 Over 30 years, Arizona – a hub of soaring population, drawn by sun and business aspirations – has shifted spending as a proportion of the General Fund from universities and general government to prisons, welfare and healthcare, primarily the state’s version of Medicaid, reports the Arizona Daily Star.
Colorful pie-charts presenting three-year averages (to smooth any single-year anomalies) for each of three decades (1980, 1990, and 2000) plus 2009 and 2010 projections, spoke volumes to audience members at a two-day “Governing Arizona” conference November 16-17 in Phoenix. The first-day briefing was for journalists and the second for lawmakers (about a quarter of current state legislators) and other policy leaders.
In discussions that lamented the pull between “heart” and “good economics” in making decisions to affect revenues and spending, as well as difficulty in building long-haul “institutional knowledge” when no body of lawmakers is around for any extended time period, the presentation of long-term trends captivated.
Economic consultant and former analyst for the Arizona Legislature, Alan Maguire, president of The Maguire Company, switched quickly between slides of pie charts for each decade to convey the dynamic of the shift in the handling of state General Fund revenues.
General Fund Revenue Shifts
From 1980 to 2010, sales and use taxes, as a percentage of total General Fund revenue grew from 47 percent to 56 percent. Personal income taxes increased by a lesser proportion, about 5 percent growth, while corporate income taxes remained relatively even throughout.
Meanwhile, property taxes as a source of state funding went from 6 percent to virtually dropping off the charts entirely, as these funds shifted to local governments.
The importance of this shift in a particularly harsh recession is underscored by record declines in spending (and thus, sales tax revenue) and study comparisons that show property taxes are a less volatile revenue source than almost everything else.
Further enlightenment of these trends comes from the October 26, 2009 report, “State Fiscal Trends and Outlook,” by the Nelson A. Rockefeller Institute of Government.
The Rockefeller report provides insight into the storm that has hit state budgets. State and local governments now conduct 55 percent of domestic spending – more than the federal government – and their budgets have become almost as volatile as the federal budget. Problems are exacerbated because most states, unlike the federal government, are required to balance their ledgers each year.
Sales tax revenues (or, rather, retail sales as a driver of tax revenue) have been particularly hard hit in this recession, as shown in Slide 4 of the Rockefeller report. Sales tax revenue, for the most part, was not down as much as personal and corporate income tax revenue; but local governments held up better for a longer period in their revenues, largely owing to more stable property tax revenues, it noted.
The Center on Budget and Policy Priorities has more information on at least a dozen states that raised their sales taxes in 2009 to try to cope with budgetary shortfalls.
Arizona, plagued in FY 2009 with one of the largest, if not the largest, budget deficit (as a percentage of the total General Fund) among all states is expected to remain in that unenviable league for at least one more year (Slide 18). And, the gloomy fact, looking back to previous recessions, is that fiscal recovery can take not just months longer, but in fact several years longer, than economic recovery to be realized (Slide 13).
Another disturbing trend in revenues in California, with possible implications for Arizona, was presented in a companion report at the Governing Arizona conference and will be discussed below; but, first, a look at General Fund spending trends for Arizona since 1980, as shown by Maguire.
General Fund Spending Shifts
In similar fashion, Maguire presented trends for General Fund operating spending allocations from 1980 to 2010. K-12 spending, always the largest share of General Fund allocations, took a hit in the 1990 decade averages, falling to 37 percent of the total General Fund; however, in all other decade averages, K-12 spending was 40 to 44 percent of the total.
The more notable education spending trend related to universities, which fell 8 percent (from a 1980 average of 18 percent to just 10 percent in 2010).
Meanwhile, the General Fund portion that went to corrections rose by 5 percent over the 1980 to 2010 period; and healthcare (Arizona’s version of Medicaid, the Arizona Healthcare Cost Containment System, or AHCCCS) and welfare (Department of Economic Security and Department of Health Services) combined grew by 10 percent (from 16 percent to 26 percent) over 30 years.
Thus, in 30 years in Arizona, as a proportion of General Fund spending:
Universities: DOWN 8 percent
Prisons: UP 5 percent
Health and Welfare: UP 10 percent
University spending, frequently linking higher educational attainment to business and research growth, higher incomes, and greater economic prosperity, by this measure, is being sacrificed to pay maintenance costs for lawbreakers and health and welfare costs for the growing legions of needy citizens.
(Previous AnalysisOnline discussions have presented research on how mandatory sentencing laws are thought to be responsible for at least a percentage of prison population growth; and expanding eligibility for safety net programs has increased the numbers of recipients of Medicaid and welfare benefits. See “Seeking a Lockdown on Prison Costs” and “Medicaid Expansion: States’ Struggles”).
These trends – downturns in university spending and mounting costs for prisons and safety net support – are present not just in Arizona, but on a national scope, as well.
