4-year forecast dire for state revenue

Arizona businesses and consumers are going to keep their money in their pockets until they think it's safe, according to members of a panel of economists. That means spending - and the state tax collections that mirror it - likely won't get back to pre-recession levels for another four years, if then.

The consensus of members of the Finance Advisory Committee is that tax collections this budget year will hit just $7.8 billion. That compares with more than $9.6 billion just two years ago.

Collections will slide even further next year, to just $7.6 billion.

After that, things will get better - but not fast: Tax collections will still be below $8 billion the year after that, and just $8.5 billion in the 2011-12 fiscal year.

All of that increases the chances that lawmakers will want to do sharper cuts in spending to balance the budget instead of some of the fiscal maneuvers that outgoing Gov. Janet Napolitano has suggested. Those include simply deferring certain spending and payments into future years.

But gubernatorial press aide Jeanine L'Ecuyer said Napolitano continues to believe that her proposals "are acceptable and responsible."

As slow as the recovery could come for the state budget, the predictions could foretell even more dire times ahead for already financially strapped cities that depend heavily on getting a share of state income tax collections.

Richard Stavneak, staff director of the Joint Legislative Budget Committee, pointed out that each city's share of the taxes is based on the collections from two prior years. That means the cities are now dividing up a record $728 million based on the healthy economy of two years ago.

That will drop by $100 million - nearly 14 percent - next fiscal year and continue to decline for at least the next two years.

The predictions come as lawmakers rush to deal with a $1.6 billion deficit this fiscal year, the result of sharply lower tax revenue.

Sen. Russell Pearce, R-Mesa, told colleagues Tuesday that waiting to plug the gap comes at a cost because, in the interim, state agencies continue to spend: He said if there is no plan to reduce spending by the end of this month, that will take $160 million of possible budget cuts off the table.

Economist Elliott Pollack, a member of the finance panel, said there's a reason consumers have stopped spending.

"The average guy has far too much debt, not enough traditional savings," he said. But until now, all that was masked.

"The stock market was doing well, so he felt wealthier because his 401(k)" retirement savings were doing better, Pollack said. And rising home values coupled with loose credit standards made it easier to borrow.

"That's now gone," he said. "So you're having a negative wealth effect where people feel poorer because they have no buffer anymore."

All that, said Pollack, squeezes spending, especially on major purchases.

"You'll live without a big-screen TV, you'll live with that car for another couple of years, you're not going to buy furniture, especially since nobody's moving," he said.

Pollack is not alone in his belief that people feeling poorer - and having little confidence that things will get better sooner - is affecting their willingness to part with their dollars.

"People just aren't plunking down the money to buy autos," said Marshall Vest, an economist at the University of Arizona, calling the vehicle sales numbers "really ugly." He said that is related to a "fear factor" consumers have about the economy.

Vest said a survey of 1,500 businesses shows that same fear at work as owners and managers told him they plan to spend less because they anticipate making less.

"We didn't ask them the reasons for the fear," Vest said. "I'm inferring the fear from the numbers."

But Vest told lawmakers and committee members he has his own theory of at least part of the reason business owners are scared.

"The fear more than likely comes from watching too much TV," he said. "Frankly, if we would just turn off the TV here for a while we'd be a lot better."

Vest said he generally agrees with the prediction that the state's fiscal situation will get worse before it gets better,

"The economy is in free-fall," he said. "There's no sign of a bottom just yet."

General fund revenue
FY 2007 — $9.62 billion
FY 2008 — $8.76 billion
FY 2009 — $7.81 billion
FY 2010 — $7.63 billion
FY 2011 — $7.94 billion
FY 2012 — $8.53 billion

Figures for current and future years are forecast by a consensus of the members of the Finance Advisory Committee

— Source: Joint Legislative Budget Committee