THE STATE OF ARKANSAS

1
THE STATE OF ARKANSAS
Budget Process and Related Statistics
2
Public Managers
..public managers can have the most influence
over the nature of accountability for
performance. After all, an agencys managers
understand (or should understand) their
organizations capabilities. They know what the
agency can and cannot do---what results it can
and cannot produce. Thus they could explain to
the various stakeholders what expectations for
performance would be reasonable (or
unreasonable), and what flexibility and resources
would be needed to achieve higher---but still
reasonable---levels of performance. -
Robert D. Behn Rethinking Democratic
Accountability
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Public Managers
Clear Vision/Mission Credible Flexible Negotiator
Communicator Good Steward Planner
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PUBLIC SERVICE

• Whatever you do, you would be well advised to
  practice stern discipline and vigorous
  unremitting effort. For high qualities and great
  achievements are not merely matters of chance or
  birth. They are the products of long and
  disciplined toil
• - John F. Kennedy

5
Introduction

• Arkansas Government requires the development of
  both a Biennial Budget for all state agencies as
  well as an Annual Operations Plan for each fiscal
  year of a Biennium.
• This presentation provides an overview of the new
  Arkansas Budget Process as authorized in A.C.A.
  19-4-605 et. seq.

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Public Budgeting

• The democratic, rational and economically
  efficient allocation of limited resources to
  finance public wants and desires for information,
  goods and services.

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The Importance of Effective Budgeting

• Budgeting is one of the most important activities
  undertaken by government
• The budget process is the focus point for key
  resource decisions
• Resource decisions shape policy decisions and
  vice versa.

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Budget Process

• Biennial Process determined by the Constitution
  Statutes
• Process amendable in statutes by the General
  Assembly through the law making authority.

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Budget Planning Cycle
1
2
3
BIENNIAL BUDGET 2006-07
AUTHORIZED BUDGET YR1 FY06
AUTHORIZED BUDGET YR2 FY07
AGENCY REQUEST (JUNE JULY 2004)
AGENCY PREPARES ANNUAL PLAN (APRIL - MAY 2005)
AGENCY PREPARES ANNUAL PLAN (APRIL - MAY 2006)
EXECUTIVE RECOMMENDATION (AUGUST 2004)
DFA - BUDGET REVIEW (MAY 2005)
DFA - BUDGET REVIEW (MAY 2006)
LEGISLATIVE RECOMMENDATION (OCT - DEC 2004)
DFA - ACCOUNTING REVIEW (JUNE 2005)
DFA - ACCOUNTING REVIEW (JUNE 2006)
AGENCY BIENNIAL BUDGET
AGENCY ANNUAL PLAN
AGENCY ANNUAL PLAN
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Budget Authority

• State Constitution
• Title 19 of the Arkansas Code Annotated 1987
• Other Statutory Law
• Special Language in Appropriation Acts

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Constitutional Restrictions

• No money shall be drawn from the state Treasury
  except in pursuance of specific appropriations
  made by law
• The purposes of which (appropriation) shall be
  distinctly stated in the bill and the maximum
  amount which may be drawn shall be specified in
  dollars and cents
• No appropriation shall be for a period longer
  than two years
• All appropriations, excepting the ordinary
  expenses of the elective officials, shall be made
  by separate bills, embracing one subject

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Budget Planning Periods

• Arkansas Government requires the development of a
  Biennial Budget for all state agencies and
  implementation of that budget through development
  of an Annual Operations Plan for each fiscal year
  of a Biennium.
• Each state agency other than the elected
  constitutional officers, the legislative branch
  and its staff offices, the judicial branch and
  its staff offices, the Arkansas State Highway and
  Transportation Department, the state-supported
  institutions of higher education, and the
  Arkansas State Game and Fish Commission shall
  prepare an annual operations plan for the
  operation of each of its assigned programs for
  submission to the Chief Fiscal Officer of the
  State.
• The annual operations plan of each state agency
  shall contain a quarterly fiscal program
  indicating the proposed expenditures and
  anticipated resources for each quarter of the
  ensuing fiscal year. Anticipated resources shall
  be based upon forecasted resources estimated to
  be available.

