House Revenue & Tax Committee

February 14, 2023

Rep Eaves: A quorum, we’ll get this meeting started. First on the agenda is going to be House Bill 1158 by Representative Mayberry. Representative Mayberry, you’re recognized to present your bill.

Rep Mayberry: I’m Representative Julie Mayberry, and I’m going to let my guest introduce herself.

Dickey: Gena Dickey, I’m the immediate past Chair of the Arkansas Early Childhood Association Public Policy Committee. And my day job is a consultant with dot2dot Consulting.

Rep Eaves: Good morning, glad to have you here. You can go ahead and present your bill.

Rep Mayberry: Thank you. First of all, I want to give thanks to Representative Les Eaves for allowing us to have discussion here today. Members, you know we’re not voting on this bill today. We can’t vote on it because there is a fiscal impact to it. And we’re not going to do that until after an education bill gets through and after an income tax bill gets through and all that.

So this is actually a wonderful feeling for me because I’m not trying to get you to vote yes today. It takes some of the pressure off. And really I think I wish we could do more bills like this to where we’re talking about the bill and having discussion of it. So I have a bill, you have to file a bill to get a fiscal impact, and we do have a fiscal impact on it. But my goal today is to hear from you as members and to also allow you to hear from many people who are here the reasons why we need a bill like this.

I admittedly will say this is probably not the bill that needs to be passed. It needs some work and I want your input. I want your input, everybody who’s here. I wish we had more opportunities to pass bills like this that we know that we’ve all worked on together. So this does deal with early childhood care and it is a crisis in the state. We need to be building a better infrastructure not only for businesses in the state, I’m sure many of you have had businesses in your community say there’s not enough child care, I can’t get workers to work. But also if we want to improve K-12 education we need to start at birth. And that is when the child’s brain is growing the most, zero to three. And it is where we spend the least amount of time thinking about and working towards. I can go on but I don’t want you to hear from me, I want you to hear from the experts today. And so I’ve brought Gena to kind of share what we’re dealing with in the state.

Dickey: Thank you. So I started in early education after– my first job out of college was fifth-grade school teacher and ended up in a long course of events in HR for a for-profit childcare company in the 1990s. And I remember the first week of that job I found out what we actually paid people. And at that time I had a toddler who’s now 30, and I was like how are you going to get anybody to come work this job? So I say that to say I’ve said for a long time I hope we can get this figured out, and I’ll probably be gray, which I don’t know if you can see from here that’s happened but I hope I’m not dead. So that’s my motivation today. And that we have done everything that can be done to improve the quality of early education in this state with the resources that have been provided. But until we address the workforce issue, we will go no further.

So I think that’s really my bottom line today. We’ve been looking at how we might do that. This bill is modeled after a bill that was passed in Louisiana in 2007 and it’s been a very effective lever. So we know that the most important component of an early childhood classroom is its teacher, not unlike our K-12 counterparts. But in my state, minimum licensing requirement is that I need to be 18 years of age and free of some criminal background history and tuberculosis free. So we’ve got 18-year-old girls caring for very young children. And I think what we have mistakenly thought for decades is that this is babysitting and it is not.

The brain research tells us that there’s more happening in those first five years than at any other time. And specifically around executive function skills. And if you ask any employer in your area that’s what they want from their employees. Executive function is I work well with others, I show initiative, I’m a problem solver. Those skills start in infancy and that groundwork is laid before I ever get to kindergarten. So the women and some men – we’re like 99% as you can see by the people behind me – that are caring for those children are far from being babysitters. We consider ourselves brain builders. 

We go by lots of names. But one of my colleagues did the math, when I enter into an early education program as a six-month infant as my family goes back to work and I stay in an early education program and in a childcare setting so that my family can continue to work or go back to school, I will have spent 11,500 hours in this setting. And you will not come up with a number equal to that until I get to the end of ninth grade from the day I start kindergarten. 11,500 hours. So you can’t say that the people working in these programs, albeit 18 years of age, making the minimum wage aren’t teachers, right? But that’s where the disconnect is.

