is no average taxpayer, but let’s say that we can come up with some kind of average, maybe come up with a number and divide it by 3 million or however many people file returns– how much money would go back into people’s pockets for FY 23? Or maybe I should say tax year 23, not FY. This is on– but the return they’re going to file as of Dec. 31, 2022, how much money would go back in their pockets, approximately? 

 

Gehring So we have just some different scenarios that I’d be happy to share with the committee, starting with $20,000 in net taxable income all the way up to $250,000. So what, one thing that we identified was the median income for a single Arkansan. And the median income for a single Arkansan would have about $26,526 in net taxable income. And in tax year 2021, their tax due on their return would be $888, which is an effective tax rate of 3.34%. For tax year 2022, that’s going to be reduced down to $523, which is an effective tax rate of 1.97%. And the breakdown of that decrease of $365, that taxpayer is going to receive the $150 credit for the 2022 tax year only. They’re also going to have a $2 reduction from the, from the top rate reduction. They’ll have $2 in reduction. Also to the 2021 legislation that was enacted, that taxpayer’s also receiving a benefit of $186 from combination of the tables. And the changes to the other changes to the brackets, $9. And then there’s also the legally imposed inflation adjustment that changes the tax tables every year of $18. That’s what accounts for the total of $365 difference for the median taxable income for a single taxpayer. But we have the, we have all of these scenarios that we’d be happy to share with members of the committee that can illustrate what the individual impact is for people that are from the the lower end of the income range all the way up to $250,000 in net taxable income. 

 

M Johnson But from– correct me if I’m not hearing this correctly. On the low end, your average, that median, I should say, taxpayer is looking at $360 to $500 more in their pocket because of this, which even at today’s prices will buy a few tanks of gas and, and certainly help on groceries. 

 

Gehring Absolutely. That’s, that’s a– and as a part of this legislation, there is– any, anybody that is paying income tax in Arkansas, which is about 1.6 million filers, everybody’s getting a reduction, whether it’s from benefit from the credit of $150, from the top rate reduction, every taxpayer that has a tax due on their return. Because the credit is a nonrefundable credit, there’s not going to be anybody that wasn’t previously paying taxes that’s going to get a benefit. 

 

M Johnson Okay. Thank you, Mr. Gehring. Thank you, Mr. Chairman. 

 

Sample Senator Ingram, you have another question? 

 

Ingram On that 150, let’s see now, the tax cut is a permanent tax cut from, from once it’s passed retro to 2022. It’s, it’s permanent. The tax credit, is that permanent? 

 

Gehring The $150 credit or $300 for married filing joint, that is for the 2022 tax year only. 

 

Ingram Okay.  

 

Sample Senator Johnson, would you turn your mic off? 

 

M Johnson I’m sorry. 

 

Dismang And actually, and I was going to mention this earlier, and I failed to. So I apologize. There’s not a single thing in this tax bill that isn’t temporary. There’s not a single, single reduction. I named three different categories or buckets we’re looking at, and all three of those are temporary in nature as far as their cost. First, the advancement of the income taxes, where we’re doing it sooner. Those are already on the books. It was going to happen anyway. It’s being advanced Jan. 1, 2022. That is a temporary change in difference. Second, the section 179, that will fully pay for itself over 5 to 7 years, depending on the life of the asset. The expense was going to occur. It’s just does it occur at one time, does it occur over the depreciated life? And then third, of course, would be the credit of $150. Everything that we’re doing, contrary to what may be said, is temporary in nature. The tax cuts are already on the books. They’re just being advanced. The section 179 is a timing difference. And the $150 credit is for, is obviously temporary, as it’s credit for just the 2022 filing year. 

 

Ingram I guess my definition of temporary and yours is different, because on a go forward basis, the tax cut is going to be in place. 

 

Dismang It’s going to be in place. It just is going to be in place sooner. There’s a temporary change in our revenues. In the out years, that change would have been exactly the same. It’s temporary. 