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Appropriation

• Maximum authority
• to spend
• or
• obligate funds
• IF
• funds are available

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Appropriation Categories

• Operating / Miscellaneous Appropriations
• Appropriations made for the operations of State
  Agencies
• General Improvement Fund Appropriations
• Appropriations made for construction projects or
  other major capital expenditures

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Items of an Appropriation

• Regular Salaries - Full-time employees
• Extra Help Part-time or temporary employees
• Maintenance and General Operations
• 02 - Operating Expenses
• 09 - Conference Fees Travel
• 10 Professional Fees Services
• 11 Capital Outlay
• 12 Data Processing Services
• Special Line-Items

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Biennial Budget Process

• Specific protocols in statutory law
• Line item based
• Constitutionally established
• Requirement of the Executive for a Balanced
  Budget
• Authorization by Appropriation Acts
• Funding by statutory tax and fee structure

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Biennial Budget Process

• 3 Distinct Phases
• Agency Request Phase
• Executive Recommendation Phase
• Legislative Recommendation Phase

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Agency Request Process

• Establish beginning numbers from AASIS
• Establish Base Level as defined by the Governors
  Policy Letter
• Positions within CAP
• Agency makes requests above Base through Change
  Level Requests
• New Requests adhere to Policy Letter
• Reallocation of Existing Resources where possible
• Finalize Request with approval of Agency Director
• Request analyzed by DFA Budget Office for
  presentation to Governor

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Executive Responsibilities

• Issues Governors Policy Letter
• Influences Agency Requests
• Establishes Base Level
• Conducts Executive Budget Hearings
• Submits Final Executive Recommendation to ALC/JBC
  Committee in Hearings held in the Fall of even
  numbered years

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Legislative Responsibilities

• Bills drafted from Legislative Recommendation
• Requires Do Pass from Joint Budget Committee
• Legislative Gubernatorial Consensus for
  Appropriation Act (or Veto)

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Legislative Pre-Session Hearings

• Executive Recommendation presented to ALC/JBC
  Hearing Committee
• Hearings conducted October to December of
  even-numbered years
• Anticipates Regular Session in January of
  odd-numbered year

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Infrastructure Budget

• Capital Projects Requests
• Automated process
• Must be Appropriated
• General Improvement Fund stabilization similar to
  General Revenue
• Allows for Reappropriation of previous Sessions
  projects
• Appropriation of Other Revenue Sources

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Special Interests

• Special Interests play a role in shaping public
  policy.
• Various public Lobbyists assist the Governor and
  Legislature with information on the budget.

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Budget Implementation

• DFA Office of Budget issues instructions to
  agencies to develop AOP
• Establishes operating budgets on state
  information system (AASIS)
• Insures deficit prohibition
• Provides management tool for agencies

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Annual Budget Process

• Appropriation Acts contain maximum authorizations
  for Agencies
• Must be balanced to available funds agencies
  certify income
• Revenue Stabilization Act provides for General
  Revenue

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End of the Budgeting Process

• Development of an AOP for the even numbered
  Fiscal Year or first Fiscal Year of a Biennium
  completes the Biennial Cycle

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Financing the State Budget

• State General Revenue
• Revenue Stabilization Law
• Federal Funds
• Special Revenues
• Cash Funds
• Non-Revenue Receipts

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Revenue Stabilization

• Defines General Revenues of the State
• Prioritizes State budget by A, B, C
  allocations
• Provides for distribution through the Official
  Revenue Forecast
• Provides a rational reallocation in the event of
  economic expansion or recession
• Does not require action by General Assembly in
  the interim

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Gross General Revenue Collected
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General Revenue Collections (CAFR)
Revenue Stabilization Law prevents deficit
spending.
FY05 Estimated gross collections 5.05
(billions)
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General Revenue Collections (CAFR)

