06/15 - Experts see no budget winners

There are no real winners in the $6.4 billion state budget package adopted by the Legislature last week.

Nearly every state agency will receive the same amount of money from the General Fund as this fiscal year, or a little more.

But that won't be enough to make up for prior budget cuts after tax revenue slumped from the 2001 recession.

Recent upticks in revenue and a windfall of $300 million from the federal government allowed lawmakers to relax their grip on the budget ax, at least in comparison with to earlier Republican proposals. But many state officials said a complex combination of account transfers and policy changes will create disruptions and losses in service throughout state government.

"We're probably better off than we were originally," said Mike DiMarco, budget manager for the state courts system. "But we're not anywhere where we should be. We've got some tough decisions to make about the future."

Unless Gov. Janet Napolitano tries to use her veto power to force significant changes, thousands of indigent people will linger on waiting lists for child care assistance. Others will lose access to prenatal treatment, vaccines and substance abuse treatment. Hundreds of thousands will have to pay more out of their pockets to see a doctor.

State employees won't receive a cost-of-living pay raise, and many actually will take home less money because of higher health insurance and retirement benefit costs.

The spending plan for the state General Fund still needs approval from Napolitano, who is expected to act by Tuesday. Napolitano had requested up to $300 million more in spending, in part because people keep moving to Arizona each year and expect adequate government services.

But leading Republicans said the package treats state government well, considering the General Fund faced at least a $1 billion spending deficit if the Legislature continued on the path established in previous years.

"We kept from making cuts to key agencies," said Senate President Ken Bennett, R-Prescott. "But by controlling growth in spending to 2 or 3 percent, we are avoiding having to borrow for day-to-day operations. We avoided increasing the deficit, and we avoided having to raise taxes."

Classroom education funding, which makes up nearly half of the state General Fund, clearly became the highest priority of lawmakers and activists. Basic state aid to school districts would grow by 2 percent over this year, as required by a voter-approved law, and other programs such as early childhood education would remain intact.

But it's hard for East Valley parents and educators to believe schools would be "fully funded" when districts are laying off teachers and the budget includes a policy change related to utility expenses that would cost some districts millions of dollars.

“We're not completely happy. Arizona is 49th in per pupil spending, and it's going to stay 49th in per pupil spending,” said Chuck Essigs, adviser to the superintendent in the Mesa Unified School District and director of government relations for the Arizona Association of School Business Officials. “But we appreciate the governor and Legislature doing what they can in the difficult economic times we're facing. They did make education a priority.”

Higher education also avoided any direct cuts. But universities and community colleges won't receive more funds to pay for additional students who are enrolling, and tuition covers less than half of the cost of their education.

Observers say the impact will be more severe for community colleges since they depend more heavily on state funding.

A voter-approved initiative also compels the Legislature to continue providing basic health care for anyone at or below the poverty level, which will lead to a 28 percent funding increase for the state indigent health insurance system.

But the Legislature wants to establish new out-of-pocket costs for doctor visits and raise existing ones.

"Those co-pays are designed to price out people," said Rep. John Loredo of Phoenix, leader of the House Democrats. "They are designed to prevent people from gaining access to health care."

Lawmakers trimmed funding for other welfare and assistance programs, in many cases expecting fewer people to seek help than predicted by Napolitano. Dana Naimark, deputy director of the Children's Action Alliance, said the legislative budget underfunds programs that benefit poorer children and their families by nearly $50 million.

Naimark said she is even more alarmed at a new Republican proposal to increase a cut in administrative funding for the Department of Economic Security from $2.3 million to $6.1 million. That change was part of a compromise to get the budget passed that will be included in separate bill next week.

"This would just dig DES into a deeper hole, and really make it almost impossible for them to do their job," Naimark said. "It's not just pushing paper around. It's linked to serving their clients."

The budget also includes some cuts with unknown impacts. Lawmakers have directed Napolitano to make $80 million in "efficiency" reductions, even though agencies have been told since September 2001 to eliminate any unnecessary expenses including out-of-state travel, cell phones and supply purchases.

State agencies had complained that lawmakers weren't budgeting for the state's share of the higher costs for employee health insurance and retirement at an estimated $46 million. So lawmakers included a plan to divert any additional money from the improved collection of court fines as proposed by the state Supreme Court. But the plan includes justices of the peace and municipal courts, outraging judicial and city officials who said they need those funds to pay for local growth.

"That is revenue expected, budgeted for and needed at the local level to fund the entire lower court system," Gilbert Town Councilman Don Skousen said in a e-mail to the Tribune. "This is a clear sell-out by the very people at the Supreme Court who should be looking out for the lower courts' best interests."

The state prison system would receive an additional $25 million in the new fiscal year, but corrections officials said that won't be enough to prevent a crisis. They are predicting the state will run out of places to place inmates by August.

"I think we need to get on that immediately with a comprehensive committee," said House Speaker Jake Flake, R-Snowflake. "I don't think we're shirking that responsibility. I just think we need to do some studies on this to see which direction we ought to be going and need to be going."

Some critics said the legislative budget represents a great deal of unnecessary pain.

"If you ask a child who is sick who will no longer get health care, I'd say the budget is pretty bad," Loredo said. "If you ask if a student who is no longer going to be able to go to community college, it's pretty bad. If you ask a pregnant woman who is no longer going to be able to get vitamins and prenatal health care, it's pretty bad."

Still, most observers said they expect the governor to accept the overall package while using her line-item veto power to prevent some special funds from being wiped out.

"There certainly are a lot of indications that the budget wouldn't get any better with time," Naimark said. "If that is true, then the governor probably ought to sign it."