We have what we call a trilemma in early childhood education that there’s a cost, quality, and compensation and until you address them all simultaneously, you can’t move them forward. So our wages do not encourage educated workforce. They don’t encourage a workforce to stay in their location, which affects the quality of care.

The implementation of curriculum with fidelity is one of the number one indicators that a child will have a positive outcome and building positive relationships. If you’ve got turnover that’s higher than one might want to admit, you’re not going to have either of those things. But we can’t increase the wages without passing it on to parents. And my guess is that you’ve already heard from constituents that childcare costs too much. So we find ourselves between what we might call a rock and a hard place, and that the only thing to do is that we’re going to have support outside the system. We’ve placed early education in a public market and it’s not working. That it’s based on what parents can afford, and what the quality of care any child should receive prior to kindergarten should not be exclusively based on what the family can afford.

Rep Mayberry: I do want to point out that the beginning part of this bill deals with workforce incentives. And I thought it was a really important part of the bill, and now I think it’s even more important. I do want to point out that our education bill that we will see here soon, that the starting teacher salary will be $50,000 a year, which is great for teachers. But if we’re trying to recruit and retain early childhood educators who will be working 12 months out of the year, and won’t have Christmas break off, and won’t have spring break off and work until six o’clock at night and don’t get off at three. You’re going to have a hard time, even more difficult time recruiting those early childhood educators. Because they’re going to say I love being around children, so let me instead do K-12. And they’re going to back away from early childhood education. So I think that’s an unintended consequence that we need to think about and start working on how do we fix that going forward.

The other thing that I want to point out is that I’m excited that in that plan that it moves early childhood education to our Education Department. So we are beginning to think of it as education and not just babysitting. So want to start out with that. So the very beginning, if you’ll notice, it deals with some incentives, some tax incentives for our workers to attain certain levels of certification. And they would get a tax credit if they have that, which is going to help them. Might actually need to be a little bit more now. Gena, do you mind sharing how much our early educators are making right now?

Dickey: So the University of Arkansas Medical Sciences put together a workforce study for us in 2017. They updated it in August 2022. And there is a– most of our educators, even with a child development associate’s credential, so a nationally recognized credential and an associate’s degree are still making in the $14 range. So that’s the tricky part, right? I’ve got a scholarship program in my state thanks to some additional money that was received from the federal government previous to the pandemic and the Division of Child Care provided some seed money to get that started. So we have hundreds of people going back to college to get their CDA or their associate’s degree but when I get out I’m going to make an extra $0.50 or a dollar.

Now, when I think about my non-traditional students, who often are leaving children to attend class, I’m just not sure I’m willing to do that for $0.50 on the dollar when I get done but that’s all they can do. That’s what they’ve squeezed out. The profit margin in an early education program on average across the country is 3%. And most of you who own a business wouldn’t have gone into business for a 3% profit margin. And what I tease is that profit is kind of a misnomer because really it just means when the air conditioner breaks down we can fix it or the van that picks up the school-age kids means we can fix it. So that’s what we’re talking about is how the razor-thin margins for our programs. And the only way to give that new scholar added money for that acquired education which we know affects the quality is to pass it on to parents.

Rep Mayberry: So this part where we’re doing the incentive does improve hopefully some salaries and helps them economically with some income tax cuts but also would improve the quality of care. And so as we mentioned, Gena mentioned, this bill idea, the root of it is from what was done in Louisiana, that’s the base of this. And I do want to point out that this is from Louisiana. The number of centers with higher quality ratings two to five stars increased more than six-fold from 73 in 2008 to 460 in 2011. And the proportion of centers with quality ratings of two to five stars more than tripled from 15% in 2008 to almost 50% in 2011. 

And then the number of directors and staff with level-one credentials increased from 963 in 2008 to 2,620 in 2011. The number of directors and staff with higher-level credentials levels two, three, and four increased from 284 in 2008 to 1,603 in 2011. So we have the stats to show that that piece can work. We have to figure out what amount is right and whether– I mean, basically, we chose the numbers that Louisiana currently is using. I kind of rounded them off because there were odd numbers.