 

Ingram But– 

 

Dismang The change in our general revenues, which is I think what most of us as legislators look at, that change is temporary. The full reduction of our tax cuts was going to take place regardless of what we do here today. It’s just when does those decrease in revenues, that temporary change in revenues start? And we’re saying it starts effective Jan. 1, 2022, which would be, you know, whatever, whenever it’s fully adopted and y’all change the tables. That’s when we’d start feeling a change in our general revenue. So again, I would contend that everything that we’re doing is having a temporary change to our general revenue. 

 

Ingram But the, the tax cut that we’re talking about doesn’t sunset in one year as the 150 does. The 150 sunsets in one year. That’s what I consider temporary. 

 

Dismang And the other thing, and I’m glad you brought that up, too, because it’s something that I think we’re missing as far as the discussion here. We sat in this room and as a group of members said we were going to prioritize the tax cuts for the low and middle income earners in this state. We did it by combining the tables and creating simplicity for those individuals on the, the middle income earners. We did it with the additional credit and then also the inflationary adjustment for the standard deduction. We did that first. The cost of that was roughly $161 million of benefit to those payers. We said we were going to do secondary the top rate reduction. And so I believe that one thing that we need to keep in mind is, number one, this is a temporary change in our revenues. All of this was going to happen at some point in the future with the exception of the $150 credit. And then the second is, is we’ve got to remember that we did take care of low income earners in their state– low and middle income earners in the state. We prioritized it, in fact, and made it effective January 1, 2022. All we’re doing now is advancing the full tax cut package to January 1, 2022. 

 

Ingram Senator, remind me. I can’t, I can’t remember what I had for lunch today. How much was the, the low, the low income? Was it 60 bucks? How much was that credit? 

 

Dismang It eliminated taxes for like– how many individuals was it that no longer would pay taxes in the state of Arkansas? And I’m– and we’re probably asking things that we’ll have to research quickly, but it eliminated taxes for a large number of Arkansans with the filing of a return in the creation of the credit.

 

Gehring Senator, I’ll see if I have that number here. If we want to move on to the next question, I’ll come back and let you know. 

 

Dismang But it helped a sizable number of individuals and we did a great benefit, in my opinion, when we combined the middle and low table for middle income earners, particularly those making roughly $24,000 here in the state of Arkansas. 

 

Ingram I don’t know why the number, this 150 is much higher than what that was as I remember. I think it was somewhere around $60. But I can’t remember. Thank you. 

 

Dismang Thanks. 

 

Sample Members, are there other questions? Seeing none. 

 

Dismang Thank you. 

 

Sample Mr. Gehring, you’re dismissed. 

 

Gehring Thank you, Mr. Chair, and members of the committee. 

 

Sample Thank you. We do have someone from the audience that would like to speak. We have two someone’s from the audience that would like to speak against the bill. First one would be Mr. Showers. State your name for the record and who you represent, please. 

 

Showers Bruno Showers, Arkansas Advocates for Children and Families. 

 

Sample Make your statement, sir.

 