A Pew Center on the States report in 2008, as reported in the New York Times, found that corrections spending growth across the United States outpaced budget growth for education, transportation, and public assistance. Corrections spending quadrupled in 20 years simultaneous with the climb to a record high rate of Americans in jail or prison, 1 in 100. Meanwhile, the report found no reduced likelihood of repeat offenses by the imprisoned population, once released.
Meanwhile, a study of college spending trends in the nation’s public universities, research universities, and community colleges determined that state support for postsecondary education was falling and pressure on tuition and fees to cover more student costs was increasing.
The January 2009 report, “Delta Project: Trends in College Spending” compared the years 2000 and 2006, examining cost (the institutional average spent on each student, both direct and indirect), price (the proportion of costs covered by tuition revenues going up faster than overall spending) and subsidy (the difference between the cost per full-time-equivalent (FTE) student and net tuition revenue per student).
Trends show that the portion of costs being covered by tuition revenues is going up faster than overall spending and more cross-subsidization is occurring (with students who are paying full price for their education also sharing the load for some costs for other students; and low-cost study disciplines subsidizing higher cost study disciplines). This was true across all types of institutions examined.
Likewise, in Arizona, student tuition has grown as a proportion of total cost for all postsecondary education – research universities, public universities and community colleges from 2000 to 2006. For more on the Delta Project on Post-Secondary Education Costs, Productivity, and Accountability, click here.
Ironies of Democracy in California: “Hidden” Fees and Special Taxes
A companion report at the Governing Arizona conference, “The Fiscal Shape of the American States,” by Mathew D. McCubbins, Ph.D., Co-Director of the Caltech USC Center for the Study of Law and Politics at the University of Southern California, helped give national context to the Arizona trends, and also presented a somewhat disturbing trend in California’s active initiative process.
Among the national findings:
• From the 1980s to 2000, state and local government spending growth outpaced comparable growth at the federal level; however, from at least 2001 to 2005, federal growth reemerged in the lead
• States with the highest spending growth were those with the highest population growth, namely, Arizona, Nevada, and Florida
• Although it appears that local government spending is declining relative to state government spending, special districts at the local government level are not captured in the data. There are four categories of local government spending: counties; municipalities and townships; school districts; and special districts
• Education spending declined amid controversies over whether at least a portion of spending – including a strong inflow of dollars into teacher pensions – actually serve the needs of educating students
• Highway and other infrastructure spending is declining, but Medicaid and welfare spending is climbing
Measuring revenues as a percentage of personal income, since the mid-1970s, revenues at all levels of government have grown, but by the smallest percentage at the local government level, steadily increasing at the state level and then even more of an increase at the federal level.
As sources of revenue, the property tax has decreased in importance everywhere except the South; in contrast to Arizona, the sales tax also has decreased in importance in many states.
A disturbing trend that is noted in the report made its prominent debut when California voters flexed their collective wills in 1978 and approved Proposition 13; they were seeking to put a lid on property tax increases and require greater legislative accountability to voters. But, unintended consequences have arisen.
The McCubbins’ report examines various types of TELS or tax and expenditure limits, increasingly common since the days of Proposition 13, and most frequently demonstrated through direct democracy vis-à-vis the initiative and referendum process, as in California.
While the original intent of these avenues of voter participation may have been to involve the state’s constituents more directly in the democratic process, the reality is that TELS are increasingly subverted through a variety of fiscal innovations, such as non-tax charges and fees and special district assessments.
Fifteen states now require a supermajority vote to increase taxes; nine states have such requirements for passing appropriations bills; and a third type requires a specified fraction (two-thirds, for example) of voter approval, the report notes.
As more spending shifts to the state government, states are getting deeper into debt and increasingly using revenue sources that are largely invisible to voters, making government less transparent and harder for voters to understand and, perhaps, for state lawmakers to manage.
Other News Articles
Other news articles reporting on the Governing Arizona conference, in addition to the featured article, “Arizona has 30-year trend toward more heavy reliance on sales taxes,” by Rhonda Bodfield of the Arizona Daily Star, include:
“Forum discusses fixing budget,” and “Report tracks 30 years of Arizona spending and revenue,” both by Mary Jo Pitzl of the Arizona Republic
“Forum participants call for Arizona bipartisanship,” an Associated Press article on KSWT TV 13 and“Arizona’s funding priorities shifted” in the Arizona Daily Sun.
|
Special service for policy makers and journalists:
Email AO for top scholars, institutions, studies, and research in this issue area
2 responses to Arizona Daily Star : Arizona’s Money Shift: From Universities to Prisons, Indigents
|
What part of this train wreck dont you get. There aint no money.
The state is spending 12 million more per day that its taking in.
The taxpayers are losing their jobs and homes by the hundreds every day.
If your in the Government or ASU payroll your career and job prospects are not good.
Find a new career that makes money from imports, because ASU, State shared revenues and Education is the next budget cut.
Your going to be laid off with the rest of us.
There aint no money.