ARKANSAS FISCAL, SPECIAL SESSIONS CONCLUDE
Arkansas lawmakers closed out a busy spring, completing a 22-day fiscal session before convening a special session focused exclusively on income tax relief. Together, the two sessions produced a $6.7 billion state budget for FY2027 and new reductions to both individual and corporate income tax rates.
The Fiscal Session
The Arkansas General Assembly gaveled in for its 2026 fiscal session on April 8 and adjourned on April 29. The FY2027 general revenue budget of $6.7 billion represents a $211 million, or roughly 3%, increase over current year spending. The budget passed with broad legislative support, including a 70–27 vote in the House and 32–2 in the Senate. Governor Sarah Huckabee Sanders signed the Revenue Stabilization Act into law the same day it passed.
Education Freedom Accounts were the single largest driver of growth, accounting for approximately 57% of the total budget increase. General revenue funding for EFAs increased by $122 million to $309.4 million, with an additional $70 million in surplus funds set aside for projected program growth. The program currently serves roughly 44,100 students, or approximately 10% of the state's K-12 population.
Healthcare spending remains another major component of the budget. The Department of Human Services budget remained largely flat at $1.85 billion, though underlying cost pressures persist. Lawmakers authorized an additional $100 million transfer to the Medicaid Sustainability Set-Aside, on top of $100 million already held, to address anticipated funding pressures. Federal changes to SNAP cost-sharing are expected to add roughly $24 million per year to the state's financial obligations, including approximately $18 million in FY2027 alone.
Corrections funding increased from $451.4 million to $492.4 million, a $41 million rise, as the state continues to face prison capacity challenges. County jail reimbursements held steady at $34.8 million. The budget also set aside approximately $53.4 million for a state employee compensation overhaul, with targeted pay increases for correctional officers and state troopers.
One notable provision of the RSA is authorization of up to $300 million in surplus funds for a potential advanced manufacturing project in West Memphis, including $150 million for economic incentives and $150 million for highway and road improvements.
The Special Session
Within days of adjourning the fiscal session, Governor Sanders issued a proclamation calling a special session to address income tax relief. The session convened Monday, May 4, and moved quickly.
Both chambers approved identical legislation reducing the state's top individual income tax rate from 3.9% to 3.7%, retroactive to January 1, 2026, and reducing the top corporate income tax rate from 4.3% to 4.1%, effective January 1, 2027.
The measures passed both chambers by comfortable margins. In the Senate, SB1 by Sen. Jonathan Dismang passed 29–6, while HB1001 by Rep. Les Eaves passed 27–6 the following day. In the House, HB1001 passed 79–17 with Reps. McNair, Meeks, and Springer not voting. SB1 passed 79–18 with Reps. McNair and Meeks not voting and Rep. Springer changing her vote to oppose the measure.
The Arkansas Department of Finance and Administration estimates the cuts will reduce general revenues by $191.8 million in FY2027 and $144.8 million in FY2028. Approximately 1.1 million individual income taxpayers will receive some level of tax reduction. About 7,800 corporations with net taxable income exceeding $11,000 are also expected to see a rate reduction.