State tax collections will likely be $700M short

A new forecast Wednesday predicts that Arizona will wind up at least $700 million short of tax collections needed to finance the nearly $10 billion in spending authorized by lawmakers just four months ago.

And that's the optimistic projection.

Richard Stavneak, director of the Joint Legislative Budget Committee, said economists on state's Finance Advisory Committee predicted in March that tax collections for the new fiscal year, which began July 1, would be down less than 2 percent from last year's anemic revenues. But the consensus of the panel is now that collections will drop by more than 5 percent.

What that means is that the gap between revenues and spending could hit $1.1 billion.

Even that may not be the bottom: State Treasurer Dean Martin, who is a member of the committee, said he thinks the actual hole could be $200 million to $300 million deeper.

And Stavneak said there appears to be no relief, at least for the short term, with a potential $3 billion in red ink for next fiscal year.

Gov. Janet Napolitano, who insisted on much of the spending in the current budget, said Wednesday she had not seen the new forecasts. But she made light of the economic projections.

"They do call it the 'dismal science,'" she quipped. "I would agree with the 'dismal' part; I'm not sure about the 'science' part anymore."

The governor said she has implemented various plans to save money, such as a hiring freeze on about half of state government. And she said her department heads continue to look for places to cut.

But Napolitano argued there is simply no way to do the kind of trimming necessary to bring state spending in line with forecast revenues.

She said the majority of the budget is composed of four areas: state aid to public schools, health care for the needy, university funding and the prison system. With the first two constitutionally protected, Napolitano said she expects the universities in particular to take a financial hit.

The governor said she hopes to do it in a way that "we're not taking a big machete to everything, but we're still building, we're still growing, we're still understanding that our goal is to double the number of bachelor's degree recipients in this state."

Ultimately, though, it will take more budget maneuvers, including an idea to essentially sell off the state's future share of the estimated $3.2 billion it was awarded a decade ago as part of a nationwide settlement with tobacco companies.

That money is supposed to be paid out over 25 years, with estimates for this year pegged at about $118 million. The proceeds finance a 2000 voter-approved mandate to expand the number of people who get free health care from the Arizona Health Care Cost Containment System.

Napolitano proposes to "securitize" that obligation - get a private investor to give the state money now, in an amount less than what would eventually be paid, in exchange for all future payments.

The current state budget already relies on borrowing, largely for capital needs like new school buildings. The proposal involving the tobacco settlement, however, would be to fund actual day-to-day operations.

Napolitano said, however, that does not make the idea the equivalent of a payday loan.

"Many states have securitized their tobacco settlement," she said. The governor said, though, she still is exploring "whether that makes sense for Arizona," especially since the revenues fund AHCCCS.

Treasurer Martin criticized the idea.

"This is going to be a multiyear problem, and so we need multiyear solutions," he said of the state's financial crunch. "Anything that gets you one-time revenue simply delays the inevitable and makes next year's (needed) cuts larger."

Napolitano, however, is actually looking at doing more of that. The governor said Wednesday she is exploring a similar idea for the Arizona Lottery to get immediate cash instead of waiting for future revenues.