Just last year, lawmakers were facing a budget surplus that at times was estimated to be as high as $1.5 billion. The big pool of unclaimed cash offered tantalizing possibilities for new programs and tax cuts.
Flash forward to fall 2007, as lawmakers are staring into a budget hole more than $600 million deep. Most expect the deficit to grow to more than $800 million by the time lawmakers come back to work in January. And the deficit for the 2008-09 state budget could be as much as $1.5 billion, budget analysts predict.
What happened? How did the state
go from being flush with cash to facing agonizing budget cuts in
just over a year?
Blame it on good times that didn't last as long as everyone
hoped, an economy that went south faster than anyone expected
and too much spending, say lawmakers and budget analysts.
"We spent too much money," said state Sen. Bob Burns, chairman
of the Senate Appropriations Committee. "We failed to save
enough money when we were flush."
The flush years came in mid-decade, after the state had climbed
out of several years of budget shortfalls. They had to be closed
with budget cuts and "fund sweeps" - taking money ostensibly
earmarked for specific purposes and using it to balance the
budget.
The Arizona Constitution requires a balanced budget, so running
a deficit is not an option.
Specifically, Burns said, the state should have directed more of
the spending that the flush years provided into one-time
expenditures, instead of using it to pay for ongoing programs.
Now that tax revenue has dipped, due to a slowing economy, those
programs are in need of funding that isn't there.
That analysis was echoed by Kevin McCarthy, president of the
Arizona Tax Research Association. In addition to favoring
ongoing programs over one-time expenditures, the state budget is
also hurt by an overall downturn in the economy.
Arizona is not alone in these kinds of cyclical budget woes:
States from California to Rhode Island are facing budget strains
and are dealing with painful cuts.
To state Sen. Jay Tibshraeny, R-Chandler, a lot of this could
have been avoided if legislative leaders had turned a more
careful eye to figures that came in late last spring, showing
tax revenues weren't coming in at the clip that had been
projected.
But that got glossed over, he said, in the rush to put out a
budget that a majority could agree upon.
"They did it backwards," he complained. "They got all of the
spending first and then they put revenues together to match the
spending . . . and that's a recipe for disaster."
Others have argued that the declining-tax-revenue trend wasn't
apparent enough in late spring, when the budget was being
completed.
Since then, state officials have grown more dour in their
assessments of the budget picture.
On Friday, House Speaker Jim Weiers said the shortfall for the
current budget year, which started July 1, could approach $1
billion. That ups the ante from just a few weeks ago, when
Senate President Tim Bee said the shortfall could hit $800
million.
Lawmakers and Gov. Janet Napolitano are currently working on
plans to bridge that shortfall, although no plan has emerged.
But some solutions are obvious, if not specific at this point:
Cut agency budgets. Tap the state's rainy day fund. Perhaps
delay the final month of payment to schools, which effectively
rolls the spending into the next year.
Democrats have said everything should be on the table, including
the tax cuts that the GOP-led Legislature successfully
championed in 2006. Those cuts added up to about $600 million.
On Friday, Senate Minority Leader Marsha Arzberger, D-Willcox,
suggested that it might make sense to delay the second step of a
two-phase income tax cut. That would put off a 5-percent cut to
future years, when the revenue picture brightens, she said.
Expect a lot of pain when a budget-balancing plan is rolled out.
Burns, echoing the frustration of many lawmakers, said the state
may be hitting the point where the constraints of voter-approved
programs and statutory funding formulas give legislators little
room to squeeze savings out of the budget.
"I'm getting to the point where I'm fearful that the Legislature
doesn't have the ability to resolve this budget," he said.