The State Budget: Winners and Losers

If you happen to own a corporation, you have reason to celebrate: The Arizona Legislature handed you a big tax break this year.

If, on the other hand, you’re a poor kid, there’s a pretty good chance lawmakers took away your day care, or your parents’ insurance, or the tiny bit of state assistance that helps put food on your table.

State lawmakers delivered a budget in record time this year—and with a minimum of public input. The House of Representatives passed a good portion of it literally in the middle of night, under the cover of darkness.

The budget is likely to please the Tea Party but outrage educators, health-care workers, advocates for the working poor, university students, environmentalists and many other Arizonans.

“The magnitude is overwhelming,” says Dana Naimark, of the Children’s Action Alliance.

The $8.3 billion budget cuts more than a billion dollars in state spending while avoiding any tax increases—although some of the gimmicks in the budget, such as taking funds from counties and reducing funding for community colleges, are likely to result in property-tax hikes at the local level.

Every budget has winners and losers. We’ll start with the losers.

THE LOSERS

Schoolchildren

Overall, K-12 education was cut by $183 million. Individual school districts will have to work out how the cuts will impact their schools, but Ann-Eve Pedersen, of the Arizona Education Network, predicts that class sizes will be on the rise.

“That’s one place you’re definitely going to see an impact,” Pedersen says. “It’s also going to mean more cuts to programs, so that schools that have been able to keep a librarian or a (physical-education) teacher or arts teacher, those will be in danger.”

Lawmakers also made deep cuts to the Joint Technology Educational Districts, which specialize in providing career and technical education to prepare students to enter the workforce.

While Republican lawmakers and other officials, such as State Superintendent of Public Instruction John Huppenthal, say that the cuts are an opportunity for schools to reinvent themselves, Pedersen says that schools are having a hard time just keeping their doors open.

“The myth that somehow you innovate when you can barely function is just ludicrous,” she says. “We are at the point when schools can barely function. They don’t have money for books and paper. They are squeezing kids into classrooms because they don’t have teachers. We have lost state funding for all-day kindergarten. We can’t maintain the buildings. We are shutting down schools.”

Business leaders such as former Intel CEO Craig Barrett of the Arizona Commerce Authority are warning that education cuts will hamper the ability of the state to attract business.

“What all the people who try to recruit people to the state will tell you is that if you do not have a strong educational infrastructure, businesses will not come, and employees will not come,” Pedersen says. “I think we’re going to start losing the very businesses that we have.”

Preschoolers

Republican lawmakers saved roughly $30 million by eliminating all state funding that helps cover the costs of keeping preschool kids in day care.

That’s likely to result in a loss of $40 million in federal matching funds, meaning that the day-care industry is about to take a $70 million hit, according to Bruce Liggett, the executive director of the Arizona Child Care Association.

It also means that an estimated 13,000 kids will lose the support that pays for their day care.

That has a snowballing effect, says Liggett: When working moms can no longer afford day care, they either have to find someone else who can watch their kids, leave the kids at home alone or quit their jobs to stay at home with their kids.

“It’s incredibly grim,” says Liggett.

It will also have a huge economic impact on day-care centers, which are losing a massive amount of revenue that helps keep them in business. With fewer dollars and fewer students, preschool teachers will face layoffs, putting more people out of work.

“If you’re a center in Tucson that relies heavily on (the state), you’re wondering if you have a business on July 1,” says Liggett.

University Students

Members of the Board of Regents weren’t thrilled with Gov. Jan Brewer’s proposal to cut $170 million from the universities’ budget, but they were preparing to deal with it.

Unfortunately, the final budget contained a much higher cut of $198 million.

That will mean higher tuition for college students; the Board of Regents has already approved a hike that will force in-state students to pay more than $10,000 a year to attend the University of Arizona. It will also mean job cuts at the universities.

