House Revenue and Tax
Jan. 19, 2023
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Rep Eaves: All right. Good morning members, and good morning everyone in the audience. The first bill up on the agenda for today, and likely the only one at this point, is going to be Representative Fite’s House Bill 1032.
And before we get started, I just wanted to make a comment about how things are going to run in this committee, and it’s going to be very similar to the way my predecessor, Representative Jett, ran this committee. And I have big shoes to fill, because I think he did an excellent job. So we’re likely not going to hear bills if they do not have a fiscal impact statement. So all of you will know that. And if your colleagues in the House have questions– if you will help me relay that message. Even those that do have a fiscal impact statement, we may hear and we may not take a vote initially, and move those down the line or wait down the line in the committee process, as we get through some of the bigger items that leadership is working on with the Governor’s office, so that at the end of the day we know how much we have available to do some of the things we want to do. I know one of the priorities is going to be income tax cuts, so every time we have a bill in here that has an exemption or a cut or anything like that, that’s going to affect what we’re able to do toward the end of the session. So if you would keep that in mind, all of those bills are valid and worthwhile, but at the end of the day, there’s only so much we can do. And I do believe that the Senate Revenue and Tax is following a similar procedure. So with that being said, you guys help me keep on track, and we’ll recognize Representative Fite to present House Bill 1032.
Rep Eaves: Good morning.
HB 1032 Increases homestead property tax credit
Rep L Fite: Good morning. Mr. Chair, I have with me today Russell Hill from Washington County. He’s the assessor in Washington County. Please introduce yourself.
Hill (Assessor’s Association): Thank you for hearing us today. Just speaking on behalf of the Arkansas Assessor’s Association, and just from Washington County, we did our last county-wide reappraisal. We saw, for the average property owner in Arkansas, saw a 49% increase in their property values. It’s no secret that real estate market has just been wildfire across the entire state, and so we are in full support for increasing the homestead credit from $375 to whatever it can bear, with that half-cent sales tax across the state. This will help multiple home– every homeowner across the state would appreciate this help in this time where they’re seeing their property values hit– skyrocketing, which means they’re paying higher property taxes. So any tax relief– this is something that we support to help the property owners in Arkansas.
Rep L Fite: Okay. Mr. Chair, what this bill does, it raises from $375 to $425 the homestead credit. There’s 17 counties that went through reappraisal here, and they were all double-digit increases in the properties. And of course, under amendment 79, they can only go up 5% a year, but this will help offset it. On this bill today, I do not have– but it’ll go in effect the year 2024, and I’ve got to amend the bill to reflect that. And also, I have a Senate sponsor that I’ll need to add at some point. But it’s fairly simple. We have the money. DFA, I think, will be willing to come to the table and discuss the impact statement here at the point you would like to have them up here. But I’d be willing to answer any questions anybody might have at this time.
Rep Eaves: All right. Thank you, Representative Fite. Members, are there any questions? Representative Ray, you’re recognized.
Rep Ray: Thank you, Mr. Chair. Representative Fite, I believe in 2019 was the last time the homestead property tax credit was increased.
Rep L Fite: Yeah.
Rep Ray: Do you know– or do we know – maybe this is a question for DFA – how much revenue that half-cent sales tax was generating at the time versus how much it’s generating today? Because I know sales tax collections have gone up considerably since that time. Do we know that number?
Rep L Fite: I would be afraid to give you a number. It seems like it was around $230 million a year– something like that at that time. Now, I would ask DFA to clarify that, but–
Rep Ray: I’ll ask them. Okay. One additional thing– this may be a little bit tangentially related, but I know that in the past there have been efforts to take money out of the Property Tax Relief Fund Trust Fund, some might say raid it, and use it on things not related to Property Tax Relief Fund. Have you given any consideration to adding in protection so that that doesn’t happen in the future?
Rep L Fite: That’s coming in another bill.
Rep Ray: Okay. That sounds like a good bill. Thank you.
Rep Eaves: Thank you, Representative. Members, any other questions of Representative Fite?
Rep L Fite: I think we have some people here that would like to speak on this.
Rep Eaves: We do have someone signed up to speak for the bill – I believe that’s Mr. Hill – and I think he just spoke for the bill. All right. Is there anyone else who would like to speak for the bill? Anyone in the audience wants to speak against the bill?
Rep L Fite: Mr. Chair, I think they’re all for it in the audience.
Rep Eaves: It appears so. Yeah. Representative Fite, did you want to bring anyone from DFA up to give a little more detail–
Rep L Fite: Yeah.
Rep Eaves: –about how this works and how much it costs–
Rep L Fite: Yeah.
Rep Eaves: –and those kind of things?
Rep L Fite: Please.
Rep Eaves: All right. Can we get someone from DFA? Good morning, gentlemen.
Gehring (DFA): Thank you. Good morning members of the committee. Mr. Chair, Paul Gehring, DFA.
Brech (DFA): And Robert Brech, DFA.
