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Senate budget lacks both balance and vision
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Analysis

Senate budget lacks both balance and vision

  • Arizona State Capitol
    DanMacMan/FlickrArizona State Capitol

The Arizona Senate released its proposed budget solution for the remainder of this fiscal year and FY 2012. While the Senate and the Governor's Executive Budget, released in January, work from the same basic data on shortfalls – over half a billion dollars for this year, and in excess of $1.1 billion for 2012 – the approach to reaching fiscal balance is drastically different.

More than $610 million different.

The Senate budget, crafted to be viewed as a 15-month plan, technically ends the current year in the red, with a $374 million deficit starting on July 1. Most substantially impacted in the new Senate proposal are K-12 education, universities, local governments and the Department of Economic Security.

While a full assessment can be found at the Joint Legislative Budget Committee website, below are some of the key provisions that will not only have the deepest and most immediate impact, but likely reverberate in Arizona's communities and economies beyond the current fiscal crisis.

Balancing the budget at the expense of the state's most vulnerable

A number of cuts and policy changes will most directly impact Arizonans already on the edge: those living in poverty, receiving cash assistance or Medicaid, or utilizing basic child care subsidy assistance to stay in the workforce.

There has been no question in the last few months that low-income Arizonans who receive Medicaid – administered by the state agency AHCCCS – were potentially going to be impacted.  Specifically:

  • The Governor's original budget proposal suggested dropping approximately 280,000 individuals from Medicaid who had been added to the rolls through voter initiative in 2000. However, the Governor has now released a proposal to instead institute a freeze allowing already enrolled individuals to be grandfathered in, as well as other cuts, that will not result in the automatic enrollment reduction. The Senate plan still includes the total elimination of coverage for thousands of Arizonans.
  • In conjunction with many of the Governor's suggestions, the Senate plan includes the addition of a monthly premium and additional co-pays.

It is not only Arizonans who are reliant on Medicaid that are impacted. Cuts to the Department of Economic Security, which exceed the Governor's reduction recommendation by $47.3 million, include:

  • Reduction in the amount of time over a lifetime a family can qualify for Temporary Assistance for Needy Families (TANF) cash assistance to just 18 months. Last budget year, the lifetime limit was 60 months, which was reduced to 32. Within just two years, Arizona's lifetime limit could potentially drop from 5 years, to just a year and a half.
  • Elimination of the child-care subsidy. Currently thousands of Arizona children sit on a waiting list for child-care assistance, designed to provide low-income working families with an additional support to ensure they remain in the workforce. Currently, only qualified families in the TANF program and CPS qualify for the assistance. The Senate proposal would result in those families losing that subsidy.

Education cuts contrary to voter mandate

In 2010, Arizona voters approved a temporary one-cent sales tax, with the promise of backers that this would maintain stable funding for the K-12 system. The Senate bill ignores what many viewed as a voter mandate and proposes more cuts and policy changes than the Governor's proposed budget. The Senate proposes:

  • Continuing to freeze the state basic aid at $3,267 per pupil, instead of implementing the statutory requirement to annually increase the amount.
  • Reducing the Capital Outlay Revenue Limit (CORL) funding by $182 million. CORL is used to fund needs identified at by individual school districts.
  • $212 million in cuts to soft capital funding, which funds supplies such as textbooks and lab equipment.

While the Senate bill is full of examples of passing costs onto counties and specific users, in one case the Senate chooses to claw back control from localities. The Senate bill would require school districts that choose to offer full-day kindergarten to charge tuition for the additional half-day. Although the Arizona Department of Education no longer requires school districts to offer full-day kindergarten, some districts have found a way to finance the program. These public school districts would now be required to charge for the "additional" half-day of school.

Like Governor Jan Brewer's budget proposal, the Senate bill also implements funding cuts to universities. However, the Senate's proposed cut is $235 million, $65 million more than the Governor's proposed $170 million. As a condition of the federal stimulus funding, the university and K-12 systems' budgets were required to remain at 2006 funding levels. This protection no longer exists.