The other part of the bill, if you look at the DFA impact on it, you might have had some questions because DFA makes reference to there only being three levels in the state of Arkansas of care, and my bill references six levels. And so that might be confusing to a lot of people. Well, I had to write it that way because in December we went from three levels to six levels. And the child development centers are now starting to apply to move them from a level three to a level four, five, or six or whatever level they can move to. Tonya Williams from DHS is here. I’d love to see if I can get her up here to kind of explain these levels because that is an important part of this bill.

Rep Eaves: If you would just please yourself for the record.

Williams (DHS): Tonya Williams, Director at the Division of Child Care and Early Childhood Education.

Rep Eaves: Thank you.

Williams (DHS): So we had three levels since 2010 in Arkansas. In December, we brought over a package through the promulgation process to add three additional levels. Because what we found in the 11-12 years that we’ve been operating, and what we really knew early on is that at level three, we had providers that exceeded that level. They really were above that and we want to honor that. So we added those additional levels four through six. And we have about 30 or 40 programs that have applied since the beginning of January to what we call level up or increase their level, go from level three to maybe level four through six.

As you can imagine, it’s like any kind of quality system, the higher the levels, the requirements increase. Staffing, child ratios start to decrease, staffing qualifications increase. We use two different tools that are nationally recognized. One is called the Environment Rating Scale and one is called the Program Administration Scale for Centers. And that’s really to look at this is a business, and if you’re going to run a business properly you need to have policies, financial procedures, personnel procedures in place. So the Program Administration Scale or Business Administration Scale for family child care adds that element for these programs to get really financially solid and have good policies in place. Happy to take any questions.

Rep Mayberry: If possible, I would love to have Gena come back up and sit here and see if we can answer some questions to members. I also don’t want to take up too much time answering too many questions because I do have a lot of people who want to speak, not necessarily for or against the bill but just to explain what the situation is. So do y’all have questions?

Rep Eaves: Members, any questions? I think your testimony is so good they don’t have any questions quite yet. So just keep going.

Rep Mayberry: That’s great. Well, then if you don’t mind, I would love for them to also hear from–

Rep Eaves: Sure. So we had Ms. Dickey, I believe she’s already spoken. And the next on the list would be Olivia Gardner. I believe she is signed up to speak for the bill. Good morning, if you just would introduce yourself for the record you can go ahead and start.

Gardner (AACF): Yes, sir. Good morning, Mr. Chairman and members of the Committee. My name is Olivia Gardner, I’m the Director of Education Policy at Arkansas Advocates for Children and Families. We’re an organization that’s been advocating for Arkansas children since 1977. I’m going to try and not be repetitive today of the things that you’ve already heard, very valid arguments. For families across the state, one of the most challenging parts of having a baby is finding high-quality and affordable child care. This makes it difficult for parents to enter, re-enter, or stay in the workforce.

The pandemic also exacerbated issues in our childcare system and created an impossible situation for parents, employers, and childcare providers. There are working parents who are struggling to find the balance between child care and work. Children struggling or children who are missing valuable educational opportunities. Employers who are wondering when their employees with children will be able to return to work, and childcare providers who are fighting to stay open and serve their communities.

Our state’s economy loses out on hundreds of millions of dollars in economic activity because of lack of childcare options. This bill will help businesses retain workers and help parents get to work. And it’s not speculative, as Gena and Representative Mayberry mentioned, similar legislation has been in place in Louisiana and seen success. I won’t go into all the compensation issues and the crisis that our early childhood educators face but this bill would be a positive step in addressing the compensation issues that have been mentioned and allow centers to stay open and be fully staffed. Therefore, allowing families to go back to work with the peace of mind that their children are in high-quality and safe environments. Thank you.

Rep Eaves: All right, thank you for that. Members, any questions?

Gardner: And I’m sorry for my voice.

