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State lawmakers upset over 11th hour fund transfer

Pro Tempore Senate Speaker Jim Hendren and several other lawmakers are upset that state officials asked four legislative leaders a week ago to approve an agency spending up to $ 165 million in funds federal coronavirus relief just ahead of a deadline to avoid an unemployment insurance tax increase on employers in Arkansas next year.

On September 25, the Co-Chairs of the Legislative Council and the Performance Appraisal and Expenditure Review Subcommittee approved the granting of spending authority to the Division of Manpower Services of the Department. state trade, according to records from the Bureau of Legislative Research.

The co-chairs of the board are Senator Cecile Bledsoe, R-Rogers, and Representative Jeff Wardlaw, R-Hermitage. The co-chairs of the subcommittee are Senator Bruce Maloch, D-Magnolia, and Representative DeAnn Vaught, R-Horatio.

Earlier today, the state’s 15-member steering committee – appointed by Governor Asa Hutchinson to recommend the best uses of the $ 1.25 billion funds provided by the Federal Aid, Relief and economic security – called for using the money to consolidate the state unemployment insurance trust fund. The fund is used to pay for benefits.

[CORONAVIRUS: Click here for our complete coverage » arkansasonline.com/coronavirus]

The additional funds would avoid increasing employers’ UI premiums by an expected $ 10 million next year.

Taxable wage stabilization tax rates for employers for the following calendar year are based on the unemployment benefit trust fund balance on September 30 of each year.

The tax rate is now 0.2%, and without “these additional funds, it would have risen to 0.3% for the 2021 calendar year,” according to Commerce Department spokeswoman Alisha Curtis.

At the special Legislative Council meeting on Thursday, division director Charisse Childers said the initial estimate in June was that $ 350 million would be needed to consolidate the trust fund and avoid the increase in taxes.

“June 8 was the first time we brought this information to the attention” of Commerce Secretary Mike Preston and Steering Committee Chair Elizabeth Smith, said Childers.

Childers said that on the morning of September 23, she submitted a reduced request to Preston, but he was unable to get it on the agenda for that day’s steering committee meeting.

The steering committee met two days later, on September 25, to review the request for $ 165 million.

Childers said the trust fund had a balance of $ 795 million on Wednesday.

MEETING CONVENED

Hendren, a Sulfur Springs Republican whose uncle is Hutchinson, said he asked Bledsoe to call Thursday’s special Legislative Council meeting.

Hendren referred to a comment Preston made on September 25 to the steering committee.

The Commerce Secretary at the time said: “I will apologize if this (request) is rushed”, but he believed that more people were aware of the need to consolidate the trust fund and that he had first brought the matter to the steering committee. attention in June.

“It more than a little upset me,” Hendren told fellow lawmakers on Thursday.

“I saw two Democratic administrations and two Republican administrations,” he said. “This is the biggest mistake I think I’ve ever seen, and that’s why I asked you to come here and get answers.”

Hendren said the senses. Jonathan Dissman, R-Searcy, and Kent Ingram, D-West Memphis; and then House Speaker Davy Carter R-Cabot worked hard to bring the trust fund to a place where it was solvent, rather than the state relying on federal loans to pay off the unemployment benefits.

“Then as we got into this discussion about the CARES Act funds and whether or not we were going to consolidate them because they had started going down $ 800 [million] or $ 900 million to $ 600 [million] or a range of $ 700 million, there was never a discussion of … we’re going to have an automatic tax increase [in January]”said Henren.

There have been discussions that if there was any federal funds left over after meeting needs such as purchasing personal protective equipment and helping struggling schools and businesses, the state might consider put “funds in this [unemployment insurance trust fund] account where we don’t have to raise taxes, ”he said.

“I think that was really the feeling of most members of the Legislature was that we knew there was a dwindling trust account,” Hendren said. “But when you fell to $ 300 [million] or $ 400 million if not, I have to tell you that a fund balance of $ 670 million doesn’t seem like something we should collapse on, and that’s what we’ve been doing here.

“We have put these two presidents in a terrible position because of the inability to understand what is going on with this trust fund,” he said. “They were in a position where they had to decide whether they were going to sign a $ 165 million loan, possibly the largest ever to be signed under emergency rules, or raise taxes. . ”

Hendren said council did not have time to hold an emergency meeting to consider the request because “if the money was not in the account on Monday afternoon, we just found out, the taxes automatically increase.

