Arizona state budget (2008-2009)

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State Information


Labeled as one of the "worst budget deficits in the U.S.," Arizona was projected to have a $1.6 billion shortfall for the fiscal year that ended June 30, 2009.[1] This projected shortfall represented 16 percent of the $9.9 billion state budget. The budget shortfall was caused by a combination of declining tax revenues and a budget process that estimated tax revenues for the fiscal year using a revenue estimate that turned out to be unreliable.[2] Estimates put the gap for FY 2010 at anywhere from $2.4 billion to more than $3 billion, even after that $580 million in cuts for FY 2009.[3]

Despite the state's budget crisis in March 2009, Gov. Jan Brewer requested that lawmakers restore funding to the FY 2009 budget. On March 11, 2009 lawmakers vowed to restore a $40 million cut to health care programs and allow the state to qualify for federal stimulus money for child care programs and health care in rural areas. The fund sweeps were part of budget cuts in early 2009.[4] However, in order to reduce the state's deficit, Gov. Brewer proposed temporarily raising taxes. State officials estimated the tax would increase state revenue by $1 billion per year. Additionally, Brewer called for overall structural budget reform and said that she would like to reform the state's tax structure.[4]

“It’s astonishing that our latest budgets were built on the most optimistic revenue projections at a time when nearly every economic forecaster was predicting a downturn,” said Brewer. “The FY 2009 revenues needed to grow by 8 percent to meet the budget, but instead declined by 12 percent.”[4]

Impact of budget woes

See also: State budget issues, 2009-2010
  • In February 2009 the governor requested that all agency chiefs prepare to cut spending up to another 20 percent on top of the cuts already made to their budgets. Legislators approved $580 million in spending cuts in order to bridge a $1.6 billion deficit for FY 2009. The balance was made up with cash taken from various special funds and an anticipated $500 million in federal stimulus dollars. However, the 20 percent budget cuts had not yet been approved at the writing of this article.[3]
  • On March 10, 2009 legislators considered a $1 million reduction in funding ear-marked for safety equipment for police officers in FY 2010. Lawmakers had already removed $125,000 from that fund in January when they fixed the FY 2009 budget. The Department of Public Safety faced approximately $12 million in cuts. The department was expected to receive $347 million in funds.[5]
  • Facing $37 million in cuts, the Peoria Unified School District considered laying off as many as 700 employees. The district looked at cutting contracted employees, including teachers, who had less than two years of service. Funds from the federal stimulus could have helped alleviate the district's budget woes, said officials.[6] Various other districts were also looking at the possibility of laying off several hundred employees. Like most school districts at the time, Scottsdale spent about 90 percent of its $169 million operating budget on salaries and benefits.[7]
  • The Arizona State Library, Archives and Public Records has closed regular public access to the $38 million Polly Rosenbaum State Archives and History Building, which opened in fall 2008 and was dedicated in mid-January. The building was to remain closed until the end of FY 2009. The closure came in light of a $1.45 million cut from its remaining $2 million budget for FY 2009.[8]
  • The Department of Economic Security announced on February 12, 2009 furloughs for approximately 9,000 out of its 11,000 employees. Department programs range from unemployment insurance and food stamps to Child Protective Services and developmental disabilities. Furlough days for affected employees varied but ranged up to nine for top managers, said state officials.[9]

Budget background

See also: Arizona state budget

The Arizona state budget is a combination of one and two-year budgets. The fiscal year begins July 1 and ends June 30 of the next year.

