Myth: Gov. Janet Napolitano is gone now, so we can't blame her for the deficit.

The editorial pages of Arizona’s newspapers are bemoaning the effects of recent state spending reductions and vilifying Gov. Jan Brewer and the new legislative majority for considering further spending cuts.

The underlying conclusion is that Arizona must raise taxes and sustain state spending at prevailing levels. That conclusion, however, is based on several myths.

Myth: Tax cuts caused the current state budget deficit.

Reality: Restoring revenue from the 2006 income and property tax cuts would, at most, bridge $500 million of the $3.2 billion deficit for the next fiscal year. More realistically, state politicians would have spent the extra money during the boom years, pushing baseline spending to even higher levels, resulting in even larger deficits.

Myth: The national economic crisis caused the deficit, so over-spending is not to blame.

Reality: During every economic downturn, state revenues fall below the trend for population growth plus inflation coming out of the previous recession, meaning spending faster than that rate is inherently unsustainable.

If Arizona had limited spending to the rate of population growth plus inflation since 2003, we could have used the rainy day fund and limited sales of state assets to easily bridge this deficit.

Myth: Gov. Janet Napolitano is gone now, so we can’t blame her for the deficit.

Reality: Napolitano was the main force pushing spending growth to more than twice the rate of population growth plus inflation. During the past six years, Napolitano and her legislative allies effectively neutered conservative legislators who argued for spending restraint.

Indeed, in 2004 and 2008, the governor’s budget was passed by majorities of Democrats and a handful of liberal Republicans.

Myth: There is no fat left to cut in the state budget.

Reality: Most services provided by government end up costing at least twice as much as they would if they were provided by the private sector. As much as half of state expenditures may be inefficient.

K-12 education – the state’s largest expenditure – is a good example. According to the state superintendent’s annual report for 2008, K-12 funds from all sources total $9,700 per student per year. Charter school funds are $7,800. By comparison, the Goldwater Institute reports, the average at Arizona private schools is under $6,000.

Another example is road construction. According to the Reason Foundation, the life-cycle cost to finance, build, operate and maintain a private concession toll road is sometimes as little as one-third the total cost for a typical design-bid-build road funded by taxpayers.

Yet another example is health care. According to the Goldwater Institute, the government-run health care systems of Canada, Germany and France consume over 10 percent of those countries’ gross domestic products. The U.S. system, which is dominated by government-subsidized demand, consumes 15.3 percent of GDP. By comparison, Singapore’s mostly private system takes up 3.7 percent of GDP.

Myth: There is nothing we can do to stop the state’s periodic spending binges.

Reality: Legislators have introduced a referendum bill that would limit state spending growth to the rate of growth of population plus inflation, with excess revenues refunded to taxpayers.

A less stringent referendum bill would reduce Arizona’s existing constitutional spending limit from 7.41 percent of state personal income to 6.4 percent. Both limits would allow the Legislature to lift the cap in emergency situations.

Arizona needs a firm constitutional spending limit, because politicians of all parties are unlikely to voluntarily restrain spending to sustainable levels.

In the coming months, the Arizona chapter of Americans for Prosperity will host a series of town halls to educate the public about the myths and realities of Arizona’s deficit and to introduce citizens to the legislators who are working hardest to solve that crisis without raising taxes on families and businesses.

Budget myth No. 1: Tax cuts led to deficit

Tom Jenney is Arizona director and Chad Kirkpatrick is Arizona chairman of Americans for Prosperity.

By Chad Kirkpatrick, Tom Jenney

Normally the Arizona Federation of Taxpayers comments on the policy positions of Arizona legislators, not federal judges.

But through his judicial decisions in recent years, U.S. District Judge Raner Collins has effectively appointed himself to the Arizona Legislature.

Indeed, Judge Collins has become a very powerful legislator, able to single-handedly mandate an appropriation of $150 million – more than 1 percent of the state’s General Fund budget – in additional spending on English-language learner (ELL) programs.

When he doesn’t get his way, he can threaten the Legislature with sanctions, as he did last year when he attempted to impose fines of $21 million on the state.

Collins is such a powerful legislator, it is our duty to alert the public when we believe he is wrong about policy.

Judge Collins has erred in his diagnosis of the problems facing Arizona’s ELL programs. He apparently believes they do not perform well because funding is “insufficient” and “arbitrary.”