Gehring (DFA): So DFA issued a fiscal impact statement for House Bill 1032. The homestead property tax credit is funded by a half-cent sales tax that the General Assembly enacted in a prior session, though that half-cent sales tax is deposited into the Property Tax Relief Fund Trust Fund. And as the counties provide the credit to the owners of the homestead, the fund then reimburses the counties. But over time, there is a balance that builds up in the trust fund that is available to the General Assembly for the purposes that it decides to use, but certainly, there is the ability to raise the amount of the homestead credit to accommodate for increases in the collections of the tax.
Rep Eaves: Members, do you have any questions for any of the gentlemen from DFA? None at all. Representative Ray.
Rep Ray: Thank you, Mr. Chairman. I guess my question would be the same one I asked earlier. Is it possible to know how much money the half-cent sales tax was bringing in at the last time the credit was increased versus how much it’s bringing in now?
Gehring (DFA): So, Representative, we do have a spreadsheet that has the calendar-year collections of the half-cent sales tax. Would be happy to get copies made or just distribute them to the committee.
Rep Ray: That would be wonderful.
Gehring (DFA): But if you have a particular year that– but we do have it by year– the amount of the collections, less the reimbursements to the counties to fund the tax credits.
Rep Ray: No. If you could send that spreadsheet, that would be great. I’m just trying to learn.
Gehring (DFA): Absolutely.
Rep Ray: Thank you.
Rep Eaves: Thank you, Representative. Representative Fortner, you’re recognized.
Rep Fortner: Thank you, Mr. Chairman. Paul, what is the balance in that fund right now, roughly?
Brech (DFA): Actually, the balance is extremely low. What happens– whatever the balance was on December 31, that is immediately transmitted to the counties. It was $120 million, approximately, and was transmitted to the counties on January 6. As the money comes in, that money will be sent to the counties until the entire certification is paid off, which we expect will be sometime in April.
Rep Fortner: Follow-up. So that account fluctuates?
Brech (DFA): It builds up. Once the counties are paid off, the monies accumulate. It’s around $30 million per month currently. Once the counties are paid off, it just builds up in that fund. Whatever’s in the fund in the first payment in January, that’s immediately transmitted to the county. So no balance is kept until the counties are paid off.
Rep Fortner: So it doesn’t ever go in a shortfall?
Brech (DFA): No. That’s correct. As long as the half-cent sales tax is enough, which it is currently.
Rep Fortner: Thank you.
Rep Eaves: All right. Thank you, Representative. Members, I failed to mention something at our organizational meeting and at the beginning of this meeting. Don’t ask for a follow-up. That’s not going to be necessary in here. My opinion on that is, this is the only place we have an opportunity to really dig in and ask questions on all these bills, so if you’re– have a line of questioning, just go ahead and keep going. And if you go too long, I promise I’ll let you know. All right? Representative Jean, you’re recognized.
Rep Jean: Thank you, Mr. Chairman. Mr. Gehring, I see that the impact for 2024 is $34 million. What will the total be for the homestead exemption that year? If the increase is $34, what is the total amount of dollars for the tax credit for 2024?
Gehring (DFA): Mr. Brech.
Brech (DFA): Currently the homestead exemption’s around $267 million.
Rep Jean: So add 34 to that.
Brech (DFA): Add 34 to that we’re right around $300 million.
Rep Jean: Okay. Thank you.
Rep Eaves: All right. Thank you, Representative. Representative Lynch, you’re recognized.
Rep Lynch: So if that account’s flush at the end of the year, do the counties just– is that just a bonus to the counties?
Brech (DFA): No. The counties only get what their certification is; the rest remains in that account. The way the current law is written, any excess funds that aren’t needed are to be swept in the catastrophic reserve fund at the end of the year.
Rep Lynch: So they don’t stay there?
Brech (DFA): Not currently. No.
Rep Eaves: All right. Thank you, Representative. Representative Wooten, you’re recognized.
Rep Wooten: Thank you, Mr. Chairman. I have a procedural question before we take a vote or do a pass or whatever we’re going to do on this.
Rep Eaves: Okay. Go ahead.
Rep Wooten: Okay. My question is, today, in the bills that we have– and I’m not by any means speaking against this bill, but I just want to be sure that committee understands– or I understand, just in these bills that are before us today, it’s $217 million in exemptions. And when you add in this $34 million credit or $35 million credit, it jumps to $252 million. And then we’re looking at surplus– we’re looking at inflation– we’re looking at recession– we’re looking at income tax elimination. So at what point do we say, “Well, we’re going to hold this until we get a better clarification or understanding, relative to where are we headed.” I mean, I don’t think we’re out of the economic downfall that we’re in by any imagination.
Rep Eaves: Yes, sir.
Rep Wooten: I mean, Amazon and Apple have several more have issued today additional layoffs. So, I mean, where are we headed as a –?
Rep Eaves: I’m going to– if you’ll hold that thought, I’m going to come back to that after we get through with questions on this particular one. But I have an answer that I think will help you with that a little bit.
Rep Wooten: Okay. Thank you.
Rep Eaves: Representative McAlindon.
Rep McAlindon: Thank you.
Rep Eaves: Did I say that right?
Rep McAlindon: You did. Yeah. That was great.