Rep Eaves: It’s all good. Seeing no questions. Thank you for your testimony. Next on the list would be Amanda Baldwin. Good morning, if you just would push your button there and then state your name for the record, you can go ahead and get started.

Baldwin: Sure. I’m Amanda Baldwin. I’m the program coordinator for a program for children and family in the Delta out of A-State Childhood Services. And I’m here to speak about being a director of our early childhood programs and the issues that we have had, especially over the last few years with having enough staff and quality staff to work at our centers.

So I have been in this position for about 25 years total or been in early childhood for about 25 years, and over the last few years, it’s been the hardest that it ever has been getting staff for our centers. And it is one, the quality of the staff, the workforce. Also to be able to compensate them for the credentials that we’re asking them to have when they come in. So we are located or I’m located at A-State and we have a vast variety of college students graduating. And yet we can’t seem to recruit them into our early childhood classrooms because we cannot compensate them for the degree that they have just completed. And we have classrooms that have not been opened because we can’t staff them. We have a waiting list of young children, especially infants and toddlers. One of our centers alone has more than 100 children, infants on the waitlist. And we cannot give that parent a space because we do not have teachers in the classroom to be able to provide the care that they need to go to work.

And so we are continuously interviewing, trying to find that quality staff member and we’re just not being able to find them. The ones who were qualified have left to go on to bigger and better things that can pay them more, and we are still looking for the people who are those brain builders that are wanting to be there for those children. So that’s why we need this bill.

Rep Eaves: All right, thank you for that. Members, any questions? All right, seeing none. Thank you for your testimony.

Baldwin: Sure.

Rep Eaves: Next we have Nick Horton.

Horton: I’m speaking on a different bill, 1027.

Rep Eaves: I apologize. You sure you don’t want to speak on this one? [laughter] All right, it’s a little bit hard to read here, I got, is it Craig Manatt? If I said that wrong just introduce yourself for the record, you can go ahead and get started.

Manatt: Yes. Craig Manatt, President and CEO of People’s Bank in Sheridan, Arkansas. Good morning, Chairman and members of the Committee. I’m here today as a father of three, again a President and CEO of a community bank in Sheridan, Arkansas. And then a founding board member of Grace Discovery Center, a faith-based center that cares for about 65 children for the past seven years. 

And so what I’ve seen from my standpoint is definitely two needs. Access to high-quality education. And like the previous speaker said, that zero to two infant range is a critical, critical need. I see it from the center. I see it from my employees. I see it from my neighbors in my community. In Grant County, I believe we only have one Better Beginnings level that’s at our school district but there’s no Better Beginnings level child care facilities in our Grant County district. And then in our Saline County East End area, we only have one. So what I love about this bill is it’s going to incentivize higher quality standards for childcare facilities.

The second issue we face is the compensation, attracting and retaining talent. And again, this bill does a great job at pinpointing the incentives to making those teachers obtain higher credentials and higher quality care. And so just want to provide my perspective from outside the education system and what this means to my community.

Rep Eaves: Thank you for that. Vice-Chair Beaty, you’re recognized.

Rep Beaty: Does your institution provide child care expenses as a benefit to your employees if you feel so strongly on this?

Manatt: Right now we do not.

Rep Beaty: Do you have plans to do that?

Manatt: No, it’s something that we’ve discussed and I’ve just seen this bill for a couple of times. Whenever we provide employee benefits, we want to provide it to employees across the board. And so that’s one thing that I would just have to challenge, on how to give benefits to a certain group of employees and not the others.

Rep Beaty: Follow up. Kind of the same thing this Committee is having to do with a lot of these bills that we’re seeing today.

Manatt: Yes.

Rep Beaty: Thank you.

Rep Eaves: All right. Thank you, Representative. Members, any other questions? All right. There’s no one else signed up to speak for or against the bill. Representative Mayberry, I have a question or two. I’m recognized, thank you. I forgot to announce earlier I’ve got some special guests here, my mother and stepfather Ed and Sandy Lockett over here. My mother was an early childhood teacher and a director. So Mom, do you have anything you want to say? You’re good? 

