As I do each November, I have submitted my proposed balanced budget for the Arkansas Legislature to consider this winter. The budget addresses the needs of our State and her people while meeting the requirement that we do not deficit spend. While modest growth in our economy will allow us to meet some additional needs, there are some tough choices ahead of us, as well.
First and foremost, my budget continues our philosophical and legal commitments to the education of our children. Based on the recommendation of the legislature's adequacy committee, I am proposing a two-percent increase in per-pupil funding, similar to previous years. This should meet the Arkansas Supreme Court's mandate for educational adequacy while continuing our pursuit of educational excellence.
In addition, I've proposed ongoing money to help the Department of Correction operate our prisons. The Arkansas Forestry Commission, which led courageous fights against drought-fueled wildfires, will be able to restore jobs lost during previous financial struggles. I've also recommended a modest cost-of-living adjustment for state employees.
The toughest budget to set this year will be the Department of Human Services, Medicaid in particular. Health-care costs continue rising, and our improvement in per-capita income rankings means we will pick up more of the tab for Medicaid services under federal guidelines. We will have about a $300 million Medicaid shortfall at the beginning of the next fiscal year. My proposed budget has both new ongoing money and one-time money to help close that gap. Even so, we're looking at about $140 million in Medicaid services that will have to be funded another way, or cut. At my request, DHS officials performed the difficult task of compiling a list of potential cuts. The most troublesome one is potentially ending nursing-home care for "Level 3" clients, those elderly Arkansans who require the least intensive care in a residential setting. There are also possible cuts that would impact adult dental services and insurance options for small-business employees.
We do have options available to reduce those cuts, the clearest being acceptance of the federal government's offer to expand our Medicaid program. It does seem counter-intuitive to address a funding shortfall with expansion, but the new federal money would also reduce state obligations in some existing Medicaid services. The savings this expansion would generate could keep those nursing-home patients where they are now, and could offset cuts elsewhere too.
Finally, there is my ongoing commitment to reduce the sales tax on groceries. With Medicaid cuts looming, I felt it was not the right time to put another grocery-tax cut into my budget proposal. What I have done is propose a system to trigger this tax cut when future state money becomes available. The most likely source for this money would be the expected reduction or elimination of Arkansas's desegregation payments to three Central Arkansas school districts. If and when that money becomes available in the next few years, the sales tax on groceries would drop from 1.5 percent to one-eighth of a percent.
Other ideas for our budget will surface, and I will discuss them with legislators and other interested parties. There will be difficult decisions to be made, but if we continue to work together as a government and as a State, Arkansas can make the best choices possible to care for our citizens.