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$3 billion shortfall looming large

The Arizona Republic

The Arizona Republic

The deficit looming in the state budget is at least $3 billion.

That’s a staggering figure, and difficult for state lawmakers to digest, much less the average citizen.

How big is $3 billion?

• If you cut out all general-fund money sent to the state university system, essentially shutting it down; eliminate the state prison system; close the state parks; stop state funding to the arts and welfare services; and get rid of the Commerce Department, you still wouldn’t close the gap.

• To erase the deficit, every man, woman and child in the state would have to send the treasury $473.28.

• Or, given the state’s current rate of spending- an average of $27 million a day – a budget $3 billion lighter than projected would mean government would have to shut down three and a half months before the year is up.

Arizona ranks second in the nation when it comes to the size of its deficit in comparison with its base budget: 28 percent, according to the National Conference of State Legislatures. Only Nevada, another fast-growth state hit hard by the mortgage meltdown, ranks higher.

Arizona builds half of its budget on the sales tax, which has faltered as the economy has gone south. It’s been followed by declines in the income tax, creating less money to cover the state’s costs, which are projected to hit $11 billion for 2009-10.

This upside-down situation has triggered revisions of the last two state budgets, and is the reason for the growing deficit that lawmakers must balance, as the state constitution requires, before the new budget year starts July 1.

Gov. Jan Brewer, who took office just over two months ago, minces no words describing the deficit. “We have a catastrophe here in Arizona,” she said. “It’s unbelievable. It gets worse each day.”

How we got here

It was only three years ago that Arizona lawmakers and then-Gov. Janet Napolitano were quarreling over how to spend a $1 billion surplus.

As long as the state’s tax collections kept growing, the state could afford spending.

But collections started to slow in 2007, and the last two state budgets needed mid-course corrections to bring them back into balance. The work is not over on the current-year budget that ends June 30: It’s about $500 million out of balance, even after a $1.6 billion “fix” was enacted in late January, cutting programs and services by nearly $600 million and adding in federal bailout money.

After plugging that growing hole, lawmakers need to tackle the deficit for next year.

Resolving a $3 billion deficit is made more difficult by the constraints lawmakers face.

About $7.3 billion of the budget is out of lawmakers’ control, driven either by existing law or mandates created by voters. For the coming fiscal year, if budget cuts were the only option, that would mean $3 billion coming from the remaining $3.7 billion. But GOP legislative leaders long ago conceded they can’t cut their way to a balanced budget. While cuts remain a key component, lawmakers also are looking at other moves to close the deficit. They include delaying scheduled payments to schools and universities and borrowing against future lottery dollars or against Arizona’s share of the federal tobacco settlement.

Federal stimulus dollars are estimated to bring more than $4 billion to Arizona. Many of those dollars are intended for specific causes, such as education, transportation and Medicaid, but they would ease the state’s obligation to those areas, if only for a year or so.

Brewer has agreed to accept stimulus dollars, and although some lawmakers have complained it could obligate the state to higher spending in the future, they have been willing to use the money to help balance the budget.

A few weeks after taking office, Brewer put another option on the table: a temporary tax increase. She said she concluded that tax cuts, budget maneuvers and even help from Washington won’t be enough to get the state through what she argues will be three rough budget years. House Speaker Kirk Adams said the state must be “extremely careful” about further burdening taxpayers during the economic downturn.

In addition to a tax hike, Brewer has called for tax reform, an idea that’s been raised often in times of budget duress, only to go nowhere.

What’s ahead

On Tuesday, the Legislature’s Finance Advisory Committee will release its latest forecast of the state’s economic condition. The Joint Legislative Budget Committee also is expected to revise its estimate of the state budget deficit upward. Senate leaders said last week it could go as high as $3.7 billion.

The ultimate deadline is July 1, when the 2009-10 fiscal begins. By that date, the state must have a budget that balances – if only for a little while.

Brewer said she hopes to get the tax-hike question before voters in September, if not sooner. But doing that would either require a majority vote in the Legislature – something that’s possible if Democrats band together with some Republicans – or a petition-gathering process that is tedious and time consuming.

Brewer has toyed with the idea of presenting voters with two scenarios: What Arizona would look like with a budget balanced with cuts and accounting maneuvers, and what the state would be able to do if a temporary tax increase, presumably in the sales tax, were in place. But before that comparison can start, lawmakers have to figure out how they’re going to tackle the deficit: Erase it with cuts and maneuvers or bridge it with temporary measures.

HOW MUCH IS $3,000,000,000?

Every man, woman and child in AZ would have to send the treasury $473.28.


If you cut out all general-fund money sent to the state university system, essentially shutting it down; eliminate the state prison system; close the state parks; stop state funding to the arts and welfare services; and get rid of the Commerce Department, you still wouldn’t close the deficit gap.

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