This has been a busy week. I detailed my balanced budget for next year to the Arkansas Legislature. Many areas of the budget will remain the same as last year. In fact, most budget items will be funded at the same level.
Under my budget, Arkansas state government will be able to provide the same level of service without major cuts to programs. We will continue to meet the needs of our state. But we will do so with significantly less growth in spending than in last year. My budget incorporates more than $100 million in cuts to income taxes for middle class Arkansans which I fought for in 2015. We will be doing more with less.
Also, last year, I cut many of our state agency budgets by one percent to promote efficiency and save tax payer dollars. Those cuts will remain in place; our state has shown that it can operate more efficiently.
State funding will increase by 2.7 percent next year. This is the result of our state growing and increased demand for state services. It's important to note that the 2.7 percent is significantly lower than the 3.7 percent annual growth over the past twenty years. State government must meet its many responsibilities, but we will continue to seek budget savings. This includes maintaining the statewide hiring freeze and looking for greater efficiencies.
Under my budget, funding for general K-12 education will increase by more than $23 million to ensure we are staying competitive, meeting our obligations to the schools and supporting our students. Higher education funding at two-year, four-year and technical colleges will remain the same.
To meet the needs of foster children, funding will increase by $20.5 million. This additional funding is needed to help support our foster kids, maybe some of the neediest in our state. Medicaid funding will also increase by $88 million to meet the needs of the program and to account for a drop in the federal government's share of costs.
These are a few of the budget highlights. It is important to save for unforeseen circumstances down the road, and so we continue to build our rainy day fund with a $4.3 million contribution.
We are also making changes that save money. A year ago, the state had a major problem with the backup of inmates in county jails. Since then, we've been able to reduce that backup number from nearly 3,000 inmates to around 1,000. That means the state can reduce the amount it pays for these inmates by $11 million in the next fiscal year. That's savings we can use elsewhere in the budget. My budget, however, will still ensure that we continue to fund this program promptly and completely, and that state continues to meet its obligations to the counties.
In short, my balanced budget proposal will fully fund our state's needs while also implementing the $100 million income tax cut for the middle class, which was approved last year by the Legislature.
However, if the Legislature fails to pass the Arkansas Works plan, the Legislature will be required to fill a big hole in the budget. Without Arkansas Works, which encourages work opportunities and allows our state to receive and use federal dollars, Arkansas's budget will be short by more than $115 million in future years.
In addition, if we are serious about finding real savings to the state's budget, we must reform Medicaid. The managed care proposal I support is estimated to save nearly $1.5 billion over five years. That's the sort of savings that can make a dramatic difference in future budgets.
As governor, I do not want to cut funding for areas like foster care, education, public safety or city and county government. We must consider the best course of action for our state, and I am confident the budget I presented will achieve the right balance.