Showers Yeah. Thank you, Mr. Chair. And thank you all for the opportunity to speak today. I’m here to express my concerns about the cost of these tax cuts and speak against making them retroactive. Making the tax cuts retroactive and enacting the new– yeah. Is that better? Okay. Making the tax cuts retroactive and enacting new ones will cost an additional $750 million on top of the ongoing revenue losses that have already been priced into the budget. That’s bad enough on its own, in my opinion, but my biggest concern is that we will be eliminating a safeguard that you all enacted to ensure fiscal responsibility in December. The way you wrote the tax cuts into law back then ensured that if state revenues failed to meet state budget needs between now and 2025, the tax cuts would freeze in place wherever they were at that point. And if you make them retroactive, we’ll lose that important protection for our state budget. But I think this tool to ensure fiscal responsibility is especially important right now in 2022, given our uncertain future economic conditions. The most recent forecast by DFA projects that net available revenues in FY 23 will fall from FY 22 and that they’ll fall further in FY 24 from 23. But even that may be optimistic, in my opinion. Their model assumes strong growth for the rest of 2022 and 2023 and even elevated wage growth into 2024. Since they’ve made those projections in May, the Federal Reserve has announced increases to the interest rate and we’ve had two consecutive quarters of GDP contraction this year. That means that most economists have revised their forecasts and increased the chance that a recession is likely to happen in the next couple of years. I don’t want to discount the fact that many Arkansans are still struggling with the pandemic and the fallout it’s caused our economy. I know that you’re all hearing people struggling with skyrocketing rent and housing costs, dealing with more and more children’s mental health issues, and trying to juggle increased child care and family obligations with work. But it’s not just families that are hurting. A lot of our institutions are hurting, too. Less than a month ago, I read an op ed in Talk Business by the Center for Health Improvement talking about how the staffing shortages in our hospitals and clinics are at a critical state. Last year, a report authored by the U.S. Chamber of Commerce Foundation found that Arkansas’ economy is losing hundreds of millions of dollars every year because of a lack of access to affordable, quality child care. And part of that is because we could be doing more to invest in those, that staffing issues there. We need more investment in workforces that provide care for the most disadvantaged Arkansans, like those in or exiting our foster care system or those dealing with severe developmental disabilities. Those workforces have long suffered from low pay and the issues it causes with staff retention and staffing there. The reason I bring those up is just to kind of go back to the conversation y’all were just having. There are concerns that the federal government could claw back hundreds of millions of dollars in ARP funds if we pursue these tax cuts. We do not run any risk if we use those funds instead to invest in state programs, critical programs that could help families directly. So in summary, we know that Arkansans are already experiencing elevated hardships because of the pandemic. But if we hit a recession before spending down our surplus, or if we hit a recession after spending down our surplus to pay for tax cuts, I’m just worried about how we’ll be able to address the twin problems of falling revenue and increased pressure on public services that a potential recession would bring. Even without the threat of losing our ARP funds, I think that that could be bad for Arkansan families. And so, you know, all I’m urging really is that we kind of pump the brakes. As, as you’ve mentioned, you’re just making temporary tax cuts right now. They’re already going to phase in assuming our budget situation stays strong. I just don’t see why we need to come back right now and accelerate the tax cuts. Thank you all for the opportunity to speak. 

 

Sample Mr. Showers, would you take a question from Senator Rapert? 

 

Showers Yeah, of course. 

 

Sample Senator Rapert. 

 

Rapert Thank you, sir. Could you name one program that we have actually cut funding for in the last 10 years? 

 

Showers No, sir. Not off the top of my head. 

 

Rapert Thank you. 

 

Sample Are there other questions for Mr. Showers? Seeing none, thank you, sir. 

 

Showers All right. Really appreciate you all. 

 

Sample Now we have Dr. Evans. Dr. Evans will be speaking against the bill. If you would state your name and who you represent.  

 

Evans My name is Dr. Syard Evans. I’m the CEO of Arkansas Support Network and the president of the Arkansas Waiver Association. 

 

Sample Okay. 

 

