By John Lyon
Arkansas News Bureau

LITTLE ROCK — As the nation slides deeper into a recession, some say Gov. Mike Beebe’s proposal to cut the state sales tax on groceries by 1 cent during the upcoming legislative session will be a harder sell than the 3-cent cut that won overwhelming approval in 2007.

Beebe says he isn’t so sure.

“I think in a way it’ll be easier, and in a way it’ll be harder,” the governor said in an interview with the Arkansas News Bureau. “It’ll be easier because it’s a lot less of a reduction, and we’ve already started down that road. It’ll be harder because it’s tougher economic times.”

Beebe acknowledged that cutting any tax this year will be a challenge — the state had a nearly $1 billion surplus two years ago — but he noted that halving the grocery tax in 2007 wasn’t exactly effortless.

“People forget that the leadership in the House was (initially) against reducing it last time, even though we weren’t in an economic downturn like we are now,” he said.

Shortly before the 2007 session started, House Speaker Benny Petrus, D-Stuttgart, spoke out against Beebe’s proposal to cut the grocery tax. Petrus said he believed income tax cuts would be a better way to help the working poor.

In the end, Beebe and Petrus agreed to a package of tax cuts that included the grocery tax cut, a measure removing many low-income Arkansans from income tax rolls and a reduction in the sales tax on manufacturers’ utility costs.

Some legislators say the debate this year will not be over how far to go in cutting taxes, but whether to cut taxes at all.

“I was proud to have voted for the biggest package of tax cuts in Arkansas history two years ago,” incoming House Speaker Robbie Wills, D-Conway, said. “This time, we have to answer the question first whether we can have a tax cut.”

Responding to projections of slow economic growth, Beebe has proposed setting aside about $146 million of the state’s projected $300 million surplus as a rainy-day fund to shore up Medicaid programs, prisons and other state services if revenues do not exceed the administration’s forecast for the next fiscal year.

“With the surplus that we do have on hand, it’s a doable budget,” Wills said. “We have to answer the question as the legislative branch, given that we would be tapping into the surplus to fund some essential services, is it the appropriate time to cut taxes of any kind?”

The 2007 tax cut package was signed into law in February, a little less than six weeks into the session. Wills said he will encourage House members to put off a decision on tax cuts until late in this year’s session.

“My opinion is, we need to have the most up-to-date information, the most up-to-date economic forecast that we can get prior to making that decision,” he said. “There’ll be an economic forecast update in March.”

Rep. Bruce Maloch, D-Magnolia, who will serve as House chairman of Joint Budget Committee during the 2009 session, also believes the Legislature should delay any decision on tax cuts.

“You either turn the proposals down early or you just leave them on the agenda until right at the last until we see an updated revenue projection during the session, and see what else has come through from a standpoint of any new programs, or paring back of current programs, to see if we have any room for a reduction,” Maloch said.

Sen. Shane Broadway, D-Bryant, a close Beebe ally, also favors waiting.

“I think until we have a clearer picture, this is what I’ve told administrators, school boards, everybody I’ve talked to in the last several weeks, I’ve told everybody … it’s way too early,” Broadway said. “I’ve gone into sessions feeling good and I’ve gone into sessions feeling bad, and right now I don’t have that good feeling, but by the time we get into March or April that may change.”

Some lawmakers are considering the possibility of cutting taxes in other areas.

Rep. Donna Hutchinson, R-Bella Vista, said she is working with Rep. Clark Hall, D-Marvell, on a proposal for a one-weekend-only exemption of the sales tax on certain back-to-school purchases.

All of the states bordering Arkansas, except Mississippi, have a sales tax holiday, generally tied to the start of school.

“It helps the family that has to put their children through school … and at a time when people are struggling we sometimes have to realize they need some help,” Hutchinson said. “And I think businesses, especially on the border, need help. They are losing money … to the states around us.”

Former Rep. and newly elected Sen. Johnny Key, R-Mountain Home, said he has doubts about the tax holiday idea.

“Studies show it just shifts the sales, it doesn’t have an overall impact,” he said.

Maloch said he believes Beebe’s proposal will stand a better chance of passing than any other tax cut — and some lawmakers are worried about the governor’s plan.

“Anything takes revenue away,” he said.

Beebe said cutting the grocery tax by another penny is “the right thing to do.”

“We want to continue to keep the faith with the people,” he said. “We said we were going to reduce it until we ultimately got rid of it, and we were going to do it within the means that we have, in a responsible manner.

“We’ve presented a program that is responsible. We can plug that gap for the economic downturn time was 12 months or 24 months with some money we’ve set aside, so it’s the right time to do it.”

Asked how he will persuade the hesitant, Beebe said, “The same way we did it last time, just talking and persuading — and begging.”

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Reporter Rob Moritz contributed to this report.