Beebe's budget proposal was released about a week after Republicans took control of the state Legislature for the first time since Reconstruction. The Democratic governor was elected in 2006 on a pledge to phase out the state's sales tax on groceries. It has been reduced from 6 percent since he took office.
The tax cut idea faces an uphill fight from Republicans, who have said they want to look at cutting the income tax and other reductions. Beebe said there's no room in the budget for other cuts, but GOP leaders said they were encouraged by his approach on the sales tax cut.
"What doesn't sit well with me is when somebody says we don't have money to do anything except what I want to do," said Republican Sen. Michael Lamoureux, who will serve as Senate president next year. "He did not do that. He just said the money is real tight and I'm not sure what we can do."
Rep. Davy Carter, who was elected Thursday as the incoming House speaker, said he was still reviewing the budget. But he said tax reforms and Medicaid would be key issues for the Legislature next year.
"Those are going to at some point collide," said Carter, R-Cabot. "That will likely be the heart of the session."
The Department of Finance and Administration projected that the state's surplus would be $300 million, increasing its original projection by $100 million. After the Medicaid assistance, that would leave about $160 million in one-time money available for other needs. Beebe said he's looking at several areas for the surplus, including replenishing an economic development incentive fund.
Associated Press Writer Chuck Bartels contributed to this report.
Andrew DeMillo can be reached at www.twitter.com/ademillo