Unsteady Balance

The state scrapes by with a new budget, but financial problems loom in the future.

Gov. Janet Napolitano's crew used so much sleight of hand in this year's budget that you have to wonder if they got their degrees at Hogwarts School of Witchcraft and Wizardry.

Putting aside the arcane details, Napolitano basically took $75 million that lawmakers had set aside as down payment on a $350 million civil judgment against the state and used it to restore $65 million in cuts proposed by the Legislature.

Napolitano boosted spending for social services, particularly Child Protective Services, and managed to reverse other cuts, such as a raid on the state's Heritage Fund and the attempted elimination of the $7 million endowment for the Arizona Commission on the Arts.

Even conservative House members expressed a begrudging admiration for Napolitano's cleverness, although some are talking about taking legal action to challenge some of the maneuvers. And GOP lawmakers vow to deliver a much tighter budget next year.

Whatever the outcome of any legal action, Arizona is hardly on firm financial footing. George Cunningham, the former Tucson lawmaker who serves as Napolitano's chief budget maven, expects the state will need supplemental appropriations in areas such as health care, education and the prison system. That said, he predicts Arizona won't have the severe budget problems it suffered in the current fiscal year, which forced lawmakers to revise the budget six times and trim hundreds of millions of dollars in spending.

However, the 2005 budget, which the administration and lawmakers will tackle in next year's legislative session, promises to feature another spectacular fight because those education, health-care and prison costs continue to climb faster than Arizona's revenues. Education and health-care expenses increase according to formulas that have been locked into place by voters, while prison costs climb because people continue to commit crimes. (In fact, the state is facing such a critical bed shortage that lawmakers will probably have to soon address the issue in a special session; Republican leaders, naturally, want to privatize prisons while the Napolitano administration wants to explore options such as intensive probation and bracelet monitoring programs.)

The distance between revenues and expenditures creates what's come to be known around the Capitol as the "structural deficit."

Administration officials are hopeful that an ongoing economic recovery will mean that next year's crunch won't be as severe as this year's shortfall. Cunningham predicts education costs will continue to grow, but the rate of growth in health-care programs, which were expanded by voters with Prop 204 in 2000, will level off in the near future.

Cunningham notes that Napolitano inherited a shortfall of more than $300 million for the current fiscal year and about a billion dollars for the 2004 budget.

"The problem for 2005 will be less than a billion dollars, so we will have made progress," says Cunningham.

But conservative lawmakers warn that the problem may be worse next year because the state relied on smoke-and-mirror gimmickry rather than addressing the structural deficit with deep cuts to government programs. For example, they point out that the $75 million for the lawsuit settlement that Napolitano used to restore cuts will cost twice as much in next year's budget.

The Republicans trotted out their latest budget solution last weekend at the Arizona Economic Forum, a mostly conservative gathering in Flagstaff. (One speaker, UA economics professor Michael Block, referred to public education as the "largest socialist enterprise in the state" and advocated that the state cut off all public funding to the universities.)

Sen. Dean Martin pushed what he calls the Budget Stabilization Act. Modeled on the Taxpayer Bill of Rights, which was passed by Colorado voters in 1992, the plan would ask voters to approve an amendment to the Arizona Constitution that would prohibit state spending from growing faster than the combined rate of inflation and population growth.

The referendum failed to get out of the Legislature this year, but Martin and others are considering a citizen initiative to put the question on the 2004 ballot. To spare themselves the trouble of collecting signatures, supporters will likely also push another referendum in the next legislative session.

Sen. Norma Anderson, Colorado's Senate majority leader, was invited to speak at the conference last weekend. If supporters of the plan hoped she would endorse the Budget Stabilization Act, they must have been disappointed.

Anderson, a Republican who sits on Colorado's Senate Finance Committee, warned that the Colorado amendment has gone too far, causing havok and crisis in all levels of government.

"It has the effect of ratcheting down programs," Anderson said. "It's been a disaster."

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