“It’s going to mean a lot of lost jobs, so here we are, trying to pull out of the recession, and we’re going to be laying off a bunch of teachers and a bunch of skilled employees in our university system,” Pedersen says.

Community colleges took a cut of nearly $73 million, which means they’ll have to raise tuition and/or property taxes—and cut back on programs as well.

The Poor and Sick

The biggest single cut in the budget: more than a half-billion dollars in health-care spending for low-income Arizonans.

Under the current law, anyone below the federal poverty level is eligible for state-subsidized health insurance through AHCCCS. But Brewer proposes freezing enrollment for childless adults, and requiring the ones still on AHCCCS to re-enroll every six months; anyone who fails to fill out their paperwork could lose their health care for good.

She’d also block parents who earn between 75 percent and 100 percent of the federal poverty level from getting health coverage. In other words, a single mom with two kids who makes more than $14,000 would no longer be eligible for AHCCCS.

“These are people who have horrendous medical conditions and probably have been working, but had no income or no other options to get medical treatment,” says Naimark, of the Children’s Action Alliance. “Let’s say you have cancer and need treatment for a long period of time. There’s nowhere else to go. It’s pretty stunning when you stop to think what’s going to happen to people.”

Brewer has also proposed a variety of other fees, such as co-pays for doctor visits and fines for overweight diabetics and smokers.

It remains to be seen whether Brewer will be able to implement these changes. Attorney Tim Hogan, of the Arizona Center for Law in the Public Interest, has already threatened to sue the state if it reduces eligibility for AHCCCS, because the eligibility levels were set by voters back in 2000—and therefore can only be changed by voters. Other provisions will require an OK from the federal government.

“Depending on what happens with the lawsuits and federal approval, chances are, not all of these AHCCCS cuts are going to be allowed,” Naimark says. “This budget is not done.”

(For more information on the impacts of these health-care cuts, see Dave Devine’s article in the Currents section.)

The Poor and Hungry

Brian Simpson, spokesman for the Association of Arizona Food Banks, says his organization is straddling the line between the winners and losers.

Lawmakers didn’t cut any more money from the support the state gives to food banks. In previous years, the amount was cut from $2.1 million to the $1.7 million that food banks will receive next year.

Meanwhile, demand at food banks has reached a plateau. Arizona food banks distributed about 134 million pounds of food in 2010, compared to 132 million pounds of food in 2009. Just a few years earlier, in 2008, Arizona food banks handed out just 80 million pounds of food—so demand has risen sharply in recent years.

Simpson says the food banks are worried that new limits on eligibility for the Temporary Assistance for Needy Families program will lead to more people looking for help from food banks.

As part of the budget reductions, lawmakers limited TANF eligibility to two years. (Last year, they lowered it from five years to three years.) That means that roughly 7,000 low-income families that get cash assistance from the state—the average payment is about $213 per month—will have already reached or are about to reach the limits of their eligibility, according to Simpson.

“These are the families that are the poorest of the poor,” Simpson says. “They have minimal income and have been adversely affected by the recession. They are minimum-wage earners who are struggling to get by. The cash assistance provides not a lot, but a little bit of cash assistance that can help put a roof over a family’s head or help with some food on the table.”

Counties

Arizona’s counties will lose about $93 million in funding as a result of the budget.

Here in Pima County, that translates into a hit of $19 million, according to Pima County Administrator Chuck Huckelberry. That includes a decrease of nearly $7 million in road-building funds from gas taxes and vehicle license fees; a $6.7 million transfer from the county to the state; a cut of $3.8 million in health-care funding for the poor; a loss of $250,000 in shared lottery dollars; and a requirement to spend an additional $1.2 million to cover the cost of housing sexually violent criminals in a state facility.

“They’re taking another hunk of our hide,” says Huckelberry, who adds that the county’s budget is sturdy enough to withstand the recession-related decrease in property values—but that the additional cuts in state funding will require either a cut in services or an increase in taxes.

