LITTLE ROCK—Gov. Mike Beebe has asked all state agencies to prepare budgets for the next two-year cycle that cut their spending by 7 percent, a move that could buffer against a sagging economy or provide money to further cut Arkansas’ grocery tax.

Beebe’s request also asked agencies funded by the state’s general revenues to prepare a budget that assumed no new money would be available, and another one planning for moderate increases. The multiple budget requests, something not seen since the mid-1980s, should provide a starting point for the governor’s office to begin deliberating what spending plans, said Richard Weiss, director of the Arkansas Department of Finance and Administration.

“The governor is very cognizant of the Supreme Court ruling on school funding. He is, of course, very cognizant (of) his promise that he is going to try to remove some more, if not all, the tax on groceries,” Weiss said. “All of those things are in his mind and he’s just developing himself a few options.”

Weiss said troubles in the housing market and the general economy could slow tax collections in Arkansas. However, the state reported building a $176.5 million surplus over the last budget year that ended June 30 — nearly double original projections of $81.7 million

The surplus amounted to nearly 4 percent of the state’s $4.5 billion in net available revenue for the year. But it came as state agencies faced a $107 million cut in their budgets for the current fiscal year, made at Beebe’s request in April. Beebe has said that, if the surplus continues to accumulate, he would consider restoring some of the cut funding, which hit state colleges and universities hardest.

The excess money may also give Beebe ammunition if he pushes for another cut in the state’s sales tax on groceries, which was cut in half by the Legislature last year. Beebe has said he would eventually like to eliminate the remainder of the grocery tax. The $121 million cut in sales tax on groceries went into effect July 1, 2007. It was Arkansas’ largest tax cut ever.

Beebe said earlier this year he would consider cutting state services to continue reducing Arkansas’ sales tax on groceries, but said he won’t touch education, human services or law enforcement. Matt DeCample, a spokesman for Beebe, said economic worries spurred the tougher look at budgeting for the next two years. DeCample said other issues, like cutting the grocery tax, played no part in the decision to seek several budgeting options. “It’s to make sure when budget time comes, we’re ready for any scenario,” DeCample said. “The state economy has been faring better than the national economy recently, and we hope it continues to, but we know there’s a lot of factors out there and a lot of things could happen.”

Budgets for Arkansas state government are prepared in two-year cycles, with the governor providing a proposed budget to the state Legislature. Lawmakers can make changes to the budget, which the governor ultimately signs into law. A memorandum to state agencies from the governor’s office said the first priority for spending remains education. In 2007, the state Supreme Court ended a long-running school-funding lawsuit after legislators approved a $122 million increase in per-student funding for districts and set aside $456 million for a program to build and repair school facilities. Reductions of 7 percent might come hard.

The state Board of Corrections’ two-year budget, unveiled at a meeting Monday, planned to cover much of a possible 7 percent cut by eliminating 800 beds for prisoners. That would only increase a backlog of state prisoners held at county jails.