Uncle Sam could use Arkansas’ accountants

By STEVE BRAWNER | Steve Brawner Communications, Inc.

There’s been both good news and bad news lately – the bad news coming from the federal level, the good news occurring in Arkansas.

The bad news is that interest on the $34.5 trillion national debt has become the federal government’s second largest expenditure. It’s bigger than national defense and bigger than Medicare.

As reported by the Committee for a Responsible Federal Budget, Uncle Sam in the fiscal year’s first seven months spent $514 billion on interest, $498 on national defense and $465 billion on Medicare. The only larger expense was Social Security at $837 billion. The government is spending more on interest payments than on veterans, education and transportation combined. Interest is the budget’s fastest growing part. It’s risen from $345 billion in fiscal year 2020 to being on track to equal $870 billion this year.

That’s 3.1% of the gross domestic product. It’s roughly $2,586 for every American. 

Part of those interest payments are going overseas. Foreign countries and investors hold about $8 trillion of the debt. The second largest debt holder (after Japan) is China. It held about $775 billion as of February, as reported by Reuters.

We’re borrowing money from China to help pay for a military to defend against threats including China. That’s pretty stupid.

I told you there would be some good news in this column, and there is. The Legislature last week wrapped up its fiscal session, and once again lawmakers budgeted responsibly. 

Lawmakers passed Gov. Sarah Huckabee Sanders’ $6.31 billion budget for fiscal year 2025, which was about $109 million more than the previous budget, or about a 1.76% increase. That’s less than inflation. As of Tuesday, the state projects a revenue surplus of $376.6 million for this upcoming year. This year’s surplus was projected at $491.3 million. Those projections would be updated Wednesday.

Meanwhile, the state has saved up $1.529 billion in its Catastrophic Reserve Fund, which only can be accessed in an economic downturn. It has $2 billion in its Restricted Reserve Fund. That includes $711 million in a new Arkansas Reserve Fund that’s also available if revenues fall, as well as set-asides for expenses like educational and correctional facilities.

Why does Arkansas do so much better than Washington, D.C.? Here are four reasons.

First, it’s smaller, easier to manage and not so politically divided.

Second, it gets a lot of money from Washington. It is a “recipient” state, meaning it, unlike “donor” states, receives more funding from the federal government than its residents pays in taxes. The money really has flowed the past few years thanks to the covid pandemic and two big programs, the Infrastructure Investment and Jobs Act and the Inflation Reduction Act.

Third, Arkansas since 1945 has had a law updated each legislative session, the Revenue Stabilization Act. It provides not only a legal framework for balanced budgets but also has helped foster a culture of fiscal responsibility. There’s no such mechanism at the federal level.

Fourth, Arkansas’ political leadership has abided by both the Revenue Stabilization Act’s letter and spirit. Governors from both parties have resisted the temptation to slash taxes while increasing spending. The Department of Finance and Administration has done its job ably and, thank goodness, boringly. Special credit goes to the current Joint Budget Committee co-chairs: Sen. Jonathan Dismang, R-Searcy, an accountant, and Rep. Lane Jean, R-Magnolia, who might as well be one. May they serve until they are term-limited, and then may they be replaced by others like them. 

What about the future? Sanders has said she wants to phase out the state income tax responsibly. She will call lawmakers into special session to make a rate cut later this year. Meanwhile, the state will build a big prison, and the price tag for last year’s LEARNS education package could grow higher than hoped for. At some point, Washington surely must run out of money to shower the state.

But, given Arkansas’ track record, it’s not unreasonable to hope political leaders will continue budgeting responsibly, and the state will avoid the fate suffered some years ago by Kansas. Its former governor slashed taxes while arguing that growth would make up the difference. It didn’t, and the state got in trouble. As Kansas and Washington, D.C., have demonstrated, Arkansas could be doing much worse.

Maybe Washington could follow Arkansas’ lead. There’s no one in line to shower the federal government with money. But a federal version of the Revenue Stabilization Act and a lot more accountants in Congress would help. 

Steve Brawner is a syndicated columnist published in 17 outlets in Arkansas. Email him at brawnersteve@mac.com. Follow him on Twitter at @stevebrawner.