Additionally, the state will no longer match student fees paid to the Arizona Financial Aid Trust, which will result in less financial aid to attend a state university.

Financial gimmicks continue

The Senate plan deliberately leaves FY 2011 in deficit. The Governor's proposal suggested using both a one-time loan from the voter-funded First Things First agency as well as rollovers to carry the state forward into 2012.

Senate leaders decried these "gimmicks." New Senate Majority Leader Andy Biggs was quoted as stating, "Most of the people ran here on the promise to our constituents that we are tired of budget and accounting gimmicks. We are tired of borrowing money and being disingenuous about it."

Unfortunately, the Senate budget proposal is not gimmick-free either. A number of the "cuts" or "savings" identified in the Senate proposal are actually costs shifts to local governments. The obligation and expenditure still exist, the responsibility has only moved to local governments already stretched by previous cuts and fund sweeps. Specifically, the proposal recommends local governments:

  • Contribute in excess of $42 million to support the Motor Vehicle Division.
  • Pick up $55 million in costs associated with inmates with less than a year on their sentences being transferred to counties.
  • Eliminate of a 50% reimbursement to counties for grand jury expenses and indigent defendant representation.
  • Require counties to pay double what they are currently providing for cost of confinement and treatment of sexually violent persons.

Among other gimmicks, the Senate bill continues to kick the fiscal can down the road by raiding other funds to provide financing for General Fund activities. The fees that regulation boards – such as the Board of Dental Examiners – charge are diverted from their legislatively intended purposes to funding the general workings of Arizona's government.

And the rollover loans that began several years ago continue, most notably the $200 million deferred payment to the universities and the $952.6 million deferred payment to the school districts.

Revenues off the table

Morrison Institute for Public Policy has been discussing the need for a balanced approach to solving the state's fiscal crisis. Structurally Unbalanced: Cyclical and Structural Deficits in Arizona, released in January, noted that our structural deficit, estimated at $2.1 billion, arose from a chronic imbalance between revenues and expenditures and that any solution that takes into account both current and future prosperity needs to balance revenue and expenditures.

Unfortunately, the Senate proposal looks to only find solutions on the expenditure side of the ledger. 

If the Senate proposal is passed as written, the Joint Legislative Budget Committee estimates a $5 million structural surplus at the end of FY2012. However, in the last 18 years, permanent tax cuts have totaled almost $3 billion.

Additionally, early in the session, the Legislature passed and the governor signed a bill that focused predominantly on further permanent revenue reductions with the goal of increasing jobs. While it is unclear how many new jobs and how much additional revenue the Senate believes such cuts would generate, what is clear is that the tax cut is estimated to resulted in $38.2 million in reduced revenue for FY2012 and over half a billion dollars by FY2018 when all the elements of the bill are implemented.

The budget proposal, while having a few small allowances for fee increases for some agencies, does not address the issue of balancing revenue with the proposed cuts.

Conclusion

There are a number of less visible, but nonetheless impacting cuts made in the Senate proposal. Included are proposals to permanently cut the General Fund appropriation for the Department of Water Resources and the Arts Commission.

While vowing transparency, the Senate has proposed eliminating several agency planning and reporting requirements, affecting both the Legislature's and the public's ability to understand the role of government programs over time and the outputs these programs produce. Such changes would reduce the transparency of state government.

It is unclear if the Senate proposal will eventually have buy-in from the House and the Governor, who has veto power. However, there is no question the tenor of Arizona's budget discussion has changed.

The Senate proposal lacks balance, looking to bring fiscal stability through disproportionate impact to those Arizonans struggling most during this recession. Also disconcerting is that the proposal looks to simply survive the current crisis, and not take into account the long-term prosperity of Arizona.

It is no longer good enough to balance a single fiscal year. As economists, business leaders, top educators in and outside the state, community leaders, other policymakers and analysts have all noted: Expenditure cuts must coexist with thoughtful and strategic investments to put the state on a path to do more than simply get by.

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.

Kristin Borns is a senior policy analyst at Morrison Institute for Public Policy.

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