• Arkansas two largest sources of general revenue
  are collected from a 6 state sales/use tax and
  from the individual income tax. 
• Arkansas income tax rate ranges from a low of 1
  to a top rate of 7, averaging 4.4 per
  individual.  In recent years legislation has been
  enacted providing tax relief for Arkansans
  through personal property tax reform and income
  tax relief.
• Other general revenue sources include taxes on
  alcohol and tobacco products pari-mutuel betting
  on horse and dog racing severance taxes on oil,
  minerals, gravel, and natural gas corporate
  franchises and corporate income estates and
  real estate transfers.
• Arkansas voters approved Amendment 75 to the
  Arkansas Constitution, increasing the state
  sales/use tax by 1/8th cent to provide money for
  the states parks, heritage, and game and fish
  programs as well as the Keep Arkansas Beautiful
  Program.
• The State of Arkansas is noted for its strong
  fiscal restraint.  The Arkansas state budget must
  be balanced. Deficits are specifically prohibited
  by law. Tax collections are constantly monitored
  and government expenditures closely reviewed, and
  adjusted when necessary.

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General Revenue Distribution (CAFR)
88 of every general revenue tax dollar is spent
on education, health, and human services.
FY05 Estimated distribution 4.3 (billions)
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General Revenue Distribution (CAFR)

• Almost one fourth of our states 2.5 million
  citizens access the states education system. 
  There are over 449,000 public school children in
  kindergarten through grade 12. Arkansas higher
  education enrollment exceeded 100,000 students
  for the fifth consecutive year. Another 33,000
  students are served through vocational workforce
  education initiatives.
• Included in the distribution of general revenues
  are funds earmarked for education, particularly
  for K - 12 students. The Educational Excellence
  Trust Fund established in 1987 and the
  Educational Adequacy Fund established in 2004,
  both provide specific revenue streams to insure
  adequacy and equity in funding for the state's
  education system.
• One out of every six Arkansans is eligible to
  receive assistance from at least one of two major
  economic and medical assistance programs
  Medicaid and Temporary Assistance for Needy
  Families (TANF). A TANF program meeting federal
  requirements to move citizens from welfare to
  work is a priority of the current Administration.
  
• Arkansas' criminal justice agencies include State
  Police, Crime Laboratory, Crime Information
  Center, correctional institutions, and innovative
  community correction and supervision programs.
• The remainder of each tax dollar goes to fund
  budgets in areas such as industrial development,
  environmental activities, and parks and tourism.

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All Revenue Sources (CAFR)
FY05 Estimated collections 12.5 (billions)
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All Revenue Sources (CAFR)
Personal and Corporate Income Tax - revenues
collected from citizens and corporate entities
based upon their taxable income as defined by the
Internal Revenue Service and Arkansas law. 
Revenue collected is distributed to state
agencies in accordance with the Revenue
Stabilization Act and used to provide programs
and services such as Education, Health, Human
Services and Correction. Consumer Sales Tax
revenues collected from consumers on the
purchases of goods and services, as proscribed by
Arkansas law. This revenue is also distributed to
state agencies in accordance with the Revenue
Stabilization Act. Gas and Motor Carrier Tax
special levies on the purchase of motor fuels and
certain vehicle related transactions.  This
revenue is used to fund the Arkansas Highway and
Transportation Department. Other Taxes
special taxes as defined by Arkansas law.  These
funds are often called special revenue and
include such levies as a timber tax in support of
the Arkansas Forestry Commission and are
collected for the operations of specific state
agencies or programs.
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All Revenue Sources (CAFR)
(continued)
Intergovernmental federal revenue used to fund
federally mandated programs or to support federal
grants.  Most federal funds utilized in Arkansas
are matched by state funds in order to maximize
resources. Other Revenues sometimes called
cash funds this revenue is collected through
the sale of licenses, tuition, fees, permits,
goods, services, investment income, fines and
other items. The revenue is collected for the
operation of specific state agencies or programs,
the most significant of which is the states
Institutions of Higher Education. Enterprise
Funds generated from various goods and services
provided citizens on a user charge basis. 
Activities of the Workers Compensation
Commission and Employment Security Department are
examples of such funds.
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State Government (CAFR)
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General Improvement
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General Improvement
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Performance Based Budgeting

• PERFORMANCE
• BUDGETING
• AND
• ACCOUNTABILITY
• SYSTEM

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Performance Based Budgeting

• Performance budgeting is a systematic approach to
  help government become more responsive to the
  taxpaying public by linking program funding to
  performance.