Evans Thank you for allowing me to speak to the committee again today. Many of you remember I was here in December and, and asking at that time that prior to making changes to tax revenue that this state invest in the service industry and the service systems for individuals with disabilities specifically, but for all Arkansans in need, all Arkansans marginalized. And I return today to say, in those conversations in December, we heard from lots of elected officials that asked questions and wanted to pursue a conversation to look at our workforce and our industry. Disability services in Arkansas, home and community based disability services specifically, I have lost our capacity to be competitive and hire the direct support professional workforce necessary to support Arkansans with disabilities who qualify for those services. And that has been a building capacity. Senator Rapert, it’s not a program that’s received funding cuts in the past 10 years. It’s a program that’s been underfunded for 10 years. We have not had the ability to recruit the workforce necessary to do that work. And the position that the pandemic has put us in has put us in competition with fast food and retail employers that are able to raise their prices and pay higher wages. And we are locked into Medicaid reimbursement rates that are set in the budget, and we have absolutely no wiggle room. And what we are seeing today is providers are shuttering, providers are stopping taking new referrals. We’re seeing providers on the behavioral health side that have packed up and moved out of state because this is not a state that they can operate in successfully, leaving the most vulnerable Arkansans here without the support necessary. My ask in December was for us to delay cutting revenue as we move forward to address these issues. And I’ve had lots of conversations with lots of folks. The only change that we have seen since December is that the governor moved forward with moving approximately $37 million from the Medicaid Trust to fund the waiver waiting list. At the time in December, we said the provider infrastructure cannot support that. We cannot support the 5,000 people who are currently qualified for Medicaid waiver services. We cannot add an additional 3,200 people with the reimbursement rates that we have and the funding that we have. We have not seen any additional changes. There’s been no increase in our reimbursement rates from the past system, despite the past system returning almost $300 million through the risk corridor to the Medicaid Trust Fund. And we have not obtained a dollar of ARPA funds that were earmarked for our industry in March of last year. That money is still sitting at the passes and has not made its way to developmental disability providers. We are in dire straits and need support and assistance and we are not alone. Every service industry in Arkansas is struggling right now. We do not have the resources necessary to provide the quality workforce to care for the Arkansans that we all have an obligation to care for. And our ask is that before we accelerate those tax cuts and move us even further away from revenue cushion, before we redistribute the surplus in this budget, that we look at investing in the service structures of this state so that we can ensure that Arkansans have access to the services that they qualify for. 

 

Sample Senator Ingram, you have a question for Dr. Evans? 

 

Ingram Yes. So to clarify, the $37 million that was to clear the, the DD wait list, we, we sort of accomplished that. But when you’re talking about providers, you’re talking about people that are the in-home care that are the DD– that were on the DD list. We’ve got them off the list. But the money to pay providers that are in-home care is, is not there because of the rise in salaries. 

 

Evans Yes. If it’s all right, can I elaborate on the, the structure of that process? So Medicaid waiver, home and community based Medicaid waiver in Arkansas– well, as a federal program is, is a match reimbursement. And so in Arkansas, we receive about 71% of the funding for home and community based developmental disability waiver as federal, a federal match to what Arkansas pays in. And so that approximately $37 million is the cost for a single year of service at current rates for the 3,200 folks that were on the waiting list as of December. And then the rest of that money would come directly from the state– or from the federal government, my apologies. That, the rate of– that dollar amount was set based on the rate of current rates of service. Providers showed up at that time and said, we are thrilled for this. We have always advocated to be able to provide those services and clear that waitlist. We have always asked that people that have a critical institutional level of care need not have to wait on a list for 10 years to receive that service. But in, in the face of the additional workforce challenges the pandemic has caused us and the inability that we have to be competitive with any fast food restaurant or retail store anywhere around, that we need additional resources in order to be able to serve the people that are the 5,000 people currently on waiver. And there is absolutely no way that we can turn our eyes towards those 3,200 with this current system. Now the funding has been approved and the the waiver has been amended. So we just, as of last week, received approval from the federal government for the additional slots to be added to the waiver. So we are just at the cusp of beginning to roll out services to those 3,200 people over the next three years. And the reality that they’re facing is they’re getting a call and they’re being told congratulations, after 10 plus years of waiting for service, you now have a waiver slot, and they’re selecting a provider on the list of waiver providers. And they’re contacting that provider and they’re being told, we do not have a workforce to support you. You have to go on another waiting list, a waiting list that previously didn’t exist. 

 

Sample Senator. Are your questions answered? 

 

Ingram Yes, sir. 

 

Sample Members, are there other questions for Dr. Evans? Seeing none– Senator Rapert. 

