State budget's fiscal roller coaster continues

The Arizona Republic
BY Mary Jo Pitzl

Published: November 18,2007

If it didn't have such a big effect on people's lives, it would be easy to view the state budget as an amusement-park ride. A roller coaster, to be precise.

Just last year, lawmakers were facing a budget surplus that at times was estimated to be as high as $1.5 billion. The big pool of unclaimed cash offered tantalizing possibilities for new programs and tax cuts.

Flash forward to fall 2007, as lawmakers are staring into a budget hole more than $600 million deep. Most expect the deficit to grow to more than $800 million by the time lawmakers come back to work in January. And the deficit for the 2008-09 state budget could be as much as $1.5 billion, budget analysts predict.

What happened? How did the state go from being flush with cash to facing agonizing budget cuts in just over a year?

Blame it on good times that didn't last as long as everyone hoped, an economy that went south faster than anyone expected and too much spending, say lawmakers and budget analysts.

"We spent too much money," said state Sen. Bob Burns, chairman of the Senate Appropriations Committee. "We failed to save enough money when we were flush."

The flush years came in mid-decade, after the state had climbed out of several years of budget shortfalls. They had to be closed with budget cuts and "fund sweeps" - taking money ostensibly earmarked for specific purposes and using it to balance the budget.

The Arizona Constitution requires a balanced budget, so running a deficit is not an option.

Specifically, Burns said, the state should have directed more of the spending that the flush years provided into one-time expenditures, instead of using it to pay for ongoing programs. Now that tax revenue has dipped, due to a slowing economy, those programs are in need of funding that isn't there.

That analysis was echoed by Kevin McCarthy, president of the Arizona Tax Research Association. In addition to favoring ongoing programs over one-time expenditures, the state budget is also hurt by an overall downturn in the economy.

Arizona is not alone in these kinds of cyclical budget woes: States from California to Rhode Island are facing budget strains and are dealing with painful cuts.

To state Sen. Jay Tibshraeny, R-Chandler, a lot of this could have been avoided if legislative leaders had turned a more careful eye to figures that came in late last spring, showing tax revenues weren't coming in at the clip that had been projected.

But that got glossed over, he said, in the rush to put out a budget that a majority could agree upon.

"They did it backwards," he complained. "They got all of the spending first and then they put revenues together to match the spending . . . and that's a recipe for disaster."

Others have argued that the declining-tax-revenue trend wasn't apparent enough in late spring, when the budget was being completed.

Since then, state officials have grown more dour in their assessments of the budget picture.

On Friday, House Speaker Jim Weiers said the shortfall for the current budget year, which started July 1, could approach $1 billion. That ups the ante from just a few weeks ago, when Senate President Tim Bee said the shortfall could hit $800 million.

Lawmakers and Gov. Janet Napolitano are currently working on plans to bridge that shortfall, although no plan has emerged.

But some solutions are obvious, if not specific at this point: Cut agency budgets. Tap the state's rainy day fund. Perhaps delay the final month of payment to schools, which effectively rolls the spending into the next year.

Democrats have said everything should be on the table, including the tax cuts that the GOP-led Legislature successfully championed in 2006. Those cuts added up to about $600 million.

On Friday, Senate Minority Leader Marsha Arzberger, D-Willcox, suggested that it might make sense to delay the second step of a two-phase income tax cut. That would put off a 5-percent cut to future years, when the revenue picture brightens, she said.

Expect a lot of pain when a budget-balancing plan is rolled out.

Burns, echoing the frustration of many lawmakers, said the state may be hitting the point where the constraints of voter-approved programs and statutory funding formulas give legislators little room to squeeze savings out of the budget.

"I'm getting to the point where I'm fearful that the Legislature doesn't have the ability to resolve this budget," he said.

AZTR Commentary:

Mary Jo's article was right on. The state and I add local governments can not spend like drunken sailors after pay day. If our "representatives" chose to learn from history rather than ignoring it, the rush to expand programs and spending during the good times would instead be put aside for the inevitable bad times.

Looking at the bigger picture we face an astronomical federal deficit which will most likely be dealt with through a period of hyper inflation which means that times will get a lot tougher before they get better. Inflation robs our future and that of our children but it is a way to pay of debts with dollars that have far less buying power.

Closer to home Arizona taxpayers have a potentially more serious problem. this of course is that the value of our primary investment and hedge on inflation, our homes, is declining in value, rapidly. Unfortunately our archaic property taxation system will continue increasing our valuations and taxes in 2008 above the record high 2007 tax bills.

The way to restore stability to the real estate market, boosting private sector jobs, is to decouple property taxation from inflation in the real estate market. There is no logical reason why valuations and taxes should increase just because your neighbor gets a good price for their home.

Arizona Tax Revolt has the solutions to our outdated property taxation system, key among these are a rollback and voter provisions that require 2/3 of those voting to decide on tax increases and even a means to reduce taxes.

We may not be able to solve all the problems with the national economy but Arizona Tax Revolt offers the solutions for our property taxation problems. Our Levy rollback measure benefits all property owners in the community equally by percentage. The valuation rollback measure provides benefit to those property owners that have been hurt the most since 2003 by dramatic valuation increases.

School revenue will not be reduced though our property tax will be paying less. Wouldn't it be nice if the Federal Government would print some more money to reimburse Arizona for the cost of educating what has conservatively been estimated as 20% of the students in the K-12 schools that are illegal aliens that do not belong in the country. To put this in perspective, if you paid $500 to the schools, $100 or more of that amount is being used to educate Mexican nationals and other illegal aliens. Is there any wonder why nothing is being done about this problem when we property taxpayers are forced to pick up the tab?

Please do your part to put a stop to this lunacy before even more good law abiding Arizonans are taxed out of their property. Go on line at http://www.arizonataxrevolt.org and sign up as a volunteer, help to gather signatures and contribute what you can.

Sincerely,
Marc Goldstone, Chair.
Arizona Tax Revolt