Arkansas politicians talk about the Arkansas Revenue Stabilization Act (RSA) as if it was a magic elixir for the Arkansas budget. Unless you are a budget geek you probably just took their word for it.
Even if you are not a budget geek, you need to know where RSA works well and where it is of no use. Why? Because while the politicians are telling you all is well, the state budget continues to grow with wasteful spending. That is bad news because the burden to support Arkansas government is already high per person.
After explaining what the RSA is, we want to cover two important issues.
- First, why RSA doesn’t control spending in good economic times.
- Second, most of the state budget bypasses RSA.
What is RSA?
The Arkansas Revenue Stabilization Act (RSA) was an innovation when first adopted 74 years ago by Act 311 of 1945. The act has helped Arkansas through some bad economic times, keeping the state from spending more money from the general revenue fund than it had, while keeping the most important state functions running.
The RSA is a priority list of all expenditures of general revenue. It controls the flow of general revenue to state agencies and programs. State expenditures under the RSA are usually categorized as “A”, “B”, or “C” priorities, but additional categories are sometimes used.
The Governor controls the percentage of general revenue released to each spending category, based on economic projections by his Department of Finance and Administration.
RSA excels in handling an economic downturn. The Governor with the help of the Director of the Department of Finance and Administration monitors how much revenue the state is collecting. If the revenue is lower than expected the Governor may reduce the percentage of money distributed to each class of expenditures. In bad times this means the highest priority items are the least affected by a revenue shortfall. By gradually reducing the money flowing to programs RSA avoids overspending and avoids spending all the money before the end of the fiscal year is over. When the country went through a depression former Governor Mike Beebe was able to adjust the distribution to each category downward so that Arkansas government did not run out of money.
RSA is intended as a simple process – spend less money on nonessentials when the general revenue budget is projected to have a shortfall.
Setting the RSA distribution is the second step in the budget process. First, the legislature passes hundreds of appropriation bills for state agencies and state programs. An “appropriation” bill is the authority to spend money up to the specified limit. But, having the authority to spend is not enough. The state agency must have the money before spending it. That is what RSA does. RSA is the mechanism for money from the general revenue fund to flow to state agencies and to local governments.
The amount distributed to an agency under RSA could be the same as the amount stated in the agency’s appropriation act or it could be less. When all of the appropriation bills are added up the amount could be more than available general revenue and RSA serves to limit distribution to each agency.
Even if RSA fully funds the amount requested in the agency’s appropriation, some or all of the money may be placed in a low priority that will be funded later in the year.
The Magic Elixir Doesn’t Work In Good Economic Times
It is hard for politicians to say “No” to spending. In bad economic times RSA helped weed out some low priority spending by the spending being put a low priority category and never funded. But in good economic times, like the current Trump economy, everything in RSA gets funded without anything being weeded out.
During bad economic times with less than expected tax collection, RSA can be described as “spend only what you have.” In good economic times with higher than expected collections RSA is better described as “spend everything you have.”
While RSA helps control the flow of general revenue in bad times, Arkansans need more restraints on spending. Wasteful spending seems to go unnoticed as the state gives across the board increases to almost all agencies, with some getting even higher increases.
Seventy-four years ago Democrats created Arkansas’ Revenue Stabilization. It’s time for our Republican majority to move the state forward with additional budget restrictions to spend our money more wisely.
Soon many Arkansas legislators will be heading out to national conferences. Their #1 question of their colleagues from other states should be: What have you passed in your state that helps control spending?
Here are some ideas:
- Instead of blindly giving across the board budget increases to state agencies consider PERFORMANCE-BASED BUDGETING.
- STOP rewarding bad management by spending more money every time a program is mismanaged and instead hold agencies and employees accountable.
- STOP giving the Governor hundreds of thousands of discretionary funds that he can spend on anything as long as one legislative committee approves.
- Build a REAL RESERVE FUND THAT CAN ONLY BE USED in real emergencies and in severe economic downturns, and only through an appropriation act approved by a vote of 3/4ths of the legislature.
The consequence of a “spend everything you have” policy is that every time there is a new “need,” politicians will scream “emergency” and pass new taxes.
RSA Applies Only To A Small Fraction Of The State Budget
According to the Encyclopedia of Arkansas: “The original act [Act 311 of 1954] eliminated more than 100 special funds and substituted a single general fund from which appropriations are funded.”
RSA is becoming ineffective because politicians bypass it. Currently, general revenue is only about 27% of state spending. When you include federal funds received by the state, general revenue is only about 19% of the state budget.
Most state spending is now from various special revenue funds, cash funds, trust funds, and surplus funds. Federal Funds are also a significant part of state government spending.
The Revenue Stabilization Act (RSA) doesn’t even apply to all distributions from the General Revenue Fund. RSA applies ONLY AFTER significant sums are distributed off the top.
Many politicians still brag on holding down increases in spending in RSA while most of state spending is done outside RSA. Your state Senator and Representative need to educate themselves about Arkansas spending and quit giving you happy news about RSA when spending is growing across the board.
It is long past time for politicians to quit disguising spending increases by shifting money to other state funds and where the public and press take less notice. Perhaps this shell game has contributed to so much tax money being funneled to funds other than the general revenue fund?
Magic Elixir Or Snake Oil?
The Revenue Stabilization Act (RSA) is not a magic elixir nor is it snake oil, although some political leaders sell as such.
RSA is just a tool for one chore – controlling the expenditure of money from the general revenue fund so that general revenue funding tapers down in bad economic times.
A screwdriver is a good tool but it not going to drive a nail or tighten a bold. RSA is also a good tool but Arkansas needs more budget control tools in its the budget toolbox.
Tell the Governor and your state legislators – it is time to weed out wasteful spending and low priority spending through new controls on spending.