“So I get a call [last] On Thursday afternoon, the administration informed me that we need to get emergency approval to prevent this automatic tax hike from increasing, “he said.

“Now I know there is a lot of support to do things to prevent companies that are struggling to get a tax increase,” Hendren said.

“But… to say that you’re surprised that we didn’t see this coming is a complete misunderstanding of the environment we find ourselves in,” he said. “Secretary Preston … I believe the responsibility ends with you.

“How do we know this won’t happen again?” How do we know that I won’t get another call, the chairman of [Legislative Council] is not going to get another call saying, “I need $ 165 million in three days or the taxes will go up automatically,” Hendren said. “To me, that’s the kind of inexcusable surprise. It just isn’t acceptable to put lawmakers in a position where they don’t have time to come together before issuing a $ 165 million credit. . ”

In response, Preston said, “We should have communicated this sooner.”

He said the request should have been put on an agenda earlier for the steering committee, so that the entire Legislative Council would have time to discuss the committee’s recommendation, but the necessary information arrived too late.

He said Childers had testified several times over the course of several months before legislative committees on the status of the UI trust fund.

“By transferring these funds and having the trust fund … a balance greater than $ 750 million, it keeps us at [current tax] rate for an entire year, ”Preston said.

“I can tell you… as a pro tempore, I had no idea we were considering a September 30 deadline for an automatic tax increase,” Hendren said. “I don’t know if I’m in the dark and should have known. I didn’t see it in the newspaper. I don’t think a lot of members mentioned it to me.”

“The information was out there,” Childers said. “We could have done a better job of making sure that date was bold and that was the date we were looking at.”

Wardlaw asked why the Commerce Department could not have asked the Legislative Council for authorization to spend $ 200 million earlier this month and “then the Legislature would have been informed of what was to come, and we would have you. given the credit… so you can spend up to that amount.

“So you could have come back to us in October and told us we spent $ 165 million [and], we are returning the remainder of that credit to the CARES law committee, ”he said.

“You could have made our life easier by drafting excess credit and then shifting that process,” Wardlaw said.

Childers said she understood the frustration and concerns of lawmakers.

“It wasn’t intentionally done at the last minute to catch you off guard,” she said. “This is not how I operate.”

Dismang said there was “still probably a bit of frustration” among lawmakers over how the Commerce Department’s Arkansas Economic Development Commission had handled the Ready for Business grant program and “a few others. problems.

“I think this plays a role in the response you get from members today,” Dissman said.

The Commerce Department launched the Ready for Business grant program on April 29 without legislative approval of its spending authority. The Legislative Council then ordered Preston to make up to $ 147.7 million in grants under the program.

When asked by how much the Division of Workforce Services expects total UI taxes to increase next year, the division “calculates employer rate adjustments from late October to early November. “Curtis said in a written statement Thursday afternoon.

Employers’ taxable pay base will drop from $ 7,000 to $ 10,000 per year per employee next year and is expected to increase UI regular earnings next year by about $ 66 million and stabilization tax revenue of about $ 6 million, Curtis said.

Taxable salary base is used to calculate the maximum amount an employer can be charged in UI premiums for an individual employee, said Zoe Calkins, spokesperson for the Division of Workforce Services. It is calculated each year on the basis of the unemployment insurance rate, the balance of the trust fund and the amount of payments from the previous year, she said.

Hutchinson spokeswoman Katie Beck said Thursday evening that “since March, the governor’s targeted response to COVID-19 has kept our economy from shutting down and thousands of Arkansans employed.

The governor has taken the necessary steps to provide funds to prevent tax increases on small businesses and to ensure that the unemployment trust fund is sufficient to help the Arkansans who remain unemployed due to COVID-19, “she said in a written statement.

Hutchinson said that “Every state faces the challenges of a global pandemic and many states are using CARES funding to replenish their unemployment trust funds.

“These are extraordinary times that often require quick action and the ability to adapt quickly,” he said in a written statement. “The legislature is an essential part of channeling these funds to the Arkansians and I hope they will continue to take necessary and swift action when needed.”

Governor Asa Hutchinson holds an antigen testing machine Tuesday, September 15, 2020 in Little Rock as he speaks during a briefing on Covid-19 at the State Capitol. (Arkansas Democrat-Gazette / Staton Breidenthal)

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