Trimming Around the Edges

Lawmakers attempt to cut state spending—but Arizona remains on the edge of a financial disaster

State lawmakers were swinging into action this week for a special session designed to fix a small part of Arizona's budget crisis.

But even if legislators manage to accomplish everything on their agenda, they'll barely put a dent in the $2 billion shortfall that they're facing this fiscal year.

And lawmakers are less than two months from the start of the 2010 legislative session, when they'll have to write a budget for the next fiscal year, which already has an estimated shortfall of $3 billion.

This week, lawmakers hope to cut $144 million from education spending and $148 million from the Department of Economic Security.

They also hope to make some technical fixes to various agencies that were vetoed earlier this year as part of a larger package rejected by Gov. Jan Brewer; that will trim about $160 million in state spending.

The special session—the goals of which were on shaky ground over the weekend because Senate President Bob Burns was struggling to round up enough votes to approve the package—is expected to wrap up on Thursday.

Lawmakers also intend to pass legislation to strip away control of downtown Tucson's Rio Nuevo project from the Tucson City Council, instead handing oversight over to a new committee appointed by Brewer and legislative leaders.

In addition, legislators are expected approve a plan to pay an $18 million debt to Science Foundation Arizona through risk-management funds. The unusual financial maneuver is possible because Science Foundation Arizona won a lawsuit against the state after the foundation's funding was cut earlier this year by lawmakers, so the state can pay what it owes the nonprofit organization out of a fund designed to pay legal judgments.

The special session comes just days after the Pew Center on the States included Arizona on a list of 10 states headed for a fiscal meltdown. Other states in crisis include California, Nevada, Florida, Illinois and Michigan.

The Pew report notes that Arizona lawmakers did not react quickly enough to address the state's growing budget problems.

"Early on, as the economic news grew bleaker, Arizona's lawmakers reacted slowly, looking to solutions they had used to deal with other, less-serious recessions. In fiscal year 2008, they drained the state's rainy-day fund, a sort of savings account set up to deal with any sudden revenue drop-offs, and delayed last-quarter payments to school districts to ship those bills off the balance sheets of one fiscal year and push them onto the next. ... When drafting the fiscal year 2010 budget, Arizona had $7 billion in revenue to pay for $11 billion in spending."

The Pew report blames the usual suspects for the state's ongoing economic meltdown, including the bursting of the housing bubble, a steady stream of tax cuts dating back to the 1990s, and voter mandates to maintain spending on education and health-care programs.

The report notes that the number of Arizonans on Arizona Health Care Cost Containment System (AHCCCS) rolls has more than doubled, from 552,000 in 2000 to 1.3 million in August 2009, after voters approved a proposition to ease eligibility standards. And while polls show that some voters back Brewer's proposed temporary one-cent sales-tax increase, David Berman, of Arizona State University's Morrison Institute for Public Policy, warns that the support is soft, and revenues will have to be dedicated to education spending if it is to pass at the ballot box. (That assumes that Brewer can somehow find legislative support to put it on the ballot in the first place.)

The state has yet to reach the bottom of its financial freefall. The most recent monthly update from the Joint Legislative Budget Committee shows that in September 2009, revenues dropped by 16.1 percent compared to September 2008. It was the 14th consecutive month of double-digit declines compared to one year earlier.

In the first three months of the fiscal year, tax collections were $233 million below the forecast.

"There are no simple answers," warns Alan Maguire, a former legislative staffer who is now president of the Maguire Company, a lobbying and financial-analysis firm.

Maguire suggests that one of the problems facing lawmakers is the absence of good historical data and institutional memory among lawmakers, because term limits have resulted in so much turnover.

"We're not building the institutional knowledge we need to make decisions," says Maguire, who recently prepared a report on Arizona's fiscal history for the Governing Arizona project, an effort to help lawmakers, the media and the public better understand the historical trends that have left Arizona in its current precarious financial situation.

"The budget is overwhelmingly complex," says Maguire. "The lack of debate and discussion is leading to a lack of transparency. ... I can't figure out what they're talking about, and I've been doing this for 30 years. What's some poor freshman (legislator) who just showed up last Thursday going to be able to figure out?"

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