However, as the Goldwater Institute has documented, Arizona public schools spend more than $8,000 per child (including ELL students) per year. (Now that he is a legislator, we would advise Collins to get on the Goldwater mailing list.)

The fact that many private Arizona schools spend $5,000 per child to achieve better results (even with ELL students) suggests public schools in Arizona may receive too much funding, not too little.

As the Arizona Tax Research Association noted, using statistics from the National Education Association, Arizona ranks 11th in the nation for average instructional pay (including in ELL) and first for average instructional pay as a percent of per-capita state income. (As a legislator, Collins will find ATRA to be a great resource.)

Further, students in Arizona ELL programs already receive at least $383 more than the average Arizona student, according to the Joint Legislative Budget Committee (another great resource for legislators).

Collins would no doubt cite the 2004 study by the National Conference of State Legislatures. But that study began with the premise that spending is inadequate and never bothered to question it.

Given how much money is spent on public schools in Arizona, we find that the problems with the system (including in ELL) are not because of a lack of funds, but rather to the systemic mismanagement that results from a lack of market incentives.

Collins believes more money will improve the performance of ELL students. But a quick look at the big picture casts serious doubts on that belief.

Between 1960 and 2000, America’s public schools system increased per-pupil funding by more than 400 percent in inflation-adjusted dollars.

Sadly, we have nothing to show for that. During that period, student performance has remained flat, as measured by the National Assessment of Educational Progress .

The long-proven failure of increased funding to improve educational performance has driven much interest in school choice programs, which use market incentives to improve school management.

If Collins wants to learn more about school choice (as a legislator, he should), we suggest he pick up Manhattan Institute scholar Jay P. Greene’s book “Education Myths.”

Of course, the real root of Arizona’s ELL controversy is not policy but jurisprudence.

The 10th and 14th Amendments have conflicting language, and federal judges have used the 14th – combined with vague federal statutes – to exercise dictatorial control over state and local policy matters.

With so much interpretive and policymaking power at Collins’ disposal, we understand it would be difficult to resist the temptation to toss federalism to the wind and override the (often questionable) collective wisdom of the Arizona Legislature.

While we earnestly hope some higher court will overrule his ELL decisions, we will offer to Judge Collins the same policy support we offer to all other Arizona legislators.

Welcome to the Legislature, Judge Collins!

Chad Kirkpatrick is chairman, and Tom Jenney is executive director, of the Arizona Federation of Taxpayers, a state chapter of Americans for Prosperity.

By Chad Kirkpatrick, Tom Jenney

“Don’t spend more than you earn.”

In our personal lives, we don’t always follow this rule, but we know we should. If we get into the habit of spending more than we earn, we will face increasing debt, and we will fail to accumulate savings for use in retirement or in emergencies.

Of course, if we wish to be irresponsible, we can always throw caution to the wind and say, “It’s my money.” We can then face the consequences, which may include bankruptcy.

But politicians should not be allowed to spend irresponsibly. That’s because the money they spend is ours. And when they increase debt, they not only put that debt on us, but also on our children and grandchildren.

Right now, Arizona government has a spending problem.

As the graph shows, government spending as a percent of Arizona’s personal income – a rough measure of the size of the entire economy – has been increasing since fiscal 2003. The cause? Government spending has been growing at a much faster rate than state personal income.

During the last four years, spending by the state government has grown at an annual average rate of 14.3 percent, while personal income has grown at 7.7 percent.

And there is little indication of a change in that trend: Gov. Janet Napolitano’s proposed budget for this year calls for a 12 percent increase in general fund spending alone, which is (once again) significantly higher than the forecast increase in personal income.

Apologists for runaway government spending may argue that the rapid spending increases in fiscal 2004-2006 were necessary to return spending to pre-recession levels. But it is clear that we are now spending significantly more than we were before the recession.

As the graph shows, if we continue to spend at the rate established during the last four years, by fiscal 2009 we will hit the state’s constitutional spending limit of 7.41 percent of personal income.

The problem with the current spending limit is that it’s far too high.

The limit was established in 1979, during the Carter era, when Arizonans and Americans in general were staggering under the weight of Big Government.

Thanks in large part to the tax cuts enacted under Gov. Fife Symington, Arizona has become much more competitive, and – until recently – we were staying well below the current spending limit.