Rep Mayberry: Oh come on, Mom. Need your help, Mom.

Rep Eaves: All right. So I’ve got daughters that have both struggled to find childcare for their young children. It’s an unbelievable expense for some of these young families. So I certainly appreciate the bill. One of the questions I would have is have you talked with anyone in the governor’s office about how this bill would interface or work with what they’re going to do regarding pre-K in the education bill that we’re waiting on?

Rep Mayberry: So I’ve had some limited discussion. As you know there are other things that are a little bit more pressing and so there has probably not been enough. That’s the difficulty of a brand new governor coming in. I have had discussions with people before. Numerous staff members, these were all things that I sent to DHS well in advance. We’ve been talking about this for a while. You all as members know it’s just kind of hard, we’ve had a very short amount of time. It’s drinking through the fire hose.

Rep Eaves: Well, I certainly support the idea. I know it’s something we need to do. And then the other question I had was should this bill pass, this would be the only – at least from my understanding – the only refundable tax credit that we have. So I think knowing that we’re not going to vote on this bill today I think that maybe that’s something we could all kind of discuss how that looks and maybe get with DFA and see how that looks. But that’s the only question I really have. Members, do you have any other questions of Representative Mayberry? No. You want to close for your bill?

Rep Mayberry: Yeah. I would just like to say that my goal today was really to bring attention to it. If you don’t want to discuss out loud right now, by all means come to me and tell me what your concerns are. We have lots of other things to discuss as well. Anybody else watching or in the room, I will say I want to make note that Excel by Eight has been out there for a long time working very hard on issues like this. And Jamie Ward could not be here today. I’m sorry about that. I would love to have allowed you to hear from her as well. Her heart is as big as can be on this issue.

And I’ll be honest with you, some of the criticism that I know that’s out there came to me right away after I filed the bill, that it’s a little confusing. And businesses want it simplified, make it a little bit easier. And that it’s not that much of a credit and incentive for the business to do it, that it’s a really small amount. We only have so much money to go around though. So if we increase that then we increase the fiscal impact. So those are all decisions that we truly can’t make until other things pass and we see how much money we have to work with. But open to ideas on how to fix those issues and address them.

Rep Eaves: All right, thank you. Like I said, I fully support this. Again, I don’t know if this bill is the one or maybe it is but I absolutely know that a big investment in pre-K will solve a lot of society’s ills right now.

Rep Mayberry: Well, I do want to point out because you say pre-K, and pre-K is three, four years old, and really where the crisis is zero to three. So that’s why I want to make sure we’re thinking even earlier.

Rep Eaves: Yeah, I agree. Well, thank you for the testimony, and thank you, those of you that spoke. Again, we’re doing everyone the same way, any bill that has a fiscal impact we’re going to let them be heard. And we will wait to take a vote on these bills as we kind of get more understanding of what money is left over after some of the big bills that are coming our way. So I appreciate it very much. Thank you, Representative.

Rep Mayberry: Yeah. Thank you.

Rep Eaves: All right, members that takes us down to Representative Ray, House Bill 1026. This will be a concurrence and Senate Amendment. Representative Ray, you’re recognized.

Rep Ray: Okay. Thank you, Mr. Chairman. Colleagues, House Bill 1026 is a bill we passed out of here a week or so ago. And when it got to the Senate end, an eagle-eyed proofreader caught a one-word typo. And so we needed to amend that to avoid a double negative there. And that’s the concurrence on the amendment. Be happy to answer any questions.

Rep Eaves: All right. Members, any questions? No questions. Representative? Okay. All right, seeing no questions. No one signed up to speak for or against the amendment. Representative Ray, you’re closed?

Rep Ray: Yes sir.

Rep Eaves: Would you like to make the motion?

Rep Ray: I move do pass on the concurrence.

Rep Eaves: Okay, we have a motion the concurrence Senate Amendment do pass. All those in favor signify by saying aye. Opposed? Congratulations, your bill is passed. And if you’ll stay right there we’ll move you down to House Bill 1027. You’re recognized.

