Arizona Secretary of State Ken Bennett spoke to an audience of around 80 Wednesday at the Chandler chamber of Commerce’s economic update luncheon, attempting to shed light on a sometimes murky, sometimes confusing state budget scenario in recent years.
Explaining many of the conditions of the state budget over the past five years and some of the challenges the state faces in 2013 and beyond, Bennett, a former state senate president, said he gained an understanding of how the complexities work during his time in the legislature.
The energetic and fast-paced speech, given during a luncheon at the Hilton Phoenix/Chandler hotel, included an animated demonstration where Bennett used tissue boxes symbolizing chunks of state funds — a whole box representing approxmiately $1 billion, a half box representing half a billion — while articulating what they are spent on.
“The general fund is the main pot of money that the legislature and the governor have to decide how to spend each year,” Bennett explained.
Most of the general fund’s money comes from sales and income taxes on corporations and individuals, he said.
“Most property tax goes to local governments,” he said.
Bennett recalled that in 2009, Arizona had a state budget shortfall of about 31.5 percent, second only to California’s 32 percent shortfall.
Bennett said he had been working in the private sector in 2009, when the economic crisis began to peak; he had been out of the Senate due to term limits for more than a year.
“People start asking me ... ‘how did this happen?’ and ‘where does our money go and where does it come from?’”
In 2008, the state budget was at nearly $ 10.5 billion, he explained. Bennett said that, although the general fund has fluctuated in its totals, the proportions spent on each item “stay surprisingly similar from one year to another.”
Bennett said just about half of the entire general fund, using the 2008 total as the example, goes to K-12 education in the state’s 227 school districts and more than 500 charter schools.
Another $1.25 billion goes to higher education, the state’s universities and community colleges. Another nearly $1.25 billion also goes to the courts, state police and Department of Corrections which runs the state’s prison system. DOC takes nearly $900 million of those funds itself.
An additional $2.5 billion heads out to healthcare and welfare programs like the Arizona Health Care Cost Containment System. It also includes the Department of Health Services and the Department of Economic Security and more. AHCCCS takes the most of it.
The remaining amount — about $500 million — goes to just about every other state program or agency not mentioned above.
Bennett said the state has other income through taxes and fees but that those monies are usually required to be spent on specific programs and are not part of the general fund. These include taxes on gasoline and diesel fuel, as well as tobacco and alcohol, he said. The federal government also sends money into the health and education systems.
Throughout Bennett’s piece it was apparent that an overwhelming amount of state funds are spent on health care and education while tiny fractions of it fund dozens of other departments and programs.
Bennett also explained the vast amounts of money that the state has borrowed from lenders and other programs and received from the federal government through stimulus programs to plug shortfalls.
In 2008, revenue was down to $9 billion, leaving a $1.5 billion shortfall. Of the $1.1 billion left in the state’s “rainy-day” surplus fund that year, about $900 million was pulled into the general fund.
Bennett said officials also used accounting “gimmicks and tricks” to further manipulate shortfalls.
“One of them was to delay the payments to the school districts throughout the state,” Bennett said.
He explained that funds for education are paid by the state monthly. By delaying the 12th payment of the year — payments are traditionally scheduled for mid month — just 16 days and into the next budget year, it can appear on paper that the state actually paid less.
“Most of you in private business would go to jail for doing stuff like that,” Bennett joked to the audience made up of mostly chamber members.
Another idea was to take funds from other government departments and pull them into the general fund. In 2008, $300 million more was gained to close the shortfall. But then 2009 came, Bennett said, and the state had an $11 billion budget with only $8 billion in revenues. The changing administrations from Gov. Janet Napolitano to current Gov. Jan Brewer each lowered the number, whittling it to $10 billion, but revenues also came in lower than expected at $7 billion.
The deficits continued to pile up over the next couple of years under the drag of the recession, he said. Loans were used, assets, including the state government complex which is rented now by the state, were sold. The accounting “tricks” continued and more payments were delayed.
In 2012, revenues surpassed expectations and added another $300 million to the projected $8.3 billion that matched the budget, “which gave rise to a huge argument at the Capitol of what to do with all the extra money,” Bennett said, drawing laughter from the audience.
But today, with all the loans, mortgages and delayed payments, the state is $2 billion dollars in debt over the past few years, Bennett said.
He said that in 2013, the budget is expected to be about $8.7 billion, but a recovering economy will yield about $9.1 billion in revenue. The revenue projection, however, includes a one-cent sales tax that expires in May.
“The trick’s going to be the ’14 budget because 9.1 became 8.1 like that,” Bennett said.
He said the governor’s proposed budget for next year is $8.9 billion and that revenues may be as low as $8.3 billion.
“It’s going to be tight, but they’ll probably barely squeak through on 2014’s budget,” he said.
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