The state isn’t bringing in enough money to pay its bills this year as the economy isn’t recovering as fast as anticipated.
Figures released Wednesday by the Joint Legislative Budget Committee estimate tax collections are running at a rate that will leave the state with $206 million less than the amount of money budgeted. On top of that, federal funds for programs are anticipated to be $158 million less, with another $100 million shortfall in funding for public education.
But the real problem is that lawmakers built the budget counting on approval of two measures in November allowing them to divert funds voters had previously set aside to preserve open space and for early childhood development programs. If Propositions 301 and 302 are defeated, that increases the hole by another $469 million, to $825 million.
And at that point, key legislative leaders say they will have to come into special session, before January, to make even deeper cuts to education and health programs.
Whether that is legal, though, remains in question: The state agreed not to trim those two areas of the budget in exchange for accepting federal stimulus dollars. But Senate President Bob Burns, R-Peoria, said Arizona may simply have to ignore that commitment.
“At some point we have to take the position that we can’t honor the ‘maintenance of effort’ (provision) because the money isn’t there,’’ he said. “At some point, you can’t keep spending what doesn’t exist, regardless of the requirements of what the federal government tells you you have to do.’’
Sen. Russell Pearce, R-Mesa, foresees a challenge to the federal government. He said four states already have said they can’t meet the requirements not to cut state spending on programs as a condition of taking stimulus dollars.
“I think Arizona’s in a position to make some of those same arguments: Can’t do it, not going to do it, you can’t tie our hands like that,’’ said Pearce, who chairs the Senate Appropriations Committee.
“We have a responsibility to our citizens,’’ he said. “And (if) the feds don’t like it, some of that is just too bad.’’
Pearce has his sights set on the Arizona Health Care Cost Containment System, the state’s Medicaid program, saying it has the fifth most generous set of benefits of any program in the nation.
“The socialist programs have to be tweaked,’’ he said. “You can’t continue to be a welfare state when you don’t have money, giving things away when you don’t have money.’’
But the problem of cutting goes beyond the fact the state got federal stimulus dollars to run its Medicaid program.
The new federal health care bill approved by Congress earlier this year eventually will provide states with even more money for Medicaid. But the law also says that eligibility for those extra funds is contingent on states maintaining their programs the way they are now.
And that’s only part of the problem: Richard Stavneak, staff director of the Joint Legislative Budget Committee, said the federal law says any state that trims its program loses all of its federal Medicaid dollars, including those for which it qualifies now. And that totals about $7 billion a year.
Paul Senseman, press aide to Gov. Jan Brewer, said she has no solution to how to balance the budget and yet meet the federal mandate. He said that is going to have to come from Washington.
“The federal government created this mess, they’re going to have to fix it,’’ Senseman said. “There is not a state solution.’’
Senseman also noted that Brewer is party to a lawsuit against the federal government seeking to overturn the law and its requirements.
Health care isn’t the only target.
Rep. John Kavanagh, R-Fountain Hills, who chairs the House Appropriations Committee, said he believes the universities will have to give up some money, if not this year then certainly the next, where the gap between revenues and expenses is already estimated at $1.4 billion. He said the universities have escaped the budget woes relatively unscathed, taking cuts that over three years totaled only 5.3 percent.
Pearce agreed that the universities need to take a hit.
“We’ve not asked higher ed to sacrifice anything,’’ he said. “And I think everybody’s got to pony up this time.’’
That also includes K-12 education, he said, where Pearce believes the state could save by forcing districts to cut what they spend outside the classroom — everything from administration to utilities and transportation — without trimming expenses for teachers and supplies.
But Pearce already has declared public safety spending, including the state prison system, off limits to cuts.
The problem of how to balance the budget goes beyond whether the state can get out from under the “maintenance of effort’’ provisions of the federal aid. Legislators have been reticent to make further cuts to state aid to education beyond what they already have taken.
That, then, leaves the same kind of budget maneuvers lawmakers have used in the past to balance the books: borrowing, raiding special funds and accounting maneuvers to defray certain expenses.
Burns said if the two ballot measures fail it would make the most sense to have a special session — even one involving lame-duck legislators who are not coming back in January — rather than wait until next year. He said the longer lawmakers wait to cut spending or enact other budget maneuvers, the more difficult it will be to accomplish.
Brewer brushed aside questions of whether it was responsible for lawmakers to approve — and for her to sign — a budget built on an assumption that voters will approve diverting the funds from the two programs.
“The bottom line is the budget is based on projections going into the future,’’ the governor said.
“We’re projecting that people will look and take real consideration in determining if they want to support those propositions or not,’’ she continued. “If not, then they will have spoken and we will have to make the adjustments accordingly.’’
Pearce said there are some bright spots in the budget report presented Wednesday to lawmakers.
For example, he said the state has saved about $350 million since 2007 in state aid to education. He credited that to lower enrollment than anticipated — and some of that to changes in state laws designed to convince illegal immigrants to leave the state.