State agencies facing more budget cuts - East Valley Tribune: News

State agencies facing more budget cuts

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Posted: Friday, September 18, 2009 7:32 pm | Updated: 1:17 am, Sat Oct 8, 2011.

State agencies that already weathered a series of budget cuts since January may have to slice again - and deep.

Budget crisis could halt incorporation

State agencies that already weathered a series of budget cuts since January may have to slice again - and deep.

Gov. Jan Brewer is instructing her agency heads to prepare to slash another 15 to 20 percent from their spending plans. Gubernatorial press aide Paul Senseman said Friday it appears there is no other way to bring the budget into balance.

Part of the problem is of Brewer's own making.

Lawmakers did present the governor with what they said was a balanced budget earlier this summer. But Brewer used her power of line-item veto to eliminate some of the proposed spending reductions.

The result, according to legislative budget staffers, was a $464 million deficit.

But that is only part of the problem: The state started the fiscal year July 1 $500 million in the hole. So that means the real gap is close to $1 billion.

Senseman, however, said the governor had to take the actions she did.

"If she had signed the thing, we would have cut K-12 education spending by $462 million," he said. That amount, Senseman said, was unacceptable.

Senseman said, though, the problem goes beyond that. He said state tax collections, already weak, are even worse than anticipated.

In just the first month of the new budget year, the state took in just $573.3 million. That is not only more than $65 million less than July 2008, but it is also in excess of $33 million less than what lawmakers assumed when they adopted the budget just a month earlier.

Senseman said the first step will be to determine what cannot legally be trimmed.

Some spending is required by federal law. And some programs are off-limits to cuts because they were approved by voters.

Beyond that, he said, the situation is murkier.

"It's certainly safe for you to say that the executive will ask the Legislature to relieve some agencies of some service obligations if they going to have to meet the kind of spending reduction requirements to prevent additional cash-flow problems," he said.

There's also a third factor at work.

Brewer had been counting on lawmakers putting on the ballot - and voters approving - a temporary one-cent hike in the state's 5.6 percent sales tax, designed to take effect Jan. 1. That would have raised close to $500 million for the balance of this fiscal year.

But the proposal to refer the issue to voters never could get the necessary votes in the Senate.

Senseman said Brewer foresaw the shortfall.

"It's certainly a key factor in why the governor proposed many months ago that we seek from the voters approval for additional state revenues," he said.

But Senseman said the directive to the agencies to prepare for sharp cuts is not meant as a scare tactic to pressure lawmakers into now putting that sales tax hike onto the ballot. He said it's simply a recognition of the fiscal reality: There are not a lot of other options.

Senseman said Arizona has been spending more than it collects in revenues for years. The difference has been made up - and the budget legally balanced - through borrowing and accounting maneuvers like paying the bills owed in one budget year in the following one.

One difference this year is that the revenue situation is so bad that, even with various accounting maneuvers - and even a plan to sell off state buildings and parks for up-front cash and then lease them back over time - the state's cash flow is so bad that it has to borrow money just to pay bills as they come due.

"So many of the mechanisms that have been used to effectively manage and avoid cash flow (problems) as an issue have already been implemented or are just no longer functional," Senseman said.

Beyond that, he said that the fiscal outlook is that even if the state manages to balance this year's budget, that doesn't end the problem: Economists have been forecasting a continued gap between revenues and expenses into 2014.

"There's only two mechanisms that can address that on a multiyear basis," Senseman said. "Both are going to be necessary because of the size and the scope of this problem."

Senseman said there has been no decision yet whether Brewer will order specific spending cuts by fiat or instead ask legislators when they return in January to make the adjustments.

Whatever the method, Senseman said action is needed soon - and not just to bring the books into balance.

He noted that two major bond rating agencies already have put Arizona on a credit "watch," what normally is the first step to downgrading the state's credit rating. That, in turn, will increase borrowing costs.

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