Huckelberry says the biggest problem involves the road-building dollars.

“Without it, we can’t fill as many potholes or build as many roads or issue as many revenue bonds,” Huckelberry says.

More cuts are on the way: Next year, the county will have to start housing all prisoners who are sentenced to a year or less in prison, which will cost an estimated $7 million a year.

State Parks

The State Parks Department has seen funding trimmed so far in recent years that it’s struggling to just make payroll and pay basic expenses.

This year, lawmakers swiped $1.5 million from the State Lake Improvement Fund, and $2 million in gate fees that are supposed to be collected next year.

The State Parks Board has managed to keep all but three parks open this year despite deep funding cuts—including an elimination of $10 million that the parks had been receiving from lottery funds. (Last year, the state borrowed against those dollars—which are now committed to paying off debt for the next quarter-century.) In some cases, the Parks Department has forged partnerships with local communities that depend on tourism from the parks.

While the parks staff is working with the Brewer administration to free up money elsewhere in their budget to keep parks open, many of the state parks remain in peril, according to Reese Woodling, of the State Parks Board.

“We don’t have any money for fixing buildings or fixing trails in the parks or fixing bathrooms,” says Woodling. “We are in a desperate situation.”

The Arts

Lawmakers completely zeroed out general-fund dollars for the Arizona Commission on the Arts this year. In the current fiscal year that ends on June 30, the state agency got $665,000.

Robert Booker, the executive director of the Arizona Commission on the Arts, says the agency has also seen a $2 million endowment completely swept by lawmakers in recent years.

That leaves them with about $1.2 million that comes from a fee on business licenses through the Arizona Corporation Commission. If those funds are lost, the agency will lose federal matching funds, says Booker.

Booker says these severe cuts mean that the agency is giving out fewer grants to arts organizations.

Booker says that funding from the commission—which supports more than 230 arts organizations throughout the state—not only helps enrich communities and provide arts education in schools, but also helps with economic development. He points out that the arts industry in Arizona is made up of more than 11,000 businesses with nearly 48,000 employees.

“The arts are good for business, and business is good for the arts,” Booker says. “A strong arts community brings business and keeps business in the state.”

As arts organizations reduce the number of performances, they spend less money on sets and other supplies, which hurts local businesses and tax collections. A decrease in performances also means that people are less likely to go out for a night on the town and spend money at restaurants, bars and coffee houses.

The arts organizations are also forced to cut back on free or low-price admissions for kids and have fewer opportunities to bring performances to rural areas of the state.

“Arts organizations are there to provide outreach and services to kids and families at a low cost and to make the arts accessible, which is what you want in a community, just as you want clean parks and safe streets and libraries and all those things that make a community great,” says Booker.

THE WINNERS

State Prisons

The Arizona Department of Corrections was one of the few areas of state spending to see a budget increase. Spending on prisons will rise by $10 million.

As mentioned above, next year, the state hopes to save $55 million by forcing counties to incarcerate prisoners who are sentenced to less than a year in prison.

Big Business

The biggest winner had to be Arizona’s corporations. Despite the state’s troubles regarding bringing in tax dollars, lawmakers gave a massive tax cut to corporations. It will only cost the state $38 million this year, but when fully phased in after five years, the tax cut’s price tag will rise to $538 million.

Republican supporters of the plan—created behind closed doors and rushed through the Legislature in a three-day special session with little public input—say that the proposal will spur investment and job growth in Arizona.

But critics argue that every other state service has been cut to bare bones, and the future tax cuts will lead to future budget shortfalls and require more cuts to K-12 and universities—and as we mention above, many business leaders are already bemoaning the state of Arizona’s education system.

“There’s a lot of disagreement among economists about the best things to bring in jobs, but everyone agrees that you need to have a successful education system, and we’re just setting ourselves up to not have that and not be able to compete,” says Naimark.

This article appears in Apr 21-27, 2011.