Every year, the legislature adopts a one-year budget for 15-25 of the largest state agencies. In odd-numbered years, however, the legislature adopts a two-year budget for all other agencies. In 2009, however, the legislature adopted only a one-year budget because of the state's budget crisis. In January and February the Appropriations Committee of both the House and the Senate held hearings for individual agency budgets. Once passed by both by the House and Senate, the budget passes back to the governor for final approval.[10]

Every month the Joint Legislative Budget Committee publishes an updated report on the state's revenue collections and results of individual agency reports.[10]

  • FY 2009 budget drew 91 percent of its revenue from three sources: 47 percent from sales and use tax, 37 percent from individual income tax and 7 percent from corporate income tax.[10]
  • 6 state agencies accounted for 91 percent of state spending: K-12 education at 42 percent, Medicaid program at 14 percent, universities at 11 percent, corrections at 10 percent, department of economic security at 8 percent and department of health services at 6 percent.[10]
  • General fund spending has grown 8.7 percent annually.[10]
  • Population/inflation has grown 5.8 percent annually.[10]

Budget figures

The following table provides a history of Arizona's expenditures and gross domestic product (GDP).

Fiscal year Expenditures (billions) GDP (billions)
2000 $27.3[11] $158.5[11]
2001 $29.6[11] $165.4[11]
2002 $31.9[11] $171.9[11]
2003 $34.0[11] $182.0[11]
2004 $36.1[11] $193.4[11]
2005 $39.3[11] $215.8[11]
2006 $42.7[11] $237.4[11]
2007 $46.5[11] $247.0[11]
2008 $50.6[11] $257.1[11]
2009 $55.0*[11] $267.5*[11]
  • NOTE: The figures for FY 2009 had not yet been finalized at the time this data was compiled.

Projected budget gap

Fiscal year Gap Percentage of current general fund
2008-2009 $1.6 billion[12] 15.9%[12]
2009-2010 $3.0 billion[12] 29.8%[12]

Ideas about why the crisis occurred

  • According to state reports, January 2009's General Fund revenue collections were $662.5 million, or 21.9 percent, below January 2008 figures. The collection was also $81.8 million below the January revised budget forecast. In 2008 collections were 14.4 percent below January 2007's revenue. According to state officials, January marked the 13th month of declining revenue.[13]
  • January 2009 individual income tax collections were down 30.8 percent compared to January 2008 and were $57.7 million below the forecast. January’s withholding tax collection decrease of 14.7 percent was the largest decline since 1983.[13]
  • Building permitting activity in 2008 reached its lowest level since 1975. Air passenger traffic at Sky Harbor International Airport fell by 5.4 percent in 2008, the steepest decline since 1980. The median price of a single family home in Phoenix in January 2009 was 44.0 percent below the level in January 2008.[13]

Proposed actions

Governor Jan Brewer


Gov. Brewer's tax increase proposal

On March 4, 2009 Gov. Brewer presented a five-point long-term solution plan for how to address the state's budget crisis. Brewer called for structural budget reform to increase the state's "rainy day fund" and a commitment to a fair and honest revenue estimation process. Additionally, Brewer suggested the improvement of "the voter protection act," which would create what she called "fiscal flexibility during extraordinary times of crisis."[4] The governor also suggested additional spending cuts in light of the FY 2010 budget deficit, estimated to be at $3 billion. The cuts were estimated to be approximately $1 billion reduction in the General Fund. The fourth point was to "reform and modernize" the state tax structure. “We need a tax structure that promotes job growth, job sustainability, investment in Arizona and revenue stability,” said Brewer. Lastly, because of the decline in state revenue, Brewer suggested a temporary tax increase that officials estimated would increase state revenue by $1 billion per year.[14]

Former Gov. Janet Napolitano had proposed using debt financing to pay for school construction instead of the usual state practice of paying for cash. She also proposed putting traffic surveillance cameras on state highways to bring in $90 million in extra revenue from speeding fines. Napolitano resigned in January 2009 to become Secretary of Homeland Security under President Barack Obama. Gov. Brewer had been in office for approximately six weeks as of March 4, 2009.[1]

