FORECAST: ECONOMIC TSUNAMI AHEAD
UA economist Marshall Vest became the latest Cassandra to warn about the state government's impending financial collapse.
Vest and fellow Eller School big-brain Gerald Swanson delivered their annual financial forecast last week. Guess what? The news is not good.
Although the private sector is creeping toward recovery (at least at the national level), in Arizona, "It's especially grim for the public sector," says Vest.
That's because, as we've been noting all year, the state's tax collections continue to plummet, with the bottom yet to come. Meanwhile, the state keeps borrowing money to pay the bills, because spending remains out of control.
Vest, who has been studying the Arizona economy pretty much forever, puts it in simple terms: The state is on track to spend roughly $10.1 billion, but it's only collecting $6.4 billion in taxes. Even after you throw in stimulus funds and various other gimmicks, you still have a shortfall of $2 billion this year and $3 billion or more next year.
The state is already spending $4 billion on K-12 and $2 billion on Medicaid and other health-related expenses, most of which is protected by voter mandates. That leaves $1.3 billion on universities and community colleges, $1 billion on prisons, $700 million on welfare and $1 billion on all the other stuff that lawmakers can cut—regulatory agencies, state parks, state troopers, you name it.
"The bottom line is," Vest says, "you could lay off every state employee and not begin to balance the budget. You could entirely eliminate funding for higher education and not come close. Ditto for welfare programs such as food stamps, TANF (Temporary Assistance for Needy Families), the disabled, unemployment assistance, assisted living and programs for children such as child abuse (prevention), child care and foster care."
Given the current political environment, Vest tells us: "It looks to be unsolvable. You cannot balance the budget by cutting spending alone."
At the same time, a tax increase looks unlikely, "given the rules that have been put in place over the last few years and given the ideological blocs that exist," Vest says. "But we desperately need to augment revenues."
FIDDLING WHILE THE STATE BURNS
Speaking of the Legislature: Is there a chance that Gov. Jan Brewer will finally get approval to put her one-penny-per-dollar sales-tax hike on the ballot?
On Monday night, Dec. 14, the call had gone out for a special session. Have Republican lawmakers worked out a deal with Brewer? Will some Republicans work with Democrats to find enough votes to get the package through the Legislature? Or will the whole damn thing just fall apart?
We're betting on Door No. 3, but we'd love to be wrong.
We hear that Republicans in the Senate have been softening on the idea of sending the sales-tax proposal to voters, but Democrats will also have to lend some support.
Meanwhile, House Speaker Kirk Adams told Brewer this week that he didn't have the votes in his caucus to pass the referral without a bunch of tax cuts attached to it—a proposal that can't get through the Senate.
So Brewer is rolling the dice that once a Senate plan gets to the House, Democrats will team up with moderate Republicans to get the sales-tax proposition across the finish line. But Rep. Steve Farley tells us that as of Monday, no one had even filled in the Democrats on the plan.
We imagine the current split between the chambers might have something to do with the fact that Senate President Bob Burns is ready to retire, while Adams still wants a political future in Republican politics.
House Republicans have been pushing for tax cuts to be combined with any sales-tax proposition, because they believe it's the only way they can persuade GOP primary voters that they're not liberal tax-and-spenders. It's quite a conundrum: Voting to put the question on the ballot could harm their political future in GOP politics, but being known as the guys who let state government go broke isn't exactly a résumé-builder.
Congressman Raúl Grijalva provided a little pushback from the left against the notion that House Democrats would get behind any piece-of-crap health-reform package that suits Sen. Joe Lieberman.
Grijalva said that he was "troubled" by the compromise being worked out in the Senate, which didn't include a public option and many other key parts of the House package.
"At some point in this process, the question became not what was the best policy for the American people, but what could be done to appease a recalcitrant handful who have negotiated in bad faith," Grijalva press-released. "We need strong leadership so close to the finish line, not efforts to water down a bill to the breaking point in a misguided attempt to win votes that were never there."
Talking Points Memo followed up with a dispatch in which Grijalva told correspondent Brian Beutler that while he was keeping an open mind and waiting to see the final bill out of the Senate, he and other members of the Congressional Progressive Caucus were not prepared to just fall in line.
"There is consensus within the progressive caucus," Grijalva told the online news site. "Personally, I'm in agreement with them. I don't think very much of it."
UPPING THE ANTE
Developer Steve Fenton made off with another downtown warehouse property on Toole Avenue near Stone Avenue last week. In a public auction, Fenton snatched up the warehouse next door to Solar Culture, which he bought a few weeks earlier.
Fenton got Solar Culture, the longtime gallery and performance space run by Steve Eye, for just more than $100,000.
But this time, Fenton had to pay a lot more. The warehouse was appraised at $265,000, but Fenton ended up paying $512,000 after he had unexpected competition.
Darren Peress, a heart doctor who had previously shown no known interest in downtown property development, turned up to bid against Fenton. The auction went on for roughly 15 minutes, mostly in increments of $1,000.
Peress told us that he recently developed an interest in downtown redevelopment, but we have to wonder whether somebody convinced him to jack up the price for Fenton, knowing that Fenton had to have the property to make his investment in Solar Culture pay off.
Fenton remains tight-lipped about his plans.
THE UPSIDE OF FINANCIAL COLLAPSE
As Tucson City Council members wrestle with the need to come up with $32 million in spending cuts between now and July 1, there is a silver lining.
The good news: The voters' narrow rejection of Prop 400 won't hurt the city next year.
Had it passed, Prop 400 would have allowed the city to exceed certain state-mandated limits. Back when the city first put the prop on the ballot, officials expected the city could bring in $20 million beyond the limit next year.
But revenue projections have dropped so much that the finance crew now anticipates the city will be nearly $38 million under the spending ceiling.
Find early and late-breaking Skinny at The Range, our daily dispatch.