We are now moving back toward the spending levels of the 1980s. If allowed to continue, overspending will negatively impact the future economic growth of the state in the medium to long run (there is always a lag to policy changes), and will fuel the demand for tax increases during the next recession, when revenues will prove inadequate to meet the expectations of high spending.

In the post-Reagan, post-Symington era, Arizonans deserve better than a Carter-era spending limit.

The good news is that some Arizona legislators are working to pass HCR 2025, which would allow Arizona voters to reduce the spending limit from 7.41 percent of personal income to 6.4 percent.

The only drawback to HCR 2025 is that it does not restrain government spending as much as the Taxpayer Bill of Rights, aka TABOR.

Under TABOR, government spending increases would be limited to the rate of growth of population plus inflation, which is nearly always slower than the rate of growth of personal income. Over time, TABOR would cause state government to shrink slowly as a portion of state personal income.

By comparison, HCR 2025′s personal income limit merely requires that state government stop expanding as a portion of the state economy.

Every budget from fiscal 1995 to fiscal 2006 would have qualified at the 6.4 percent level. HCR 2025 also allows the Legislature to lift the cap in emergency situations with a two-thirds vote.

Those who oppose HCR 2025 believe that government should be allowed to grow faster than the state economy – in other words, they’re arguing that government should be allowed to spend our money faster than we can earn it.

That stance is neither moderate nor fiscally responsible.

Chad Kirkpatrick is chairman and Tom Jenney is executive director of the Arizona Federation of Taxpayers (www.aztaxpayers.org), a state chapter of Americans for Prosperity (www.americansforprosperit.org). This Guest Opinion appears online only and not in the Tucson Citizen’s print edition.

By Chad Kirkpatrick, Tom Jenney

How can we be optimistic about the prospects for limited government?

At the Arizona Federation of Taxpayers we get this question from reporters, lobbyists, politicians, donors and hundreds of grass-roots taxpayer activists statewide.

Looking at recent political events in Arizona, there seems to be little reason for optimism.

Last June, Gov. Janet Napolitano and the Legislature passed a $10.1 billion budget – a record 20 percent increase in expenditures.

In November, voters approved a job-killing minimum wage and an 80-cent-a-pack tax increase on cigarettes that is guaranteed to increase tax avoidance and smuggling.

Although voters approved restrictions on eminent domain and arbitrary land-use regulations, they also voted for massive government interference in the affairs of bar and restaurant owners.

Short-term trends do not make the picture any rosier. The state budget has increased by 12 percent annually during the last four years, significantly faster than Arizonans’ personal income, and more than twice as fast as the combined growth of population and inflation.

On the Tax Foundation’s 2007 State Business Tax Climate Index, Arizona had only the 28th healthiest business tax climate in the country, bested by regional competitors such as Nevada, Texas, Colorado, Utah and New Mexico.

Legislative leaders did goad the governor into signing a modest 10 percent income tax cut and some decent property tax cuts. But there is still a sizeable surplus, which means rapid budget increases could continue until the next recession, when revenues will fall off, forcing our politicians to choose between deep budget cuts and tax increases.

Faced with that choice, it’s possible that our politicians would again use creative accounting to avoid raising taxes. But it’s a fair bet that there would not be much stomach for big budget cuts.

Again, how can we be optimistic?

First, the realities of the global economy will force Arizona to become more competitive. With the ever-increasing mobility of capital and labor, Arizona can no longer take comfort in having lower taxes than California.

We must strive to create a tax and regulatory climate so inviting that American companies think of moving to Arizona before they think of moving offshore.

At AFT, we believe that Arizonans have the vigor and vitality to save ourselves from increasing statism and stagnation.

Second, there is no shortage of good ideas for limiting Arizona’s government and freeing up the productive potential of our economy.

AFT’s top policy priorities include eliminating Arizona’s job-killing personal and corporate income taxes, putting firm restraints on property taxes, strengthening Arizona’s constitutional spending limit, improving the quality and efficiency of education by expanding school choice, allowing Arizonans to use any health insurance plan approved in the 50 states and putting limits on the taxpayer-funded lobbying that drives so much wasteful spending.

Third, the evidence continues to pile up in favor of limited-government solutions for most social problems.

Many studies in recent years have demonstrated a strong correlation between slower growth in government spending and stronger economic growth.

Recently, the Goldwater Institute’s Matt Ladner presented evidence showing that states with slower growth in government spending also do better at reducing poverty rates.

