Revenue Stabilization Act
aka: Act 311 of 1945
The Revenue Stabilization Act is an act of the Arkansas General Assembly that categorizes and prioritizes spending for the operation of state government. The act establishes a formula by which to perform an orderly monthly distribution of revenues. The original act eliminated more than 100 special funds and substituted a single general fund from which appropriations are funded. It also provided for paying off all non-highway-related bond indebtedness. The act is revised each legislative session to adapt to economic cycles, revenue forecasts, and program priorities.
While Amendments 19 and 20 to the Arkansas Constitution, also known as the “Futrell Amendments,” sharply curtailed the ability of state government to become indebted, the problems of inflexibility and inefficiency in state finances remained a quandary. These issues became the campaign platform of Ben T. Laney in the race for governor in 1944. A conservative Democrat from Camden (Ouachita County), Laney led the field in the primary election but was forced into a runoff. His opponent in the runoff election, J. Bryan Sims, withdrew from the race, making Laney the Democratic nominee. Laney easily won in the general election over his Republican opponent, H. C. Stump. Laney had emphasized that he was not a politician but rather a businessman with conservative economic principles and that his policies, if adopted, would reduce debt and taxes while spurring economic development.
In his inaugural address on January 9, 1945, Laney advocated “accelerated debt retirement” and a more orderly means of financing state government. He stated, “Our kaleidoscopic tax laws which have been an outgrowth of patchwork legislation are a challenge to our thinking. We should find a way to channel the tax dollar into a common fund for the benefit and general welfare of our citizenry.”
The legislation for the act was written by Budget Director Julian Hogan, State Board of Finance Secretary Frank Storey, and attorney William J. Smith. It passed the House of Representatives unanimously, passed in the Senate by a vote of thirty to one, and was signed by Governor Laney, becoming Act 311 of 1945.
Writing and revising the Revenue Stabilization Act is a political process involving gubernatorial priorities, legislative wishes, and state agency goals and program preferences. Conservative forecasting models are used to estimate general revenue for the upcoming fiscal year. Priority categories are established with the assigned categories generally labeled A, B, and C. Subcategories, such as A1, can be added as well.
Category A is composed of agency programs considered absolutely essential, such as education, health and human services, and corrections. Category B typically covers expansion of existing programs or new programs that are needed. Category C priorities, often referred to as a wish list, are new programs that legislators, particular constituencies, or department directors would like to have but are not perceived as being vital and, therefore, have little chance of actually being funded.
As revenues flow, agencies are funded in order of program priorities, with category A being funded first. In the event that A priorities are fully funded, revenues begin to flow into the next category (A1 or B) and so on. In the event that state revenues fall short of expectations, the chief fiscal officer can order cuts. Any cuts flow in reverse order, beginning with category C and proceeding to B and then, in the most extreme of economic circumstances, to category A.
Some detractors claimed that the act possibly violated the Arkansas Constitution, but it was not until 1962 that the law faced a challenge in court. In a move that seemed to surprise state officials, James J. Hooker, through his attorney David D. Panich, filed a class-action lawsuit on January 18, 1962. The State of Arkansas was represented by Attorney General Frank Holt.
Filed in the Chancery Court of Pulaski County, the suit alleged that several acts of the 1961 General Assembly, including the Revenue Stabilization Act, violated constitutional principles. Specifically aimed at the Revenue Stabilization Act, the suit alleged that it was an unconstitutional delegation of legislative authority to the executive branch. It further alleged that the act was unconstitutional for combining disparate appropriations into one piece of legislation. Injunctive relief was sought “to restrain state officials from making expenditures of funds authorized by the laws in question.” Chancellor Guy E. Williams denied the injunction and upheld each of the acts, stating that voiding them “would be tragedy in state government—I’d throw the fiscal affairs in a tailspin.”
The case was appealed to the Arkansas Supreme Court, which, on May 28, 1962, unanimously upheld the decision of the Chancery Court. Arkansas Supreme Court justice Jim Johnson wrote for the court, “The Revenue Stabilization Law is a complex accounting tool designed to insure that the recipients of State funds receive monies only so long as cash is on hand. The appropriation for each agency sets a top limit on the amount that may be paid to that agency, and the Revenue Stabilization Law insures that no more is spent than is taken in and is allocated by the Legislature.”
The Revenue Stabilization Act continues to achieve the goals set in 1945, with many outside Arkansas noting that the state maintains a level of services and financial equanimity during economic cycles. As many Arkansas officials have said, while the economic highs are not as high as in other states, neither are the economic lows as low.
For additional information:
Acts of the General Assembly of the State of Arkansas, 1945. Little Rock: Arkansas Printing & Lithographing Company, 1945.
Bentley, George. “Chancellor Denies Request to Nullify 5 State Fiscal Laws.” Arkansas Gazette, February 7, 1962, pp. 1A, 2A.
Bentley, George, and Jerol Garrison. “Three Money Bills, Revenue Act Face Challenge in Courts.” Arkansas Gazette, January 19, 1962, p. 1B.
“Court Upholds Finance Laws, Decision Rules Out a Special Session.” Arkansas Gazette, May 29, 1962, pp. 1A, 2A.
De Boer, Marin E., ed. Dreams of Power and the Power of Dreams: The Inaugural Addresses of the Governors of Arkansas. Fayetteville: University of Arkansas Press, 1988.
Hooker v. Parkin, 357 S.W. 2nd534 (1962).
“I’m Harassed, Governor Feels after New Suit, He Criticizes Motive for Attack on Five Acts.” Arkansas Gazette, January 20, 1962, p. 1A.
“Surprised Politicians Asking ‘Why?’ and ‘Who?’ While Seeking Motive for Attack on Five Acts.” Arkansas Gazette, January 21, 1962, pp. 1A, 2A.
Touhey, Matilda. “Disputed Revenue Stabilization Act Result of 1945 Financial Morass.” Arkansas Gazette, February 25, 1962, pp. 1A, 2A.
Little Rock, Arkansas
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