The state budget is running close to $600 million in the red.
Gov. Janet Napolitano admitted Wednesday what Republican legislators have been saying for months: Arizona’s $10.6 billion spending plan exceeds the revenue coming in. And that is exacerbated by the state starting the fiscal year July 1 with $225 million less left over from last year than anticipated.
The governor wants to bridge the gap by directing agency chiefs to cut $100 million by not filling vacancies, cutting travel and even delaying the purchase of new supplies.
Napolitano also wants to take $200 million out of the state’s “rainy day fund,” a savings account of about $700 million earmarked for emergencies.
And she proposes that the state “save” $300 million by borrowing to build more than 30 new schools this budget year rather than pay cash.
That last idea in particular provoked an icy reception from Republican legislative leaders. House Majority Leader Tom Boone, R-Peoria, pronounced the plan dead on arrival.
Thayer Verschoor, R-Gilbert, his Senate counterpart, questioned the advisability not only of borrowing but even tapping the rainy day fund.
Verschoor said some members of the state’s Finance Advisory Committee concluded just last week the current economic slump could last into 2011.
He said that means this problem will repeat next fiscal year — and even after that — unless actual spending is slashed.
“We don’t want to make the problem worse,” he said, adding that everything should be done to determine if this year’s anticipated deficit can be wiped out by cutting spending.
Rep. Russell Pearce, R-Mesa, who is chairman of the House Appropriations Committee, called Napolitano’s plan “irresponsible.”
“She wants to take the easy way out now and borrow for schools, dig the hole deeper, and go to the rainy day fund instead of fixing the problem,” he said.
Pearce said without spending cuts now, the state will begin the next fiscal year anywhere from $500 million to $1 billion in the red.
But Napolitano could find an ally for at least part of her plan in Senate President Tim Bee, R-Tucson.
“We’ve had responsible budgets,” he said, and have not created a lot of new programs. Bee said he doubts there is $600 million — or anything close to that — which can be cut from the spending plan.
He added, though, that convincing the GOP majority to borrow money for schools — and make interest payments — would be a tough sell.
Part of the problem in balancing the budget is much of the $10.6 billion spending plan is untouchable, legally or politically.
The biggest chunk is $4.3 billion in state aid to education. A 2000 voter-approved measure guarantees that money to schools each year, complete with inflationary increases.
Similarly, much of the nearly $1.3 billion in funding for the Arizona Health Care Cost Containment System also cannot be trimmed by lawmakers because voters mandated that anyone with an income below the federal poverty level is entitled to free health care.
Lawmakers also have been loathe to trim the $963 million for the Department of Corrections or the $242 million for the Department of Public Safety.
And the governor has made cuts to higher education off limits, including the more than $1.1 billion in state aid to universities and $167.7 million going to community colleges.
Pearce conceded much of the state’s budget is untouchable, like the number of people enrolled in the basic AHCCCS program.
But he said there are places to cut, like a program that provides coverage not only to children of the working poor but even to their parents — people whose incomes are higher than the poverty level.
The governor’s plans to balance the budget can do things such as tap the rainy day fund because she does not foresee the longer and deeper slump predicted by some on the Finance Advisory Committee.
“That’s not what our economists are telling us,” said George Cunningham, Napolitano’s chief financial adviser. He said they predict Arizona’s economy will begin to “rebuild” sometime next year.
Napolitano, in defending plans to limit spending cuts, said much of the reason for the sudden downturn in the economy has been that homes are just not selling.
“When residential housing dries up, then people, if they’re not buying homes they’re not going out and buying appliances for their homes,” she said. “So all of a sudden, you see the ripple effect.”
She said Arizona’s dependence on home sales — and growth in general — is why cuts in funding for higher education would be “the wrong strategy.”
“You don’t diversify your economy unless you have some of these things in place to help you do that, to help you attract and grow new knowledgebased businesses,” she said.