Napolitano unveils budget 
Borrowing called essential, given tax cuts

Matthew Benson and Mary Jo Pitzl
The Arizona Republic
Jan. 13, 2007 

Tap taxpayers today to pay for an expansion of children's health care, to give state workers a 3.5 percent raise and 

to boost math and science education.  But turn to taxpayers in coming decades to help pay for roads, schools and a 

new hospital for the state's mentally ill.  These are the highlights of Gov. Janet Napolitano's $11.4 billion budget. It 

includes $10.4 billion in operating dollars and an extra $1 billion in borrowing to get the state moving on road and 

school projects that she says will ease some of the state's growing pains. advertisement  
 
But lawmakers see financial pain in the borrowing and are balking at the proposals.  Republican leaders who control 

the Legislature generally prefer paying for projects as money is available, rather than borrowing and repaying the debt 

with interest. In particular, Napolitano's proposal to borrow $407.7 million to pay for school construction rankles lawmakers.

"That's a non-starter for us," said House Majority Leader Tom Boone, R-Peoria. "We fought long and hard for cash 

for that (school construction)."  Boone was more circumspect on the governor's plan to extend bonding for $500 

million in transportation dollars to speed road projects. He said lawmakers would have to put all options on the table 

before deciding what is the best way to get more road capacity quickly.
Borrowing, he said, raises the overall tab due to interest and puts future taxpayers on the hook. 

"We've tried to place pay-as-you-go as our priority," said Sen. Bob Burns, R-Peoria and chairman of the Senate 

Appropriations Committee. "Borrowing doesn't do it for us."

But borrowing is essential for Napolitano to pursue her budget initiatives, given the slowdown in state tax collections. 

Her budget is built on an assumption that the state will take in 3.2 percent more revenue than last year, compared with 

previous years of double-digit increases.  Almost all the borrowing would pay for longer-term projects, such as the 

state hospital or roads. But Boone was critical of one non-bricks-and-mortar item: Using nearly $100 million from 

the borrowed dollars to pay for the state Department of Public Safety instead of taking the dollars out of the state's 

General Fund. The governor is doing that to free up money for her education and innovation programs.  Napolitano's 

operating budget is a 3.5 percent increase over the current budget, a marked slowdown from the double-digit 

spending increases of the past three years.  "It's tough," Napolitano said. "Would I like to do more faster? Yes. 

Overall, I'm very pleased with this budget."

Showdown over taxes
But battles with the GOP-led Legislature loom.  Aside from the difference over how to pay for long-term projects, 

many lawmakers would like to see additional tax cuts on top of last year's $545 million package. Napolitano, 

a Democrat, has indicated she will oppose that.  She also has vowed to protect the state's so-called rainy day fund, 

a $650 million buffer against economic downturns.  Burns' proposal to take $450 million from that fund and use it 

to accelerate road projects is already moving through the Legislature, carried by the argument that the state's 

congested roads and freeways are the kind of emergency the fund was created for.  Ultimately, the Legislature 

has the power to develop and approve the state budget. But the governor wields veto authority. 

Reactions vary
The budget plan drew mixed reactions.  Napolitano's proposal to put $6 million into a program to expand child health 

care funding and $3.3 million to provide more shelter capacity for domestic violence victims pleased Tim Schmaltz, 

coordinator of Protecting Arizona's Family Coalition, which advocates for health and human services funding.
Schmaltz said expansion of the KidsCare program to tens of thousands of uninsured kids would bring the state one 

step closer to providing full health coverage for everyone who cannot afford it.   "There are things that need to be 

done beyond that (children's health care), but we're pleased she's taking those kinds of steps," he said. 
Although lawmakers don't like the idea of a longer payback period for highway bonds, Kevin McCarthy of the 

Arizona Tax Research Association said Napolitano's call to change state law to allow for a 30-year bond period, 

up from 20, is not too worrisome.  "It's not uncommon to finance debt at 30 years," he said.

But the proposed shift from pay as you go to borrowing for school construction is a problem, he said.
"The state is always going to be responsible for building schools. It's not a one-time expenditure," McCarthy said. 
"When it is a recurring expense that comes back every year, it's an operating expense."

Napolitano argues that the financing changes would help the state get to work on projects it desperately needs, 

while avoiding increased costs in labor and materials that would likely come by waiting. And she offers another 

reason: The schools won't be used just by the current crop of student and taxpayers, but instead will be utilized 

for at least 30 years.  "We should return to the process of paying for them over time," she said. "They'll be 

used over time."

Focus on math, science
In addition to new schools, the governor is pushing plans to tailor their curriculum to the coming high-skill economy. 
Math and science are her focus, and Napolitano's budget includes a $10 million pay boost for highly qualified math 

and science teachers, as well as $3 million in incentives for university students to become teachers in those fields. 
An additional $2.5 million would go to school districts to develop innovative math and science programs and academies.
Napolitano also has included $50 million to bring the minimum salary for a starting teacher in Arizona up to $33,000 

from the current base of $30,000.   The innovation economy has become a buzz-phrase of the Napolitano 

administration, and her budget includes millions in state aid to help it take root in Arizona. The boost would come from:

• $25 million for expansion of the biomedical and research programs at Arizona universities.

• $35 million for Science Foundation Arizona, launched last year to lure scientific researchers to the state 

and promote the development of new technologies.

• $1.2 million to expand Arizona's efforts to lure international business.

Budget negotiations between Napolitano and legislative leaders will be ongoing in the months ahead 

to the end of the legislative session this spring.