PHOENIX - Gov. Janet Napolitano on Tuesday released a proposed state budget with new or increased spending for education, state employees' pay and border-related law enforcement.
The budget also uses about two-fifths of a $1 billion budget surplus to pay back budget-balancing maneuvers made during recent lean years.
Napolitano's surplus estimate for the current fiscal year is part of her proposed $10.1 billion budget that the Democratic governor presented to the Republican-led Legislature for the 2006-07 fiscal year, which begins July 1.
Proposed spending increases include $142 million for a 7.5 percent pay raise for state employees, $45.7 million for pay raises of at least $800 for K-12 school teachers, $115 million for completing statewide funding of all-day kindergarten and $100 million for border-related law enforcement.
Napolitano's budget, which provide some details on proposals unveiled during her Jan. 9 State of the State address, also includes $100 million of tax relief targeted at back-to-school purchases, high-mileage vehicles, employee health insurance and high-tech research and development.
The proposed budget for the next fiscal year is 22.3 percent larger than the current fiscal year's $8.2 billion budget, but the year-over-year increase of actual spending would be 18.8 percent without counting approximately $350 million set aside to pay back budget-balancing maneuvers.
Even at 18.8 percent, it would be misleading to characterize the budget's proposed spending as extravagant, especially because agencies' costs rose by $686 million for inflation and enrollment and caseloads increases, Napolitano said during a briefing last week.
"We're paying back lots of stuff, we're paying cash for school buildings - most states get to bond for that. All of those things make the spending artificially inflated," she said. "If you look really at what the new initiatives are, this is a pretty conservative budget in that sense."
A senior Republican lawmaker criticized the budget after he emerged from a briefing in the governor's offices. "She's got a lot of spending in there. That concerns me," said Rep. Russell Pearce, a Mesa Republican who is chairman of a House Appropriations committee. "A lot of smoke and mirrors."
Of the $1 billion surplus, $180 million would be deposited in the state's rainy day fund and an additional $253.5 million would repay or partially repay borrowing and special funds that were raided to balance budgets several years ago.
Napolitano said money for her $100 million tax-relief package would come from the $1 billion surplus, as would an additional $263.3 million for building new K-12 schools. School construction is an annual expense which Napolitano last year proposed be paid through borrowing but which was ultimately paid with cash.
Also, $15 million of the surplus would be spent on several small building projects and $117.6 million to pay for settlements of two taxpayer class-action lawsuits, Napolitano said.
Though she would leave only a $25 million surplus at the end of the next fiscal year, Napolitano said that's a responsible approach because the rainy day fund would contain a total of $347 million and the state would have made big progress on paying off borrowing used to balance previous years' budgets.
The economy has rebounded dramatically in the three years since the state faced a $1 billion deficit as Napolitano took office in 2003, forcing lawmakers back then to work with Napolitano to make midyear changes that included draining the rainy day fund, siphoning cash from special-purchase funds and putting a clamp on most agencies' spending.
"It's due to a serious uptick, primarily in (sales tax) and personal income tax," Napolitano said of the projected $1 billion surplus.
While the state experienced 19.8 percent growth in revenue during the 2004-05 fiscal year that ended last July 1, the current fiscal year should finish with 13.1 percent growth in revenue and the next with 7.4 percent.
Republican legislators are mounting strong pushes for big tax cuts, including a 10 percent reduction in individual and corporate income taxes at an estimated price tag of $440 million without considering any additional taxes resulting from economic expansion spurred by the cut.
Napolitano defended her approach, saying big tax rate cuts would erode the state's revenue base and that it's smarter to target the smaller amount of dollars she wants to devote to tax cuts.
Republican legislative leaders also have agreed to spend up to $100 million on border enforcement, provide a major pay raise for state workers and pay off budget-balancing maneuvers.