 

Rapert And this is just to maybe make sure because I understand and, you know, I’ve spoken out in support–

 

Evans Absolutely, I remember your commitment at the last. 

 

Rapert –many years and and we’ve been making that. So I’m disappointed to know that all that effort is hitting a brick wall and the reality of what you’ve described. I did want to ask, just because I’m aware of recently a situation, would you say or could you say that this is also a factor affecting the mental health institutions in our state? Do you hear from them as well? 

 

Evans This is a factor that’s affecting every direct care system that we see. This, this is pervasive.  

 

Rapert Yeah. And all I’ll say for my colleagues, for all the money that we’ve put, Mr. Chairman, to crisis stabilization units, only because I was involved in hearing about a situation that I’ve had to recently deal with, it’s difficult and sad to know that we put all this money in these mental health crisis stabilization units, only to be told by sheriffs and those involved, there are no beds for these people. And I was even advised by one sheriff that we have people that have been ordered to the state hospital that are one year, have now been sitting one year in a jail, in a rural jail, with nobody effectively to be able to help them, to care for them, to administer anything to them, that’s able to do them. So all I’m saying is, since this has been broached, I just wanted to get it out here as you all prepare for the next session. Because it’s very important that we make sure that we’re doing what we can. So thank you for answering that, ma’am. 

 

Evans Thank you. And would it be okay for me to add to that, just a brief explainer? So one of the challenges that we found, there is a network of providers. Arkansas has the Arkansas Waiver Association, which I’m the president of, and also the Developmental Disability Provider Association. And we’ve been working in collaboration with providers within the DD community, in the behavioral health community, any community that will sit down at the table and work with us to try to create solutions. And, and we have brought a number of solutions to the state. We, we have looked at direct support professional credentialing that would allow some quality training and development of skills that, that could create a career ladder that would elevate this from an entry level workforce to long term career options. There are Arkansans that are not going to go into computers and coding and technology and be successful, but they have skills that are very valuable and beneficial in supporting this population of folks. And we want to give them a long term career track. We have looked at enabling technology as a resource to help balance some of the missing workforce pieces. And in those instances, we work hard to create opportunities and initiatives to maximize the resources that we have. And we are told in both of those instances and many more that the state, that DDS and DHS do not have the resources necessary. We were told with certification they didn’t have the resources necessary to manage certification. And, and just recently, DDS removed enabling technology from the waiver amendment that was just approved because they didn’t have the right answers for CMS when that was, was scrutinized. Our ask again is the revenue that we are cutting, we need to be funneling that to some of our state level departments. If those are the barriers, if we have providers and families and advocates that are working so hard to create meaningful solutions and make this work, we need support from the state in order to be able to make that happen. Thank you so much for the time. 

 

Sample Thank you. Members, are there other questions? Seeing none, thank you. Senator Dismang, would you like to close for your bill? You can close from here. 

 

Dismang And thank you Dr. Evans and also thanks for the other testimony we had in regards to the bill. And I think it is really a great example of some of the discussions that we’re going to be having as we move into the next session. You know, this is probably going to be one of the more involved sessions as we have the budget, because there isn’t a sector of our economy that has not been impacted by this inflation. And that includes our people back home. And that’s why we are bringing this tax cut now. There are other considerations in regards to inflation, what’s happening to our economy, and in particular those entities that we fund through the state that we’re going to have to take into consideration next legislative session. We’ll do that, and we’ll do that as a whole, not piecemealing it together. And so with that, I appreciate your time and consideration. I’m closed for the bill. 

 

Sample What’s the wishes of the committee? Senator, you can make a motion. 

 

Dismang Motion do pass. 

 

Sample We have a motion by Senator Dismang, a second by Senator Johnson. Is there any discussion on the motion? Seeing none, all in favor, say aye. All opposed, no. Chair recognizes Senator Ingram’s vote of no. The motion passes. And seeing no other business, we are adjourned.