Republicans

In January 2009 Arizona Republicans proposed cutting $1.5 billion from education budgets over the next year and a half. Although their plan was met with resistance, Rep. John Kavanagh, chairman of the House Appropriations Committee said he welcomed alternative ideas, but noted, "There's not much left to cut unless we really want to get draconian." Under the Republican proposal, university spending cuts would have been the largest contributor to the budget solution: 16 percent of the total. Next to face a cut would have been the state's Medicaid program and then the state's department of correction. Republicans Kavanagh and Senator Russell Pearce made the Republican proposal at the end of former Gov. Napolitano's term in 2009.[15] Pearce said one reason the state was now in financial trouble is that Napolitano insisted on growing the budget even when there were clear signs in the last two years that state tax collections were decreasing. The only way the current budget was "balanced," he said, was through both borrowing and various accounting "gimmicks." In addition, Pearce noted that tax hikes were not what Arizona needs to stimulate the state's economy, arguing that they would, in fact, do just the opposite. However, not all state Republicans agreed with Pearce and Kavanagh's budget proposal. Rep. Rich Crandall said such sharp cuts to public education were politically unacceptable to many party members.[16]

Democrats

Democrats said that the state economy and education were at the top of their priority list; however, in early 2009, lawmakers passed a series of budget cuts in order to balance the FY 2009 budget. Included in the cuts were approximately $1 billion in cuts to education. "Republicans ignored reasonable and responsible alternatives to balancing the budget, and now Arizona children are bearing the biggest burden," said Democratic lawmakers.[17] As an alternative solution to the budget crisis Democrats suggested $496 million in tax increases. Senate Democrats proposed eliminating $168 million worth of individual state tax credits and write-offs and $81 million worth of business tax breaks and credits. The plan also called for borrowing $500 million against state lottery funds and putting more state prisoners under house arrest.[18][19] In response to Gov. Brewer's five-point plan for revitalizing the state's budget, Democrats said that Brewer presented nothing more than a political outline that contained few details on how to revive the state's economy, defend education and protect vital services for Arizona families. “Perhaps the Governor didn’t hear the thousands of teachers gathered outside; a detailed plan needs to be presented that defends funding for our schools and universities,” said Harriet Young, Chair of the Arizona Democratic Party.[20]

Economic stimulus package

Arizona was expected to receive $4.4 billion of the $787 billion dollar economic stimulus package.[21][22] However, Gov. Brewer said that she might turn down the funds because she was skeptical about the unemployment funds. The funds were to help extend benefits for people who had been out of work for longer periods of time; however, some lawmakers said that they were worried the provision could leave the state paying for benefits long after the stimulus money runs out.[23] According to White House officials, the package was expected to create approximately 70,000 jobs.[24]

According to preliminary reports, Arizona was expected to receive:[25]

  • $100.6 million for public transit[26]
  • $522.0 million for highway funding
  • $55.8 million for the Drinking Water State Revolving fund
  • $32.4 million for home funding (community-based affordable-housing block grants)
  • $26.9 million for the Clean Water State Revolving Fund
  • $22.2 million for the Homelessness Prevention Fund
  • $12.1 million for the Public Housing Capital Fund
  • $246.2 million for Title I education for the disadvantaged
  • $178.5 million for special education Part B state grants
  • $18.5 million for dislocated workers state grants
  • $18.0 million for the Department of Labor’s youth state grants
  • $11.6 million toward education technology
  • $10.3 million toward vocational rehabilitation
  • $7.7 million for the Department of Labor’s adult state grants
  • $6.9 million for State Employment Service grants

Budget transparency

A statewide, official spending database was expected be placed online on or before January 1, 2011.[27]

Economic stimulus transparency

  • The Economic Recovery and Reinvestment Act of 2009 designated $787 billion to be spent throughout the U.S. Of that $787 billion stimulus package, it was estimated that 69%, or over $541 billion, would be administered by state governments.[28]
  • It was estimated that Arizona received at least $3 billion in federal funding.[29]

Legislation

Legislation was passed in 2008 to create an online spending database.[30] The database was to be placed online on or before January 1, 2011.[31]

Arizona does have a website that details how the Office of the Treasurer distributes state monies. The Arizona Department of Administration also publishes a website that provides a database of statewide contracts for state agencies and over 400 colleges and universities, counties, cities, school districts and qualified not-for-profit organizations. Users can view bids as well as closed contracts and pending solicitations.

