Who is more out of touch with economic reality, the reigning leadership of the national Republican Party or the neophyte version in the rising Arkansas GOP?
It is a hard question. They shun reality from different directions, but to make their stories believable both depend on voters having short memories.
The national party message for three years has been that President Obama caused ballooning deficits and static employment and it calls for more tax cuts for the well-to-do and corporations and less economic regulation, which were exactly the things that produced surging budget deficits and a comatose employment economy 10 years ago and the financial collapse in 2008.
But the Arkansas economy has seemed to sputter along at a little better pace than the nation as a whole; at least the state government is solvent and the unemployment rate is lower than the rates of a few nearby states and the national average. Last week, the state's fiscal agency revealed that the state's general revenues for the first 11 months of the fiscal year exceeded the forecasts and that the state is liable to end fiscal 2012 with a little surplus of $57 million and maybe more. The man in charge, Mike Beebe, is a Democrat, which makes it hard to get much political traction from the situation.
So Republican leaders produced this explanation: Bountiful tax collections and an impending surplus mean that Beebe was wrong last year to object to the tax breaks the legislators insisted on giving to favored businesses on the premise that they would impair the state budget. We should have cut even more taxes because the budget could have stood it, they said, and next year when the legislature reconvenes they intend to cut income taxes, particularly taxes on investment profits, since evidence suggests it will not cause a reduction in services.
Short memories again.
The state's fiscal condition is not nearly as wholesome as the balanced budget and surplus suggest. One reason for the comfortable budget and surplus is that Governor Beebe (and the Democratic-controlled legislature) have adopted budgets since he took office in 2007 that were based on the most dismal economic forecasts for each year. Twenty years in the state Senate under Governors Clinton and Huckabee taught him the consequences of following optimistic forecasts — midyear spending cuts and layoffs or, in the case of Huckabee, tax increases.
But the bigger explanation for Arkansas's fiscal health, or the appearance of it, is the American Economic Recovery and Reinvestment Act of 2009 — yes, the Obama stimulus program so reviled by Republicans and conservatives generally. Were it not for the stimulus, Arkansas would have no surplus this year and it would have faced huge cuts in services or else higher taxes for the past three years.
That is not a hunch or even an analysis. It is a fact. When it reconvenes in January, the legislature and its Republican cohort, whether it is a majority or minority, will confront that fact head on. The legislature will have to find hundreds of millions of dollars for the next biennium to continue health and custodial services to people in nursing homes and 500,000 children of low-income families who receive medical care each year or else curtail them.
It is easy to calculate how the surplus occurred. The stimulus act raised the federal share of Medicaid costs for Arkansas, relieving the state's spending on the program for two years, until 2011.
Federal stimulus aid bolstered the Arkansas budget by $753 million over that time. That is $753 million that the state — Arkansas taxpayers — would have shouldered if there had been no stimulus program. That eliminates the $57 million surplus and reflects an actual deficit of almost $700 million since the 2010 fiscal year began in July 2009. By law we cannot by run a deficit, so the state would have had to cut $700 million somewhere — from Medicaid, public schools, colleges, prisons or from scores of small agency budgets, forestry for example.
When the stimulus aid for Medicaid was exhausted last year, the state had to start spending more general revenues and the Medicaid Trust Fund, the proceeds of the soft-drink tax. The state is now spending up the trust fund, which had built up for two years while stimulus aid supplanted it. The trust fund will be exhausted as the state enters fiscal year 2014, so until then we will continue to feel the direct benefit of the stimulus.
The stimulus is a wonderful thing for legislators. They can rage about the wasteful spending that ran up the federal deficit. Privately, they can be thankful it saved their tails.