That correlation has been long recognized (if often ignored) at the international level. But Ladner’s study breaks new ground by making the case at the interstate level.

To the extent that Arizona’s policymakers and opinion leaders pay attention to empirical data, the proponents of increased welfare spending should now be on the defensive.

Finally, Arizona is blessed to have taxpayer activists and generous philanthropists who refuse to give in to the Big Spenders.

In 2007, those activists and philanthropists will join forces in a new partnership between AFT, which has represented the Arizona taxpayer since 1978, and Americans for Prosperity, the nation’s premier free-market grass roots organization.

Together, AFT and AFP will generate strong grass-roots pressure to reduce the size and scope of Arizona government and to make room for a truly free and dynamic private economy.

If an optimist sees the glass as half-full, put us down as more-than-optimists. As we see it, Arizona’s glass is more than half-full.

Chad Kirkpatrick is chairman and Tom Jenney is executive director of the Arizona Federation of Taxpayers (www.aztaxpayers.org), a state chapter of Americans for Prosperity (www.americansforprosperity.org). This Guest Opinion appears online only and not in the Tucson Citizen’s print edition.

By Chad Kirkpatrick, Tom Jenney

Proposition 207 would stop governments from taking private property for private use, keep governments from condemning entire neighborhoods because of blighted conditions existing on individual properties and allow property owners to seek just compensation when they suffer from the imposition of arbitrary land-use regulations (“regulatory takings”).

Responding to the popularity of these reforms, opponents of Prop. 207 have propagated several myths about the reform.

● Myth: The courts already protect property owners from eminent domain abuse. Arizona property owners won in 2003 when the Arizona Court of Appeals kept the city of Mesa from taking Randy Bailey’s brake shop and giving it to the owner of a hardware store.

● Reality: In last year’s Kelo decision, the U.S. Supreme Court declared that states could allow cities to use eminent domain to take people’s houses and give them to developers.

Further, the courts have done nothing to prevent whole neighborhoods from being condemned for “slum and blight” due to conditions existing on individual properties.

● Myth: The regulatory takings issue is better handled through the courts.

● Reality: Under current case law, government has to entirely destroy the value of an owner’s land for the owner to receive compensation. If an arbitrary government regulation destroys half the fair market value of a parcel of land, that is not enough to trigger compensation.

● Myth: City governments and developer interests are in favor of the eminent domain provisions of Prop. 207, but are concerned about regulatory takings.

● Reality: The cities and their politically connected developer friends do not favor any part of Prop. 207. Rather than looking at their words, we should look at what the politicians actually do: They take people’s land and give it to private developers, using the rationales of “redevelopment” and “slum and blight.”

● Myth: Prop. 207′s eminent domain reforms would keep cities from implementing wise planning decisions.

● Reality: Cities have not proved to be very wise. Many redevelopment projects have been failures, and in some cases properties condemned years ago sit vacant – except for weeds and trash.

● Myth: Prop. 207′s regulatory takings provisions would result in lots of litigation – just like Oregon’s Measure 37, which has generated roughly $5 billion in claims against governments in the state.

● Reality: Oregon’s Measure 37 was retroactive, meaning that property owners could go back in time and sue cities. All but $47,000 of the $5 billion in claims stems from the retroactive features of Measure 37. Prop. 207, by contrast, is explicitly prospective.

● Myth: Prop. 207′s regulatory takings provisions would prevent cities from implementing necessary regulations for the public benefit, such as regulations protecting military bases from encroachment by housing developers.

● Reality: Prop. 207 contains exemptions that allow cities to continue to regulate in the public interest, without having to compensate property owners.

Among the many exemptions are land-use laws for the protection of the public’s health and safety, fire and building codes, sanitation, transportation or traffic control, solid or hazardous waste and pollution control.

● Myth: People will be able to sue for compensation when their neighbors get upzoned.

● Reality: Prop. 207 does not allow compensation for land-use changes that do not directly regulate an owner’s land.

● Myth: Taxpayers will pay more, because cities will have to pay compensation.

● Reality: Compensation under Prop. 207 is based on fair market value, so an individual who complains about a land-use change related to a military base (or anything else) is going to have to make the case his land value was damaged.

If the city negotiates and allows the owner a use that is just as valuable, he will have no case.

Further, cities always have the option of granting the property owner a waiver from the regulation.