Government tools

This table can be used to evaluate the level of transparency provided by a state spending and transparency database:

Criteria for evaluating spending databases
State database Searchability Grants Contracts Line item expenditures Dept./agency budgets Public employee salary Exemption Level
None n/a n/a n/a n/a n/a n/a n/a

Support for creation of the database

Arizona Senate Bill 1235 (2008) was signed by Governor Janet Napolitano.

Public employee salaries

See also: Arizona state government salary

See also

External links

Additional reading

References

  1. 1.0 1.1 Phoenix Business Journal, "Arizona budget deficit labeled country's worst," February 28,2009
  2. Arizona Republic, "State's budget ax to cut deeply," January 11, 2009
  3. 3.0 3.1 East Valley Tribune, "Brewer not revealing proposed budget cuts," March 11,2009
  4. 4.0 4.1 4.2 4.3 Arizona Capitol Times, "Legislature to restore funding to '09," March 11,2009 (dead link)
  5. Arizona Capitol Times, "Budget options include $12M in cuts to DPS," March 10,2009 (dead link)
  6. The Arizona Republic, "District may cut 700 staffers," March 10,2009
  7. The Arizona Republic, "Schools prepare for worst-case budget scenario," March 7,2009
  8. The Arizona Republic, "Months-old state archives facility closes," March 4,2009
  9. Fox11AZ, "Arizona DES orders workers to take unpaid time off," February 13,2009 (dead link)
  10. 10.0 10.1 10.2 10.3 10.4 10.5 State of Arizona, "The Legislative Budget Process," December 10,2008
  11. 11.00 11.01 11.02 11.03 11.04 11.05 11.06 11.07 11.08 11.09 11.10 11.11 11.12 11.13 11.14 11.15 11.16 11.17 11.18 11.19 US Government Spending, "Arizona State and Local spending," accessed March 11,2009
  12. 12.0 12.1 12.2 12.3 Center on Budget and Policy Priorities, "STATE BUDGET TROUBLES WORSEN," accessed March 11,2009
  13. 13.0 13.1 13.2 Arizona Joint Legislative Budget Committee, "Monthly fiscal highlights - February 2009," accessed March 11,2009
  14. The Arizona Republic, "Brewer lists steps to keep state afloat," March 5,2009
  15. The Arizona Republic, "GOP budget proposal slashes funds," January 16,2009
  16. East Valley Tribune, "GOP budget cuts would hit education hard," January 15,2009
  17. Arizona Democratic Party, "GOP axes schools, public safety - but keeps their slush fund," February 1,2009
  18. Phoenix Business Journal, "Arizona Democrats push for tax increases to balance budget, avoid cuts," February 24,2009
  19. Associated Press, "Arizona Senate Democrats' budget strategies," February 24,2009
  20. Arizona Democratic Party, "Brewer lacks a real plan for Arizona," March 5,2009
  21. The Arizona Republic, "Schools to receive stimulus by April," March 10,2009
  22. Arizona State Legislature, "Federal assistance to Arizona," February 19,2009
  23. ABC15, "Why Arizona could decide to turn down stimulus money," March 9,2009
  24. American Recovery and Reinvestment Act, "Estimated job effect," accessed March 11,2009
  25. Phoenix Business Journal, "Arizona Stimulus Dollars," March 6,2009
  26. American Recovery and Reinvestment Act,"$8.4 Billion for Public Transit," March 5,2009
  27. Arizona Senate Bill 1235 (2008)
  28. National Taxpayers Union, "A Letter to the Nation's Governors: Ensure Transparency and Accountability by Posting Stimulus Expenditures Online," March 10, 2009
  29. Wall Street Journal, "Stimulus Spending by State"
  30. Goldwater Institute, "Piercing the Fog: A Call for Greater Transparency in State and Local Government" executive summary, July 29, 2008
  31. Arizona Senate Bill 1235 (2008)