Talks to prepare plans for January session

October 5, 2024

by Michael R. Wickline | Arkansas Democrat-Gazette

In preparation for the Arkansas General Assembly’s regular session starting in January, the Arkansas Legislative Council and Joint Budget Committee on Tuesday will begin holding budget hearings for state agencies for the upcoming fiscal year.

Arkansas’ education, prison and state employee pay plan overhaul costs will be among the major budget issues that state lawmakers will grapple with during the regular session starting Jan. 13, legislative leaders said.

During the budget hearings scheduled for 13 days during the next month and a half, the Legislative Council and Joint Budget Committee will authorize Bureau of Legislative Research staff to begin drafting a few hundred appropriation bills for state departments, commissions and boards for state lawmakers to consider during the regular session, after peppering state officials with questions about their agencies and their budgets.

The appropriation bills will grant spending authority for state, federal and other funds in fiscal 2026, which begins July 1, 2025, and ends June 30, 2026.

Gov. Sarah Huckabee Sanders is scheduled to release her proposed general revenue budget for fiscal 2026 on Nov. 21.

“Governor Sanders and her agencies are working collaboratively to craft a balanced budget that limits the growth of government, increases efficiency and delivers on the Governor’s promises to the people of Arkansas,” said Sanders’ spokesman Sam Dubke last week in a written statement when asked for a status update about where the Republican governor is in developing the proposed state budgets.

As far as the major issues during the legislative budget hearings, Senate President Pro Tempore Bart Hester, R-Cave Springs, said in an interview that “The No. 1 issue is always going to be what’s in the governor’s proposal.

“Is it going be (an increase) less than 2% as we have come to expect or is it going to be 4, 5 or 6% with inflation?”

Hester said that “I expect the governor to be as consistent as she always is and I expect to see a very tight budget proposal from the governor.”

State Sen. Terry Rice, R-Waldron, who is a co-chairman of the Legislative Council, said the state is still experiencing inflation and has granted pay raises to state employees.

“But we are expecting providers and critical services to get by on flat budgets,” he said in an interview. “It’s just not realistic.”

In this year’s fiscal session that adjourned in May, the Republican-dominated General Assembly and the Republican governor authorized a $109.3 million, or 1.76% increase, in the state’s general revenue budget to $6.31 billion in fiscal 2025, with most of the increase devoted to the Educational Freedom Accounts and the state’s public school fund.

In June, the General Assembly and the governor enacted individual and corporate income tax cuts that are estimated by the state Department of Finance and Administration to reduce state general revenues by $483.5 million in fiscal 2025 and by $322.3 million in fiscal 2026.

On Aug. 22, the finance department trimmed its projection of a $763.7 million general revenue surplus for state government to $280.2 million in fiscal 2025 by factoring in the income tax cuts enacted during the special session in June.

PAY PLAN OVERHAUL

In February, the Legislative Council signed off on the state Department of Transformation and Shared Service’s consulting contract for up to $5.5 million to Washington, D.C.-based McKinsey & Co. to help the state’s 15 executive branch agencies develop plans to become more efficient and improve services.

The consultant “certainly provided guidance on exactly how the pay plan should be,” said Kay Barnhill, administrator of the Office of Personnel Management. “They came in and gave us best practices of other states with recommendations on different methods of compensation. For example, some states use a step plan. Some states use a salary range.”

The consultant recommended the state consider all these options, but state officials haven’t determined the details of the proposed state employee pay plan overhaul, she said.

The proposed pay plan overhaul won’t be ready until a later date, Barnhill said.

“It is not included in our budget recommendations at this point in time,” she said. “We are not there yet where we have a cost range.”

Barnhill anticipates information about the cost of the proposed pay plan overhaul to be available when the governor’s proposed general revenue budget is released on Nov. 21, state Department of Transformation and Shared Services spokeswoman Brooke Hollowoa said Friday.

State government’s executive branch has 22,546 active full-time employees and their combined average salary is $52,886.88 a year, said Hollowoa.

In June, Gov. Sanders said in a letter to state employees that “We all recognize that our state’s current pay plan is imperfect, which is why I launched the Arkansas Forward initiative and plan to approach the 2025 legislative session with an overhauled pay plan that better rewards performance and keeps us competitive in employee compensation.”

The Arkansas Forward Initiative also focuses on information technology, procurement, real estate, organizational effectiveness and vehicle assets.

“The results of this initiative will drive Executive Recommendations for this biennium,” Sanders said in a letter to Cabinet secretaries and agency directors in June. “Please continue to focus closely on this initiative, which will help us deliver better, more efficient state government services at less cost.”

The governor said she expects state agencies to continue to find cost savings opportunities outside the scope of Arkansas Forward.

State government last overhauled its executive branch pay plan in 2017 under then-Gov. Asa Hutchinson. That plan was projected to cover 25,000 full-time state workers and cost a total of $57 million to implement in fiscal 2018.

In March of 2023, Gov. Sanders said she wouldn’t support a broad-based pay plan increase in the state government’s employee classification and compensation bill with a total price tag of about $80 million that doesn’t consider the strategic needs in education, public safety, health care and corrections.

During this year’s fiscal session, the Legislature enacted the governor’s legislation that authorized state employees to receive “a market adjustment” of up to 3% of the employee’s base salary in fiscal 2025 that started July 1.

In June, she authorized a one-time 3% market adjustment pay increase for state government’s executive branch employees that went into effect in June, and also authorized a 1% base salary merit raise for executive branch employees who have met expectations in their recent performance evaluations, and a 3% base salary merit raise for those employees who have exceeded expectations in their performance evaluations effective in July.

Hester said that “I really feel like so many state employees are performing really well and we need to be paying them a fair wage.

“This new pay plan I think needs to be significant and show our appreciation to the people who have stuck it out with the state,” he said.

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