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Performance Management

• Significant cultural change for government
• Demands accountability
• Documents results
• Focuses agency endeavors
• Requires professional management

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Strategic Context
Organizations often progress through four phases
when implementing performance management and PBB
over many years.
What Performance?
Performance Measurement
Performance Management
Performance Optimization
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PBB Strategic Planning

• Requires establishment of agency mission
  statement and Program(s)
• Requires the Plan to have understandable goals,
  objectives and strategies.
• Requires results-oriented performance
  measurements

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PBB and Final Authorization

• Assigns dollar cost of Programs and Objectives
  for decision makers
• Establishes human resources needed to accomplish
  Plan
• Decision makers set Targets
• Requires the inclusion of funding amounts for the
  fiscal period
• Appropriation bill enacted

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Evaluation of Results

• Requires data collection in support of activities
  being measured
• Interim Progress Reports
• Performance Audits

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Performance Based Budgeting

• Challenges
• Begin budget culture change
• Linking planning, budgeting and results
• Improving performance measures and data
• Sustaining the momentum
• Recognizing and rewarding good management
• Addressing programs that cross agency lines
• Achievement within a political environment
• TRAINING

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History of Performance Based Budgeting in Arkansas

• Act 221 of 2001
• Set out the requirements and implementation
• Act 1463 of 2003
• Clarified and added additional requirements
• Act 237 of 2005
• Eliminated Performance-Based Budgeting for State
  Agencies

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Act 221 of 2001
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Act 1463 of 2003
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Act 237 of 2005
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Other Aspects of the State Budget Process
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Agency Personnel

• Non-Classified Agencies are agencies in which
  employees are exempt from provisions of the
  Uniform Classification and Compensation Law. The
  Institutions of Higher Education are considered
  Non-Classified Agencies, but are not exempt from
  provisions of the Uniform Classification and
  Compensation Law.
• Classified State Agencies operate within the
  purview of the Executive Branch of State
  Government and are prohibited from budgeting or
  employing more employees than authorized by an
  Executive Personnel Restriction CAP Policy
  initially implemented in April of 1980 by
  Executive Order. CAP levels reflect the maximum
  number of positions an agency can fill during a
  fiscal year.

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Agency Personnel
A State Employee is someone who is regularly
appointed or employed in a position of State
service by a State agency or Institution of
Higher Education and is compensated on a full
time basis for which a Class Title and Pay Grade
is established in an appropriation act.

• Classified Position A position that is
  currently assigned a title, grade and
  corresponding pay range in the Uniform
  Classification and Compensation Act. These
  positions must be grades 1 26.
• Unclassified Position A position that is
  currently assigned a title and line item maximum
  salary rate set out in dollars for each fiscal
  year of the biennium. These positions must be
  grade 66 or 99.

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Agency Personnel Authorized Positions
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CAP Policy

• CAP Restriction Policy established by Executive
  Order
• Applies to agencies operating within the
  Executive Branch
• Limits availability of authorized positions for
  management and budget control purposes

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UNIFORM CLASS AND COMP LAW
The Uniform Classification and Compensation Law
(A.C.A 21-5-201 et seq.) provides the maximum
rates of pay for classified positions of State
Agencies and Institutions of Higher Education as
assigned within twenty-six (26) grades with four
(4) pay levels
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Cost of Living Increase (COLA)
Salary increases are applied for classified
positions as follows
2003 2005 Biennium
2005 2007 Biennium
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Career Service Recognition Payments

• Employees of a state agency and non-faculty
  employees of an institution of higher education
  shall become eligible for annual career service
  recognition payments upon completion of ten (10)
  or more years of state service in either elected
  positions or classified or non-classified regular
  full-time position or positions.
• Years of Service Annual
  Payment
• 10 through 14 years of state service
  300
• 15 through 19 years of state service
  400
• 20 through 24 years of state service
  500
• 25 or more years of state service 600

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Retirement Systems

• Arkansas currently has five retirement systems
  which cover most employees at the state and local
  level
• Judicial Retirement
• Public Employees Retirement
• State Highway Employees Retirement
• State Police Retirement
• Teacher Retirement

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APPENDIX
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2005 2007 Session Highlights