Rep Eaves: Okay. Good. You’re recognized.
Rep McAlindon: Thank you, Chairman. Quick question just to follow-up on Representative Lynch’s question. You said the excess moves to the catastrophic relief fund. Can you tell me how much of that moved last year after the counties were all paid?
Brech (DFA): Yes. $150 million was transferred in December. The way the law reads, it has to occur before December 31. And that hasn’t happened traditionally, but because of the excess revenues or the half-cent sales tax, it’s bringing in excess revenues. We did do that– we did sweep $50 million out last year as well.
Rep McAlindon: Okay. Thank you.
Rep Eaves: Thank you, Representative. Representative Ray, you’re recognized.
Rep Ray: Paul or someone– Robert, I want to make sure I understand how all of this money comes in and where it goes to. The money that’s brought in through the half-cent sales tax– am I correct in understanding it goes into a segregated account or a fund? What is the name of that fund?
Brech (DFA): The Property Tax Relief Fund fund.
Rep Ray: Okay. So this is not considered general revenue?
Brech (DFA): Well, I mean, it wouldn’t– well, no. I think it’d be– it goes into that fund specifically for this purpose, unless there’s an excess.
Rep Ray: Gotcha. Okay. Thank you.
Rep Eaves: Thank you. Representative Rye, you’re recognized.
Rep Rye: Thank you, Mr. Chairman. Folks, let me ask you this. Once you pay out for 2024, which is for 2023 taxes– that’s what we’re working on right now. Will the taxes for this year relate back to the $425 for last year, or will it be starting in 2025– 2024? I’m sorry, 2024.
Rep L Fite: 2024 is what it will be.
Rep Rye: Right.
Rep L Fite: Yes.
Rep Rye: It starts for this year?
Gehring (DFA): It would start for this assessment year is my understanding. But, then, those are for taxes that are collected and paid in 2024.
Rep Rye: So really, that $425 wouldn’t show up until 2024.
Gehring (DFA): That’s correct.
Rep Rye: Is that right?
Gehring (DFA): That’s correct.
Rep Rye: Okay. Okay. Follow-up, sir? Okay. Once you figure that out, are we going to have a balance after we do that the first year? Do you know?
Brech (DFA): There should be a balance. We suspect that we’ll have the counties paid up in April. So from May through December, that $30 million a month will just build up for the payments for next year.
Rep Rye: So you think we’re going to be okay on this?
Brech (DFA): Yes. Yes.
Rep Rye: Okay. Thank you all. Thank you, Mr. Chairman.
Rep Eaves: Thank you, Representative Rye. All right. Members, any other questions for DFA on this topic? All right. Seeing none, thank you guys for that.
Brech (DFA): Thank you.
Rep Eaves: Members, as I mentioned earlier, this bill – and I believe Representative Fite would agree with me on this – still have some things that need to be done to it, and there’s still some negotiations or, really, discussions is the correct term, with the Governor’s office on this. So today we’re just going to hear the bill; we’re not going to be voting on the bill. So Representative Fite, do you want to close for your bill?
Rep L Fite: I think it’s pretty– yes.
Rep Eaves: Okay.
Rep L Fite: I think it’s pretty simple. We’ve had 17 counties been reappraised. The others will be being reappraised. And you’re going to see increases like we’ve seen across the state already. And this fund is called the Property Tax Relief Fund fund, and so, as much of this money as we can give back to the people, I feel like we’re doing our jobs when we do that.
Rep Eaves: All right. Thank you, Representative Fite. I appreciate that.
Rep L Fite: All right. Thank you.
Rep Eaves: Again, members, we’re not going to be voting on this bill today, so we just want to hear it. Keep it in your mind. And if you have any questions of Representative Fite, you can see him later. You’ll see this bill again pretty soon. That’s the only bill that we’re going to be hearing today.
Holistic look at tax cuts
But I wanted to go back to Representative Wooten’s comments. And I addressed some of that a little bit earlier. And he is exactly right. This committee’s up to well over $200 million in tax-related items. So if income tax cuts are something that we want to do, which will come later in session, then we’ve got to be mindful of that on all of these bills that have exemptions. This one is probably a little bit different, because it doesn’t directly affect general revenue; it’s a special trust fund for one purpose. I think you’ll see another bill from Representative Fite, likely, that will address the automatic sweep that happens now. I don’t want to overstep my bounds here, but I believe that’s something similar to what he’s going to be working on. So again, if the bill comes into this committee, it needs a fiscal impact before we really need to hear it. And then we will still hear these bills with fiscal impact statements. We may not vote on these bills.
If there is no fiscal impact to general revenue or no revenue impact at all, we’re going to hear and vote on those bills. As we roll on through session, we’ll probably, at some point, have to get together on what our priorities are, as far as what we want to get out of this committee. And certainly, that’s something we’re all going to do as a committee and as a team. So members, do you have any questions on that? No. All right. Co-chair Beaty you want to add anything to that?
Rep Beaty: You got it covered.
Rep Eaves: Okay. All right. Any other business? All right. Seeing none, thank you for your time. Members, we are adjourned.