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1945 Act keeps State's budget consistent.

ARKANSAS' ECONOMY HAS held up better than most as the national economy has suffered. Similarly, the state's government has not suffered the budgetary pains felt by many other state governments.

The Revenue Stabilization Act, passed in 1945 under Gov. Ben Laney, provided a simple model for funding Arkansas' programs, Mike Stormes of the Department of Finance & Administration said. The model makes it easy for the governor and legislators to cut funding should the state project less revenue than needed to fund all requested programs.

So far, 30 states have reported 2010 budget projections, with all projecting revenues less than originally anticipated. Arkansas is one of only six projecting a shortfall less than 5 percent, according to a Center on Budget & Policy Priorities report issued Tuesday. The state originally began budgeting in April, based on projections made at the time. Since then, the state's projections have anticipated $147 million less will be available than originally forecast--or 3.2 percent of the 2009 budget:

In the center's report the average projected shortfall among reporting states is 16.6 percent; and six states project shortfalls greater than 20 percent.

Arkansas' ability to budget consistently stems from two factors, Stormes said: the Stabilization Act and the state's multiple revenue streams.

The Stabilization Act prioritizes the state's general fund spending by creating categories for expenses--"A," "A1" and "B." The state's general fund meets the needs in order of classification, with "A" spending receiving funds first, followed by "A1"--funding priorities established by the governor and Legislature--and finally "B," said Stormes, the Office of Budget's administrator.

Forecasts for the 2010 budget, completed in April, showed that the state could expect revenue to fund all the "A" and "A1" classifications in the projected 2010 budget, Stormes said. The state's projected 2010 budget shortfall will affect spending in the "B" category, where it was determined only 53.9 percent of total funding requested will be received, he said.

"What's happening in all this is the agencies are being told they won't have all that money and they'll have to live within 53 percent" of the expected allocations for any spending in the "B" category, Stormes said.

The system forces the state to focus on basic services, while gradually expanding.

The act "is a pretty good way to slowly bring on additional services into the budget," Stormes said. New programs begin in the "B" category, meaning they cannot rely on funding, Stormes said.

Other states, like California, are facing much sharper cuts, Ross DeVol, an economist with the Milken Institute in Santa Monica, Calif., said.

California is "experiencing the exact opposite of that, where we have a state deficit," DeVol said. "Arkansas has managed its fiscal situation very well, it seems to me."

California projects a 2010 budget shortfall of $25 billion, or 24.8 percent of the 2009 general fund, according to the study.
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Author:Hengel, Mark
Publication:Arkansas Business
Date:Jan 19, 2009
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