State of the State drifts into uncharted waters
"Arizona has been saved."
With that bold declaration, Gov. Jan Brewer proclaimed before a joint session of the Legislature this week that Arizona now boasts a budget surplus, the first in four years.
The governor said it was a far cry from the "dark times" of 2009 when Arizona's ship of state nearly capsized from what she termed over-spending, a bloated bureaucracy and "poor navigation."
But it may take some fancy dead reckoning to leverage the estimated fiscal surplus -- $416 million to $650 million -- while keeping things ship-shape in Bristol fashion and avoiding the budgetary shoals beyond 2012.
The principal issue lurking beneath the waves is the temporary one-cent sales tax that expires in 2013.
Yielding about $1 billion in revenue annually, the voter-approved measure helped lift the state out of an economic trough. But, as Governor Brewer declared in her address, "a promise is a promise … This tax will end on my watch!"
That means state revenues will ultimately suffer a cut of more than 10 percent. Therein lies the conundrum.
Is public policy best served by preemptively tying the hands of legislators who are in unfamiliar territory of actually being able to evaluate programs' worth rather than merely their cost to the foundering budget?
When it comes to the surplus, legislators will divide into three camps as the debate develops: “spend it, save it or use it to pay off (the state's debt), as The Arizona Republic noted:
The "save it" camp argues that the state will need the money to fill the hole left when a temporary sales tax that raises about $1 billion a year expires at the end of the 2013 budget year. Others want to pay down the state's $3 billion-plus debt. And still others, primarily Democrats, want to restore funding to programs they argue were cut too deeply in previous years. Education and health care top the list.
The East Valley Tribune was more blunt: “Don’t screw it up now.”
The Trib praised lawmakers for ”cutting costs and balancing expenses to revenues and borrowing,” noting it is vital that state government spending be kept on a tight leash. Moreover, the Trib worried aloud over the prospect of giddy legislators calling the surplus, well, a “surplus.”
That term leads to more spending. The truth is that Arizona won’t have a real surplus for a very long time. The money that had to be borrowed to get the state through some tough years is still owed through bonds. And the state very soon (in 2014) faces an estimated $50 million loss in sales tax revenue.
Of course, more spending (or at least avoiding more cuts) is exactly what one key constituency -- the education sector -- wants. Having tasted the bitter fruit of hundreds of millions of dollars in cuts in the last budget, educators and others will seek the nectar by pushing for extending the temporary sales tax, predicted The Arizona Capitol Times.
The temporary sales tax was really the only semblance of a balanced attack on Arizona's structural deficit. A 2011 Morrison Institute/Brookings Mountain West report on the issue noted the need for both cuts and additional revenue -- not just cuts alone -- for an effective and sustainable apparatus.
Though hope springs eternal, Governor Brewer appears dead set against extending the sales tax she once supported.
“I’m looking at new revenue by bringing in new business and changing this economy,” she told the Cap Times.
The governor’s laudable optimism notwithstanding, the real question is whether that future will arrive fast enough to keep Arizona afloat as many of its most vulnerable passengers continue to tread water.
Morrison Institute for Public Policy is a leader in examining critical Arizona and regional issues, and is a catalyst for public dialogue. An Arizona State University resource, Morrison Institute uses nonpartisan research and communication outreach to help improve the state's quality of life.
Ed Perkins is a policy analyst at the Morrison Institute for Public Policy, an ASU think tank.