● Myth: Prop. 207 is going to win easily, so Arizona property owners can relax between now and Nov. 7.

● Reality: In a recent poll, Prop. 207 had 53 percent support. The battle to secure our property rights will be a close one, and we need all the support we can get.

Chad Kirkpatrick is chairman of the Arizona Federation of Taxpayers (www.aztaxpayers.org). Tom Jenney is field coordinator for the Arizona HomeOwners Protection Effort (www.hopeforarizona.com). This Guest Opinion appears online only and not in the Tucson Citizen’s print edition.

By Chad Kirkpatrick, Tom Jenney

This Guest Opinion appears online only and not in the Tucson Citizen’s print edition.

During the last four years, some otherwise conservative Arizona legislators have voted for huge spending increases. Arizona’s general fund budgets have increased by an average of 11 percent per year since 2003. That’s more than double the average increase in Arizona’s population plus inflation, and significantly higher than increases in personal income.

If you ask would-be fiscal conservatives why they’ve voted for huge spending increases, they will often complain that they are being squeezed by mandated spending. Among the many excuses for overspending, this one comes closest to being legitimate.

Mandated spending is a very real problem. In recent years, voter initiatives and activist judges have created a morass of entitlements that force legislators to spend by formula for many government services, especially in the areas of education and health care.

According to the Joint Legislative Budget Committee, mandated spending has grown from 54 percent of the general fund budget in 1996 to 66 percent in 2006. As mandated spending eats up ever-larger portions of budgets, legislators have less and less control.

According to a frequently heard complaint, “Pretty soon, we won’t need a Legislature, because the entire budget will be on autopilot.”

Thanks to voter-approved and judge-made mandates, this year’s general fund budget was pegged to increase by roughly $600 million, or 6.9 percent, even before the legislative session began. That’s already higher than the conservative standard of population plus inflation, which has been averaging about 5 percent over the last decade.

Faced with mandated spending increases, legislators have two options:

• The Weak Option is for legislators to add their favorite spending projects to the mandated spending, and then moan loudly when Gov. Janet Napolitano adds even more spending. That is not the conservative path.

The result of choosing the Weak Option is a roller-coaster budget that ramps up spending rapidly during good years, then forces either massive spending cuts or massive tax increases when revenues dry up during the next recession.

Choosing the Weak Option, Arizona’s legislative leaders submitted a budget that included roughly $500 million in “one-time” expenditures on border security and transportation infrastructure. The result is a $9.9 billion budget, or a reckless 13 percent increase in spending – almost double the estimated 7.4 percent increase in Arizona’s personal income for 2007. (Even a moderate knows that spending shouldn’t grow faster than income!) Worse, the budget will probably be $10 billion after legislative leaders get steamrolled in negotiations with Arizona’s big-spending governor.

• The Strong Option – the conservative choice – is to pursue a four-part strategy for controlling government spending:

1) Limit the growth of government spending (or revenues) to the rate of growth of population plus inflation. Because legislators apparently cannot do this voluntarily, they should enlist the aid of the voters and refer to the ballot the constitutional spending limit known as the Taxpayer Bill of Rights, also known as the Budget Stabilization Act.

2) Make sure that voters understand the constraints imposed by mandated spending. Every legislative press release and public address should contain the following phrase: “We would love to spend money on Program X, but because of mandated increases in spending for education and healthcare, there’s no money left.” If the public hears that message enough, support will build for removing some of the mandates.

3) Offset all new spending with savings in other programs. Legislators must become very creative in cutting costs. If a program cannot be eliminated or privatized, legislators should explore private contracting. Among the many policy options available are toll franchises for new highway construction, greater use of private prison space and a more aggressive pursuit of school choice programs that get children out of expensive (and underperforming) government schools.

4) Refund to taxpayers all excess revenues above the limit. Permanent rate cuts are preferable, but one-time tax refunds will get the money off the table so that it doesn’t add to the spending baseline for future budgets. If Arizona’s politicians adopted the Strong Option now, they would return $600 million to taxpayers this year, rather than the $250 million currently proposed.

By choosing the Strong Option, conservative legislators can stay true to their ideals and beat the squeeze of mandated spending.

Chad Kirkpatrick is chairman and Tom Jenney is executive director of the Arizona Federation of Taxpayers (www.aztaxpayers.org).

By Chad Kirkpatrick, Tom Jenney