Rep Ray: All right. Thank you, Mr. Chairman. So moving from House Bill 1026 to 1027. This bill would require voter approval of any new advertising and promotion tax or an increase in the rate of an existing advertising and promotion tax. And that’s all the bill does, there are no other substantive changes in the bill. I do want to emphasize just because I’ve had a few questions, that the voter approval would only apply to a new tax or to an increase in the rate of an existing tax. So for your areas that already have an advertising and promotion tax, this bill would not affect them unless they wanted to increase the rate, in which case they would just simply have to seek voter approval on that.

The reason that I’m running the bill is because I believe that whenever possible it’s reasonable that voters ought to be able to consent when their taxes are being increased. Most, not all, but most local taxes have to be approved by a vote of the people before they can go into effect. Think, for example, a local option sales tax or an increase in a school millage for example. But that doesn’t currently apply to advertising and promotion taxes. Those can be passed by just simply enacting an ordinance.

And I think that our laws and policies should be designed in a way that errs on the side of protecting the taxpayer. If you look at statistics from the Tax Foundation for example. They show that our overall tax burden is still the highest in the southeast, state, and local combined. And that’s even after eight years of significant work of lowering our tax burden. And if you look at their rankings on sales tax in particular, the state and local combined sales tax is the third highest and we have the third highest in the country. And then the A&P tax is layered in on top of that. So it’s even higher than it looks in a lot of instances.

So what that looks like in reality is for taxes that you’d pay on prepared food in a restaurant, in Little Rock, North Little Rock, Fayetteville, Hot Springs, some of these areas. You’re talking about tax that is higher than in 47 out of America’s 50 largest cities. So if you go to a restaurant and enjoy a meal with your family, your tax is going to be higher than it would be in Las Vegas, or New York, LA, or San Francisco. So that’s just some of the things that I’ve took into consideration here.

I should add I’ve worked with several or communicated with several groups around this legislation. I’ve amended it a few times to address some of the concerns from the Municipal League and the Little Rock Conventions and Visitors Bureau. And so I feel like we’ve gotten the bill in a good place that everybody can live with. And with that, I’d be happy to take any questions.

Rep Eaves: Representative Cavenaugh, you’re recognized.

Rep Cavenaugh: Thank you, Mr. Chair. If they want to reduce it does it require an election?

Rep Ray: No. I did not include a provision to require an election to reduce the tax because I think most people wouldn’t mind if their taxes were reduced.

Rep Cavenaugh: Just wanted to make sure.

Rep Ray: Yep.

Rep Eaves: Thank you, Representative. Members, any other questions? All right, seeing no other questions. We do have a couple of folks signed up to speak for the bill. We’ve got Nick Horton. Just introduce yourself for the record and you can go ahead and begin.

Horton: Yes, thank you, Mr. Chairman. I do want to speak on this bill.

Rep Eaves: Sorry about that.

Horton (OAA): No worries. They all told me I should have stood up and spoke so maybe I should have. Thanks for the chance to speak today. My name is Nick Horton and I’m the founder and CEO of a new group here in Arkansas called Opportunity Arkansas Action. To me, I see this bill, HB 1027 as really about one thing, and Representative Ray touched on some of these but to me, it’s really about fairness. There’s other benefits like having more voter participation in local government and keeping taxes low so our communities can thrive. But ultimately to me, this is about creating a level playing field in Arkansas.

To my knowledge, there’s no other local tax that can be imposed or raised at the local level without the direct consent of the voters. Sales taxes, millages, all sorts of other local taxes require a vote of the people, except for the advertising and promotion tax or the A&P tax. And I think this is fundamentally wrong and unfair. I think the citizens of Arkansas should have a say in this tax just like they do the other ones. And in fact, I think it might be even more important when it comes to this issue that voters have a say because this tax affects the cost of food, cost of lodging, and it also creates an unaccountable unelected A&P Commission to oversee the funds.

