GOP sharpens budget knife

Universities, community colleges and public schools would lose tens of millions of dollars, fewer poor children would receive state health insurance, and construction of schools would be delayed under a proposal to balance the state budget released by top Republican budget leaders Friday.

Most other state agencies would also face 10 percent cuts — above and beyond some specific program cuts — there would be millions less for road construction and a new initiative to teach math and science would be eliminated, among other things.

Sen. Bob Burns, R-Peoria, who crafted the plan with his House counterpart, Rep. Russell Pearce, R-Mesa, acknowledged that such deep cuts will make a difference in state services.

The GOP plan contrasts sharply with a budget-balancing proposal released Thursday by Democratic Gov. Janet Napolitano. Her plan to plug the estimated hole in this fiscal year’s budget includes $214 million in savings through cuts in state programs, using $293 million from the state’s “rainy day” fund and borrowing money to build schools.

The governor says the shortfall in the current $10.6 billion budget amounts to $870 million; the legislative leaders say it is $970 million.

Napolitano contends that the universities are the economic engine that could help Arizona out of its current economic slump. That is why her budget-balancing plan leaves funding for university operations untouched, as it does for public schools and programs that provide health benefits.

But Burns sidestepped questions of whether his proposed 10 percent across-the-board cut would irreparably damage the universities. “I think the more important question is how do we continue to run government with money we don’t have,” he said.

Burns pointed out that the budget adopted for this fiscal year actually had more in expenditures than anticipated income. The plan was to make up the difference with cash carried forward from the prior year — cash that did not materialize.

And the situation only got worse when the economy went soft, slashing sales and income tax collections. “So we are going to have to make, I believe, some very painful decisions in order to get this fiscal house back in order,” he said.

But Sen. Jorge Garcia, D-Tucson, the assistant minority leader, said that’s telling just half the story.

He pointed out that the Republican-controlled Legislature — with the cooperation of the Democratic governor — slashed individual income tax rates by 10 percent and suspended a state property tax that brings in about $250 million a year. Garcia said at least part of the argument was that tax cuts will stimulate the economy and produce more revenue. “I’m one who’s still waiting for the payback from all this 'investment’ in tax cuts to bring us more money,” he said.

But Garcia predicted the final budget-balancing plan will wind up somewhere between the two plans.

George Cunningham, the governor’s chief financial adviser, was particularly critical of halting school construction, saying buildings are already overcrowded in some rapidly growing communities. “We’re going to try to cram 50 kids into classrooms that are designed for 30 or less,” he said. “That isn’t a smart way to invest in Arizona’s future.”

Hearings on the plan begin at the Capitol on Tuesday. The plan by Burns and Pearce would not make up the entire $970 million deficit with actual spending cuts.

The proposal would pick up an extra $106 million for operating expenses by having at least part of the cost of the Highway Patrol paid by gasoline taxes and vehicle registration fees.

That, however, translates to about $53 million less for state road construction; the balance would be absorbed by reducing aid to cities and counties.

The one major element in common with Napolitano’s plan involves tapping the state’s “rainy day” fund. But the GOP legislators propose to take $350 million; Napolitano wants just $263 million.

Pearce rejected the governor’s idea to borrow $400 million for school construction.

He said while capital costs are generally financed over a long period, like a mortgage, the difference here is that the state needs to build $400 million worth of new schools every year. That, said Pearce, makes it an ongoing operating expense that should not be incurring interest charges.

Much of the rest of the governor’s plan involves taking cash from dedicated funds — money Napolitano’s staff said the agencies do not need — and deferring some expenses into future years.

But Burns acknowledged that borrowing and fund sweeps may be necessary to balance next year’s budget, which will be $1.7 billion in the red if the state’s economy does not improve.