• The 85th General Assembly officially adjourned on
  May 13, after a month-long recess.
• The Governor received 3,176 bills from the 85th
  General Assembly. Of those bills received for
  action by the Governor, 2,325 became Acts. The
  Governor issued no Line Item Vetoes. The Governor
  vetoed three bills (HB2501-Public Contracting
  laws SB227-Justices of the Peace activities
  SB1174-consumption in entertainment districts).
• A resolution proposing a constitutional amendment
  - legalizing charitable bingo and raffles was
  approved and will be on the November 2006 general
  election ballot.
• Bills providing a balanced state budget was
  approved and reflects no tax increases for the
  next two fiscal years.
• A merger of the Department of Human Services and
  the Department of Health was approved.
• The Department of Agriculture was created. The
  first for Arkansas, as a way of better promoting
  farmers and Arkansas agricultural products.

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2005 2007 Session Highlights (continued)

• Also approved was a 58.3-million general
  improvement bill, providing money for local
  projects, such as rural fire departments,
  sewer-and-water systems and colleges, across the
  state.
• Funding was approved for 104 million in repairs
  to public school facilities over the next two
  fiscal years to take care of immediate
  safety-and-health needs.
• Final approval also was given to legislation
  clarifying a new economic development tool called
  Tax Increment Financing. The bill allows growth
  in property tax revenue, in designated areas, to
  be allocated to economic development projects
  rather than schools.
• Act 2252 of 2005 established a system for the
  termination, study, review, continuation, or
  re-establishment of agencies. The intent of this
  act is to establish an orderly schedule for the
  abolishment of all existing state agencies during
  a twelve-year period, but to make provision for
  review to enable the General Assembly to have the
  benefit of recommendations for the continuation
  of those state agencies which are deemed to be
  essential for the necessary and efficient
  operation of government prior to the abolishment.

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Did you Know the State of Arkansas

• Ranks 47th in the nation in per capita state and
  local taxes and 48th in the nation in property
  taxes per capita.
• Has experienced steady employment growth
  averaging 1.9 or 18,000 new jobs per year over
  the past ten years, bringing total payroll
  employment to 1,147,800 jobs.
• Since July of 1997, the Transitional Employment
  Assistance program has reduced welfare caseloads
  by 49.8, moving 37,406 people into jobs
  involving at least 25 hours of work per week.
• Has 112 Fortune 500 companies led by Wal-Mart
  Stores which has annual sales exceeding 244.5
  billion. The States manufacturing base is
  highly diversified, and is growing in high tech
  businesses such as information technology,
  telecommunications, and biotechnology.
• Grows practically every crop produced in the U.S.
  and is a leader in the production of rice,
  soybeans, eggs, and livestock.

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Did you Know the State of Arkansas (continued)

• Owns 5,588 buildings valued at 2,531,248,360.
• Owns 52,517 acres through the statewide parks
  system encompassing 51 state parks and museums,
  and owns 360,155 acres through the Game Fish
  Commission.
• Has 16,369 miles of highways and 6,989 bridges to
  maintain and preserve.
• In any given month, helps more than 400,000
  Arkansans to access medical care through the
  Medicaid program.
• Has more than 99 of the population living within
  40 miles of a public college or institution of
  higher education.
• Has more than 59 of its high school graduates
  continuing on to college.

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State Government
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State Government
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Department of Human Services Expenditures by
Funding Sources
Projected
69
Department of Human Services
70
Department of Human Services
Medicaid Expenditures
71
Department of Corrections General Revenue
Distribution
72
Department of Corrections Comparison of
Population, Population Increase Capacity
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Department of Community Correction Comparison of
Population, Population Increase Capacity
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Public Schools State Funding
Projected
75
Public Schools State Funding
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Public Education Statistics
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Public Education Statistics
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Institutions of Higher Education
State Funding
Projected
79
Institutions of Higher Education
All Funding Sources
Projected
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Institutions of Higher Education
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CITY-COUNTY TOURIST MEETING AND ENTERTAINMENT
FACILITIES ASSISTANCE LAW A.C.A. 14-171-215
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Governors Office Expenditures Fiscal Years 1990
-2004
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Department of Economic Development FY05 Percent
of Budget by Programs