I think creating an A&P tax at the local level is a very serious matter and it should not be taken lightly or rushed through a city council or quorum court without input from the taxpayers. These taxes can also be raised as high as 4% in some cases without a vote of the people again after they’ve been initially imposed. And I think this is again fundamentally unfair but would be addressed by this legislation.

The other thing I would add – and I’ll keep my remarks short – is there has been some polling done on this topic and Arkansas voters about two to one support the opportunity to speak and weigh in on A&P taxes at the local level, including a majority of independent voters. And I think the great thing ultimately about this bill is that you can be for the A&P taxes or you can be against A&P taxes and you can still support this legislation because ultimately this bill is about fairness and simply letting the people of Arkansas have a say in how their money is being spent. Thank you.

Rep Eaves: Members, any questions? All right. Nick, philosophical question.

Horton: Sure.

Rep Eaves: Being that I think both of us– and I don’t know you personally but I know of you for a number of years. And Representative Ray and I’ve had this discussion somewhat but every year this General Assembly raises or lowers taxes or fees in some way without a vote of the people. So philosophically, because I agree with most of what you’re saying, but the citizens back home elect their city councils to represent them in what they think is best for the city. So how do you reconcile what we do down here versus taking that ability of the city council to do what they were elected to do from those people that elected them? Clearly, if they do something that most of the citizens don’t like they could unelect them like vote them out of office so to speak. But how do you see this as not being overbearing from the state side?

Horton: I think it’s a fair question. I think that argument would probably have a little bit more weight with me personally if all the other local taxes didn’t also require input from voters. So I think this one’s a little bit of an outlier in that case. And the other thing I would say I think at the state level it’s a little bit more difficult when you’ve got 135 people, plus state agencies, plus the governor’s office with a veto pen, plus you’ve got a three-fourths requirement that you’ve got to clear in order to do something like that. So I think the hurdles– there’s a little bit more accountability or checks and balances there when you’re trying to raise taxes at the state level, versus at the city level you’ve got eight city councilors and they can just– five of them can do this without any input.

Rep Eaves: Okay. I appreciate that. Representative Ray, yeah.

Rep Ray: Yeah, if I could just build on that answer. For anyone who’s interested in requiring voter approval of tax increases at the state level, please see me later about co-sponsoring HJR 1004.

Rep Eaves: Okay, let’s stay on topic here. Thank you for that. Members, any questions of Mr. Horton? All right, seeing none. Nick, thank you for coming down.

Horton: Thank you.

Rep Eaves: And we have Joseph Johns. There you are. Good morning, you’re recognized. If you would introduce yourself for the record, you can go ahead and begin.

Johns (ACRE): Good morning. Thank you, Representative Ray, Chairman Eaves. My name is Joseph Johns and I work as a policy analyst at the Arkansas Center for Research and Economics or ACRE. We are a privately funded research organization within the economics, finance, insurance, and risk management department at UCA. And right now I’ll be speaking on my own behalf, and I don’t represent the interests of UCA or anyone else at the University and their interest toward House Bill 1027. But again I’d like to just make three quick points about what House Bill 1027 does today.

The first is that while the bill does provide stronger protections for voters in its original form which required A&P elections to be held in general or primary elections. The current bill as it stands requiring A&P tax elections to be– or A&P taxes to be included during special elections, is still an improvement because A&P tax commissions can still pass A&P taxes without any sort of– again this was brought up in the last testimony but they can still be brought up and still passed by the A&P Tax Commission without any sort of voter approval. And I think that this bill is at least a small improvement on that.

Again talking about the different kind of taxes that are currently required to be approved by voters, the first is that local governments must seek voter approval prior to pledging revenue for bond payments under Amendment 19 of the Arkansas State Constitution. School districts must also hold elections for county property millage rate increases. And then counties and cities must also hold elections to pass local options sales taxes, as Nick Horton mentioned earlier. And then the Arkansas Municipal League has been working with Representative Ray on this bill and they actually estimate in 2018 that 57 Arkansas cities and towns have A&P taxes ranging between 1% and 4%. Little Rock, of course, is the highest at 4% because they have a 1% addition to provide for public parks.

