Monday, January 5, 2015

Ducey Inaugurated as Governor, But AZ's Finances Are a Hot Mess

Posted By on Mon, Jan 5, 2015 at 1:30 PM

While the spectacle of Gov. Doug Ducey's inauguration day in Phoenix is undoubtedly glorious, the days ahead might not be so pretty.

The Arizona Legislature has a long list of topics that lawmakers are likely to tackle when they get back to work next week. You can expect Republicans to make another run at expanding credits for private and religious schools while undermining funding for the public schools. The election statutes are a mess, particularly when it comes to disclosure of the sources of campaign funding. Transportation needs are growing. And illegal immigration is a perennial topic; one freshman GOP lawmaker has already proposed—and perhaps already abandoned—having the word “Non-Citizen” stamped on driver’s licenses for the DREAMers who won a legal battle overturning former Gov. Jan Brewer’s executive order banning them from legally driving in Arizona while a federal court battle on the merits of the case proceeds.

But the biggest issue facing lawmakers is also one of the most complex: The state budget.

While it sounds like the kind of boring thing that only the guys with green eyeshades care about, the budget is deeply connected to many of the issues that lawmakers face, if only because if you don’t have money to spend, you can’t do much to improve your roads, provide a safety net or keep your air and water clean.

Financially speaking, the state has hit the fiscal rapids and is headed for the falls. The accountants on the Joint Legislative Budget Committee predict that—assuming lawmakers make good on a court’s order to pay $317 million in illegally withheld education dollars in the current fiscal year—the state is facing a $520 million shortfall in the fiscal year that ends in June. It gets worse: The projected shortfall for the next fiscal year is $1 billion.

Exactly how Republicans will fix that spending gap remains to be seen, but it doesn’t seem like Ducey’s campaign promise to reduce—and perhaps eliminate—the state income tax will help bridge the gap.

The budget gap will also be exacerbated by corporate income-tax cuts that were set up to be phased in a few years ago. JLBC forecasters suggest that the cuts will mean the state will collect about $73 million less in the current fiscal year; that grows to $157 million in the upcoming fiscal year, $225 million in the year after that and $285 million by fiscal year 2018.

Incidentally, the state’s economy has not boomed since those tax cuts were created. In fact, growth has been lower than anticipated in the current year, which is one reason that the budget shortfall is growing.

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