Report paints bleak fiscal picture for state - East Valley Tribune: News

Report paints bleak fiscal picture for state

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Posted: Wednesday, November 11, 2009 6:34 pm | Updated: 2:30 am, Sat Oct 8, 2011.

Arizona is in danger of going down the same financial path as our neighbor to the west, a new report says.

The study released Wednesday by the Pew Center on the States found many of the same conditions in Arizona that led to California coming close to financial collapse. It also concluded lawmakers here are hobbled in efforts to fix the problem by some of the same legal constraints, including a constitutional requirement for a two-thirds vote of both the House and Senate to increase taxes, even temporarily.

And while the study paints California as being in the worst financial condition of any state in the nation, evidence would suggest that dubious distinction really belongs to Arizona: Its deficit for the current fiscal year is now in the $2 billion range, against projected revenues of only about $6.4 billion.

And the real structural deficit - the difference between ongoing revenues and ongoing expenses - is actually $3.7 billion.

Lawmakers essentially have papered over the problem with one-time fixes and accounting maneuvers, ranging from delaying payments to mortgaging state buildings, to make the gap appear smaller.

That, according to the report, is one of the reasons for the problem Arizona finds itself in.

"Early on, as the economy grew bleaker and state revenue sank, Arizona's lawmakers reacted slowly, looking to solutions they had used to deal with other, less serious, recessions," the study says. That included draining the "rainy day fund" and postponing payments due to schools.

But state spending never actually shrank.

Gov. Jan Brewer, who took over as the state's chief executive in January, agreed that what is going on now was a long time in coming.

"We have, and have had, a structural deficit building in our state for the last six, seven years," she said. "And we need to address that issue."

A special legislative session is set to begin Tuesday. But lawmakers are prepared to deal with less than $500 million of the current shortfall.

The report says the ability of Arizona to have the money it needs was hobbled by cuts in state income tax rates in the 1990s, pushed through the Republican-controlled Legislature by Republican Gov. Fife Symington. Overall personal income tax rates were cut by about 40 percent.

But Brewer, who was a legislator at the time - and voted for the cuts - disagreed with the study's conclusion.

"Well, I think at the time they were probably not a mistake," she said.

"I believe that we need to cut spending, we need to reduce taxes," the governor continued. "I think that's good, sound economic strategy."

And even with the current fiscal hole, Brewer already is proposing future tax cuts, mostly aimed at businesses, when the economy recovers.

But the tax cutting didn't end in the 1990s. And it wasn't all done by Republicans.

In 2006, the last time Arizona had a surplus, Democratic Gov. Janet Napolitano agreed to cut state income tax rates by another 10 percent. The political trade-off for her was getting the Republican-controlled Legislature to fund some of her priorities, including state-financed full-day kindergarten.

"I always thought that was a problem," said Senate Majority Leader Jorge Garcia, D-Tucson. In fact, Garcia refused to vote with the Democratic governor.

"What we did wasn't the best idea for the long-term health of the state," agreed state Rep. Kyrsten Sinema, D-Phoenix, the No. 2 Democrat in the House. What it was, she said, was pure political dealing.

The problem now, she said, is that it's far more difficult to undo those tax cuts than the new programs.

That goes to another factor cited in the report hampering the ability of the state to deal with the immediate problem: A voter-approved constitutional amendment requires a two-thirds vote of both the House and Senate for any tax hike. That even includes the temporary sales tax hike that Brewer has proposed.

The governor, however, was circumspect on whether she believes voters should be asked to rescind that requirement.

"I think that anything that is related to government, it's always a good time to look to see if it's working," Brewer said. That two-thirds vote requirement is why Brewer has instead asked lawmakers to send her tax hike proposal to the ballot: It takes just a simple majority of lawmakers to refer issues to voters, and a simple majority of those who turn out at the election to approve higher taxes.

The other big factor complicating Arizona's financial condition is a 1998 constitutional amendment that prevents legislators from tinkering with any program the voters themselves have approved. That protects both a 2000 measure that mandates annual increases in state aid to education as well as another measure, also approved the same year, that requires the state to provide free health care for anyone below the federal poverty level.

It also protects public financing of elections and programs to improve early childhood education. Both are financed with their own revenue sources - revenues some lawmakers contend could be better used in a financial emergency for other state services.

Other states the Pew study says are in financial trouble include Rhode Island, Michigan, Oregon, Nevada, Florida, New Jersey, Illinois and Wisconsin.

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