And then second, there’s a higher voter turnout for general and primary elections than for special elections. Again the former version of this bill would have required general and primary elections to be where A&P taxes were listed. But the Arkansas Municipal League has spoken with Representative Ray and we feel that that is a better way to move forward with this bill to have them be included on special election ballots instead of general and primary.

And I do have a short handout here that I’ll just describe briefly. But there’s been research by Dr. Jeremy Horpedahl at the University of Central Arkansas that says that there’s a lower voter turnout for special elections than for general and primary elections between 2020 and 1981. And again for general elections, there’s a 44% turnout with a corresponding 44% passage rate for Arkansas local option sales taxes, county, local option sales taxes. 

During primary elections, there’s a 23% voter turnout with a 57% passage rate. And then finally, at the opposite end, there’s a 19% voter turnout for special and other elections and corresponding to a 76% passage rate. So we see an inverse relationship between voter turnout and passage rate. And right now we’re trying to essentially close that gap and make sure that as many Arkansas voters have the chance to support or oppose the tax legislation that the A&P Tax Commissions are proposing.

Third, the cost of special elections has been high in Arkansas since 1981. There have been over 1,004 local options sales tax elections since 1981, which cost an estimated $10 million to administer. And this implies an average total cost of $250,000 per year for the past 40 years. Of course, there’s no data for A&P tax elections because this would require– this bill would be the first one requiring such elections to happen but we just think that that’s at least a good idea, right, to start doing that.

And then finally, the combined state and local tax rate in counties with cities that have an A&P tax can reach upwards of 8.63%. In cities such as Little Rock, there’s a 6.5%. Of course, statewide sales tax, the Pulaski County sales tax is 1%, and then the Little Rock city sales tax is 1.13%. 

So in short, House Bill 1027 required A&P taxes to be listed during primary and general elections but has since been amended to require A&P taxes to be listed on special election ballots. This is still a positive change but since voters currently aren’t consulted at all unless you count the representative democratic process, which I think comes just a little bit short. But again, I’d like to thank you for hearing my testimony today and I’d be happy to answer any questions.

Rep Eaves: All right, members, any questions? Representative Rye, you’re recognized.

Rep Rye: Yes, sir. Thank you, Mr. Chairman. Once again, sir, as you were speaking about the elections being in primary and also in general elections. Is that the only two times that this type of tax would be available?

Johns (ACRE): So the bill originally was written such that A&P taxes will be included during general and primary elections but it has been since being amended, of course, by the Arkansas Municipal League and Representative Ray in conjunction to have those A&P taxes included on special election ballots only.

Rep Rye: So follow-up, sir, please?

Rep Eaves: You don’t have to ask for one, go ahead.

Rep Rye: So it would only be those two times, isn’t that right Representative Ray?

Rep Ray: Representative Rye, they would be able to hold that election on any date that’s allowable under 7-11-205. That’s the statute that governs when local measures and elections can be held. And currently they have four dates per year that they could put that on.

Rep Rye: Okay. Thank you, Representative. Thank you, Mr. Chairman.

Rep Eaves: Thank you, Representative Rye. Members, any other questions? All right, seeing none. Thank you for your testimony.

Johns (ACRE): Thank you.

Rep Eaves: Members, no one else signed up to speak for or against the bill. So Representative Ray would you like to close for your bill? 

Rep Ray: Yes. Thank you, Mr. Chairman. I’m closed for the bill and I move do pass. 

Rep Eaves: All right, members, you’ve heard the bill and we have a motion do pass. Is there any discussion on the motion? All right, seeing none, all those in favor signify by saying aye. Opposed? The ayes have it. Congratulations, you passed your bill.

Rep Ray: Thank you, Committee. Thank you for your patience.

Rep Eaves: Members, that is all we have on the agenda today. We will probably, in fact, I say we will be meeting Thursday. I’ll let you know whether it’s 9:00 or 10:00. So just keep your phones and look out for that. Is there anything else? Seeing none, we are adjourned.