State lawmakers return to the Capitol on Monday facing something they have not seen in years: More money than they immediately need to balance the budget.
The last surplus was in 2006, when the economy was booming. In fact, things were so good that legislators not only agreed to have the state fund full-day kindergarten, but also cut individual income tax rates by 10 percent.
That kindergarten funding is gone, the victim of a series of spending cuts lawmakers approved when the boom went bust and cut state revenues by more than a billion dollars a year. But the income tax rates remain in place.
Those cuts, coupled with an improving economy, have paid off.
By June 30, the end of the current fiscal year, the state will have an extra $416 million to $650 million left over, depending on whose estimates are used. And next year, even with anticipated increases in enrollment in public schools and for some other programs, there could be anywhere from $143 million to $850 million more than needed to fund current programs.
And that is going to lead to some interesting fights.
Gov. Jan Brewer already has put down some markers.
She wants $7 million for the Arizona Office of Tourism, restoring funds that were cut during times of shortage. The governor contends the increased promotion will pay dividends with more visitors.
Brewer also wants to undo a law which would require counties to incarcerate inmates sentenced to less than a year in prison for felonies, now the responsibility of the state Department of Corrections. That move can save the state more than $40 million a year — at the expense of the counties.
But legislators have some other ideas.
“I believe people sentenced to under a year have no place in a (state) prison but should stay locally in a jail,” said Rep. John Kavanagh, R-Fountain Hills. Kavanagh, who chairs the House Appropriations Committee, said that not only saves costs for the state but keeps people close to their families.
Brewer also wants to use some of the excess to start paying down the state’s debt.
Technically speaking, Arizona really cannot go into debt, with a constitutional limit of $350,000 on borrowing, a figure that goes back to territorial days. So when lawmakers needed money, they agreed essentially to sell off state buildings — including the state House and Senate — for immediate cash and then lease them back.
Total debt now is about $3 billion.
Brewer said something about that situation leaves her uncomfortable.
“Personally, I have always been one that didn’t like debt,” she said. The governor said that in both her personal and business life she always has paid off what she owes as soon as possible.
“I just think it’s a principle thing that government ought not to be in debt,” Brewer continued. And she specifically said it’s just bad for the state not to hold title to its own buildings.
House Speaker Andy Tobin, R-Paulden, also wants to use some of the funds to pay down the debt.
But Sen. Don Shooter, R-Yuma, who chairs the Senate Appropriations Committee, said using any extra funds to do that may not make sense financially.
He said the state is paying interest of just about 3 percent a year. And there also is the question of any prepayment penalties.
Shooter said though, the bigger issue is that the excess funds won’t always be there.
One reason Arizona is taking in more money than it is spending is that voters in 2010 approved a temporary one-cent increase in state sales taxes. But that levy, which may eventually bring in $1 billion a year, self-destructs on May 31, 2013.
Kavanagh said that could result in a “financial cliff” for the state. But said if the state banks most of the excess from this current year and the next, and if the economy continues to improve, that cliff would amount to no more than a curb.
Shooter said there are other considerations, too.
He said if courts do not void the new federal health care law, that could add hundreds of millions of dollars to the state’s budget. Such a move would not only require the state to enroll single adults with incomes below the poverty — one of the cuts made to balance the current budget — but actually expand eligibility for all to 133 percent of the poverty level.
And Shooter said the state also needs to prepare for the possibility of a “double dip” recession, particularly if the economy in Europe crashes.
There will be other demands on the state’s revenues.
A proposal to expand Child Protective Services with a special unit to investigate criminal cases of child abuse comes with its own expenses. There also are calls to provide additional funds for education.