Arizona: Budget Deficit Persists
 Arizona lawmakers can’t agree among themselves or with the governor on how to solve that state’s massive budget deficit, reports the New York Times. Past growth and insufficient planning are at the root of the problem, AO finds.
The New York Times chooses to focus on the theatrics of partisan politics that have plagued Arizona in its attempts to plug a $3.4 billion deficit; measured as a percentage of the total operating budget, Arizona’s deficit is one of the worst, if not the worst, state budget deficits in the nation.
Arizona’s problems aren’t simply a clash of personalities and pet political interests, however; AnalysisOnline examines how General Fund spending has grown; which priorities have changes – and which haven’t; revenue shifts that put a lopsided burden on just one source; and how Arizona voters have fed the budget beast, creating much of the problem.
Arizona: Second Fastest Growing State
In many respects, Arizona nearly mirrors the United States, according to U.S. Census Bureau data. In 2007, about 26 percent of the state’s population was under age 18 and 13 percent was over age 65, leaving about 61 percent of residents in the “working age bracket.” Those are nearly the same proportions as the nation as a whole. Also, in educational attainment, there are similarities. Four-fifths of Arizona’s residents age 25 and older in 2007 had a high school diploma, while a college degree was achieved by less than one-fourth.
But, in one important respect when it comes to stretching budget dollars, Arizona is very different from all but one other state; that is, its population growth. From 1980 to 2005, Arizona’s population increased by 119 percent, second only to Nevada, at a 202 percent growth rate. Nationwide, U.S. population grew 31 percent in those 25 years.
In good times, population growth can mean robust economic growth (gross domestic product) and revenues aplenty for state coffers. But, in times like now -- the burst of the housing bubble; the recession’s impact in curbing revenues, increasing demand for safety-net services and mounting job loss, particularly in mainstay sectors like construction; and the ensuing political scramble to find a seemingly nonexistent silver bullet and avoid blame -- extraordinary population growth can add to the budget dilemma.
Certainly, lawmakers risk having more voters to answer to and more needs unmet if they don’t plan far enough ahead for disturbingly more expensive components of General Fund spending (Medicaid) or if they allow revenues to become overly dependent on a singular source (sales tax) that doesn’t weather well in a recession. Research shows lawmakers have allowed both of these scenarios to occur.
And then there is the matter of Arizona’s voters feeding the budget beast and creating some of the problems. Arizona’s fiscal process labors under severe constraints approved by voters, which make it that much more difficult for lawmakers to come up with solutions, note authors Michael Greve and Philip Wallach in the American Enterprise Institute article, “As Arizona Goes, So Goes the Nation,” in July 2008:
►Proposition 108, adopted in 1992, requires a two-thirds majority in both houses of the Legislature to make a net increase in the state’s revenue collections, making the decision to increase taxes extraordinarily difficult, and
►The 1998 Arizona Voter Protection Act requires a three-fourths majority of legislators to alter spending on programs created by referendum
General Fund Spending and Priorities
Statistics from the Arizona Joint Legislative Budget Committee trace Arizona’s spending from Fiscal Year 1979 to Fiscal Year 2009. First, they show how much overall spending has grown. But, they also show that some of the areas that receive the most news coverage (education, welfare, general government spending) are not the main culprits for increased spending; on the other hand, areas that may get less attention, Medicaid and corrections, for example, are consuming ever-larger chunks of the General Fund.
Arizona’s General Fund has grown by 873 percent in the nearly three decades from 1980 to 2009. In 1980, the General Fund totaled $1,023,611,127; in 2009, it was $9,961,693,400.
A look at six components that represent an average of 86 percent of the General Fund reveals that priorities have remained relatively consistent, but a couple components have show sharp boosts in spending.
Examining Fiscal Years 1980, 1990, 2000, and 2009, here is the percentage of the general fund represent by each of these six components:
’80 ’90 ’00 ‘09
K-12 Education 45 38 40 42
Higher Education/Universities 19 16 13 11
Arizona Health Care Cost
Containment System (AHCCCS,
Essentially Medicaid), enacted
in 1982 0 9 8 14
Dept. of Economic Security
(essentially welfare) 11 9 7 8
General Government 6 7 6 4
Corrections 5 7 9 10
Growing Reliance on Sales Tax Revenues
The following two sources reveal how Arizona’s revenue balance has shifted:
http://www.arizonatax.org/Publications/Economic%20Forum%202002.pdf
http://www.azleg.gov/jlbc/revenuehistory-fy08actual.pdf
In addition, the July 2009 State Revenue Report published by the Rockefeller Institute of Government provides figures for the first three months of 2009 compared to the first three months of 2008.
Revenue Sources: Major Sources, shown as a percentage of total revenue for 1980, 1990, 2000, and 2009
1980 1990 2000 2009* (*January to March)
Sales Tax 39 34 48 57
Personal Income Tax 13 14 38 7.7
Corporate Income Tax 4 3 9 3.3
Property Tax 32 36 0.7 ---
*Rockefeller Institute of Government Report – Overall, all states showed a decline of 11.7 percent in revenues, the worst drop in 46 years. The Rockefeller Institute shows the following for Arizona (1Q 2009 vs. 1Q 2008):
2008 2009 Change
Personal Income Tax $409 million $180 million (-56 percent)
Corporate Income Tax $68 million $76 million +12 percent
Sales Tax $1,563 million $1,334 million (-15 percent)
Total $2,800 million $2,338 million (-16.5 percent)
From statehood in 1912 through the next couple of decades, Arizona got around three-fourths of its revenues from the property tax. In the 1930s, as noted in the book, Politics and Public Policy in Arizona by Zachary Alden Smith, property values collapsed. In 1933, Arizona adopted a sales tax and an income tax. Property tax declined much further (to just 0.7 percent of revenue in 2000, above). The 1990s brought income tax reductions; thus, the state has grown increasingly dependent on its sales tax. It’s this tax Governor Brewer proposes to increase now to help fill the state’s budget gap.
However, critics assert that the lopsided nature of Arizona’s tax system – and over-reliance on a sales tax – is a critical factor in fiscal problems today. Arizona Economist Tom Rex has said that diversifying and modernizing Arizona’s tax base is essential to addressing the state’s fiscal conundrum.
Cut-Spend See-Saw and Planning for the Future
Democrats oftentimes seek to preserve or increase program spending; Republicans largely favor tax cuts and spending reductions. Since the 1990s, Arizona lawmakers have been generous in cutting taxes and substantially reducing residents’ tax burden relative to other states.
Greve and Wallach of the American Enterprise Institute attribute Arizona’s problems in part to four decades of economic growth that exceeded the national average, and increases in federal transfer funding that allowed programs to appear less expensive than they were. In particular, they fault the Medicaid program (AHCCCS in Arizona) as being fiscally unsustainable, experiencing a threefold increase in cost from 2000 to 2009 and projected to grow worse since Proposition 204 expanded eligibility requirements. |
Be the first to comment on Arizona: Budget Deficit Persists
|
