In mid-October the Legislature begins budget hearings, a thorough review of all state agency spending requests for the next two fiscal years. Budget hearings are essential preparation for the regular session that begins in January. The Legislative Council and the Joint Budget Committee conduct the meetings, in which state agency officials present their proposed budgets.
Legislators will study the requests and recommend spending levels for the full General Assembly to consider in the regular session. Also, legislators will recommend salary levels for state employees over the next biennium, and they will prepare appropriation bills that reflect the recommended spending amounts.
Budget hearings continue through the fall. During the first hearings legislators will consider budgets for relatively small agencies and regulatory boards that generate their own revenue through fees and assessments. In November they will look at the much larger budgets of the big state agencies such as the Human Services Department, which administers the annual $3 billion Medicaid program.
Legislators expect state agencies to ask for increases in their budgets, and we can be skeptical about requests for more money. On the other hand we also appreciate the need to provide necessary funding for vital services.
In many ways public policy is determined by how much money state government spends on various programs. We face tough decisions about the relative importance of programs that address social issues. For example, we will decide how much the state will spend on prison expansions, compared to drug abuse treatment programs that keep people out of prison. We will determine how much is spent on graduate degree programs, as well as on pre-kindergarten programs that prepare disadvantaged 4-year-olds for a successful academic career.
The Legislature will adopt budgets for the next two fiscal years, 2005-06 and 2006-07. A major task of legislators and state budget officials is to forecast as accurately as possible how well the economy of Arkansas will perform over the next biennium. If the economy heats up or cools down unexpectedly, Arkansas has a mechanism for ensuring that state agencies spend within their budgets. It is called the Revenue Stabilization Act.
If the economy slows down and tax revenue falls below forecasts, the Revenue Stabilization Act requires state agencies to cut their budgets accordingly.
During the session, the Legislature will set spending priorities and designate which departments have their budgets cut the most if the economy slows down. Generally speaking, programs are placed in Categories A, B or C. Those in Category A receive the highest priority and those in Category C have the least chance of being fully funded.
In Fiscal Year 2004, the state's net general revenue amounted to $3.5 billion, a gain of 8.5 percent over the previous year. Almost half that amount was spent on public schools from kindergarten through grade 12.
Another 16 percent was spent on higher education. Health and human services accounted for 21 percent and prisons for 6 percent.