Patterson: Legislature has opportunity to get finances back on track

The Arizona Legislature, in its session beginning Monday , has a once-in–a-generation opportunity to fundamentally change the course of state history for the better.

As Rahm Emanuel, our nation’s new guru-in-chief points out, you should never waste a good crisis. This Legislature not only has a legitimate fiscal crisis, it also has, thanks to Arizona voters, an unusually high number of financially sane members.

Gov. Janet Napolitano’s departure will be another stroke of good fortune, since she undoubtedly would have done her usual skillful job of foiling substantive reforms.

There’s no question that Arizona’s government has fallen off the track in recent years. In the 1990s, Arizona had a fiscally restrained government and was consistently among those states with the strongest economic growth rates.

The last six years have seen General Fund spending increased by a whopping 66 percent while inflation plus population grew by only 33 percent. So we now have budget deficits so enormous that they cloud our state’s financial future — up to $2 billion still to deal with in the current fiscal year and $3 billion or more for next year, if nothing changes.

The Legislature doesn’t have much choice but to balance the budget, including some painful cuts. Hopefully, they won’t stop there. They should also refer to the voters a constitutional spending cap to assure this doesn’t happen again.

The ideal solution would be to limit state spending growth to match the rate of population growth plus inflation. Voters, but not legislators, would be permitted to override the limit when necessary. But state taxpayers would receive a rebate if state revenues exceeded the spending maximum. Of course, public employees’ unions and others who benefit from high levels of state spending are vehemently opposed to the notion that state government shouldn’t generally grow faster than the rest of the economy.

Incoming Senate Appropriations Committee Chairman Russell Pearce has proposed a compromise that would limit state spending to 6.4 percent of total personal income. (There is a limit in law now of 7.41 percent of personal income, but the percentage is too high to have any effect, which is why you’ve probably never heard of it.) Americans for Prosperity-Arizona estimates that if Pearce’s plan had been in place and nothing else changed, including revenue declines, the current budget deficits would be one-third of their actual levels.

The practice of using debt to balance the budget should also be eliminated. Execution gets tricky, because debt of more than $500,000 is already unconstitutional. But court decisions over the years have muddied the clear intent of the constitution, so we have developed the unfortunate habit of pushing off to future taxpayers the obligation of paying for today’s operating expenses.

A reasonable corrective may include a constitutional provision updating the permissible debt level to, say, $10 million, and creating exceptions for extraordinary expenses such as infrastructure construction. But there should be (another) stricter prohibition against using debt to pay for routine, recurring expenses like school construction, which the state must pay for every year.

In fact, this would be a good time to revisit our school capital finance structure. A decade ago, the state Supreme Court forced the state to take over from local districts the expense of building and maintaining basic schools, on the grounds that property values to support school bonds were impermissibly unequal among the districts.

It hasn’t worked out that well. Local property taxes never did fall as promised, yet the state spends hundreds of millions of dollars annually on school construction. Worse, local districts are forced to submit to state bureaucrats their plans for adjusting to growing or changing student populations.

Today’s court might approve a system of subsidies for low property wealth districts, while returning to the district system for building schools. It wouldn’t necessarily save money, but it would put school construction decisions back in the hands of locals who know best.

Legislators may dread hearing it, but at some point the Voters Protection Act must be addressed. The VPA effectively blocks any measure passed at the ballot from ever being amended or abolished. It presumes that all ballot-passed measures will forever remain as appropriate and relevant as the day they were passed.

The reality is far different. Even the best laws need periodic updating to reflect changing needs and environments. Moreover, “protected” appropriations reduce legislators’ ability to respond to economic downturns.

The VPA is highly popular. But it’s still a mess that will only get worse until some legislators are willing to tell the truth and take it on.

Going into 2009, legislators must recognize this unique opportunity to achieve objectives usually deemed impossible in the incremental world of policy-making. Significant advances in school choice, comprehensive reform of lawsuit abuse and privatization initiatives to unlock access to private capital are all possible if legislators see themselves as visionaries, not just problem solvers.

Leaders must be able to shape opinion rather than simply follow it. In times like these, fortune favors the bold.

East Valley resident Tom Patterson (pattersontomc@cox.net) is a retired emergency room physician and former state senator.