Budget plan's Rx: avoiding big pain

By Barrett Marson
ARIZONA DAILY STAR

January 20, 2003

PHOENIX - While other states are grappling with tax increases, the early release of prisoners and a shorter school year to balance budgets, Gov. Janet Napolitano's plan for Arizona hopes to avoid that pain for state taxpayers.

If Napolitano has her way, Arizona won't be struggling with choices other states face. Instead of deciding whether to raise sales taxes a penny - such as Democratic Gov. Gray Davis of California proposes - or sign the early release of more than 500 nonviolent prisoners, like Gov. Paul Patton, D-Ky., ordered, Napolitano opted to ride out what she hopes is a short-term economic downturn with measures that will cost the state millions in the future.

"It seems to me this is more of an easy way out," said Stephen Slivinski, the budget director at the conservative Goldwater Institute. "We really need to come to a reckoning. I don't think this budget really does that."

Scott Pattison, executive director of the nonpartisan National Association of State Budget Officers, said states are employing a variety of fixes to plug budget deficits. The depth of the pain depends on the size of the revenue gap.

"In a few states, like California, the magnitude of the problem is so huge and dramatic, they have to use a lot of different tools that are painful," Pattison said.

Pattison estimates states face a collective $50 billion shortfall this year alone. An estimate for next year is not available.

California is the leader. During the next 18 months, the state faces a $34.6 billion shortfall. During the same time period, Arizona must make up about $1.3 billion in revenue.

In the Golden State, even a sales tax increase and an income tax bump for the wealthiest won't stop the state from slashing programs, according to Davis' office.

Davis, like Napolitano, is a Democrat. He expects his budget will reduce the state work force by 1,900 people. And unlike Arizona, where most of the 1,700 positions cut two months ago were vacant, California state employees will receive pink slips.

Just 16 percent of his budget relies on borrowing, fund shifts and other transfers. About 60 percent of his fix comes from agency cuts and the rest of the $34.6 billion deficit from new revenue.

Anita Gore, a spokeswoman for Davis' Department of Finance, said cuts range from programs for the disabled to $5 billion less for schools.

"It's real and it's hard. The decisions were hard, and the reductions in spending will be felt by everyone," Gore said. "This budget offers real solutions to the revenue and expenditure problem."

Oregon is considering tough choices. The economic downturn has prompted school officials to consider shortening the school year by as much as 24 days. Oregon State Police face layoffs and the closing of crime labs.

Napolitano is optimistic that Arizona will be able to afford the bill when payments come due. Slivinski actually shares some of Napolitano's optimism but still wants to see borrowing cut back and further cuts in selected state agencies.

Napolitano's budget plan released last week calls for the sale and then lease-back of $250 million worth of state buildings, the issuance of $75 million in bonds to be paid back from Powerball lottery revenues plus another $100 million in bonds to pay for new school construction and a month's delay in paying schools $95.5 million.

Napolitano's budget guru, George Cunningham, estimates the state will pay $290 million over 10 years to cover the lease-backs of state buildings. In 2004 alone, the state will owe about $39 million to pay for the lease-purchase of new schools.

Without those measures, the $64 million in agency cuts and consolidations would be far greater.

"I am going to fix what she fails to understand," said Russell Pearce, R-Mesa, the House Appropriations chairman. "She fails to understand the 2005 problem we are going to have. Are we going to cut some things that are uncomfortable for some? Absolutely. But hopefully we will be responsible and put out an honest budget."

Republicans will release their own spending plan as early as this week. Since releasing her budget, Napolitano has said the state can weather the bad economy and rebound.

Dana Naimark, deputy director of the child advocacy group Children's Action Alliance, approves of that plan. Other states, she argues, have room to cut. However, Arizona has been at or near the bottom in per-resident spending. Austerity measures should not be part of anyone's final plan.

"She is putting her money where her mouth is in terms of setting priorities for children, seniors and other vulnerable groups," Naimark said. "This is not an ideal budget. We have already had quite a few rounds of budget cuts. This doesn't restore those."

The moves that give Napolitano flexibility now may tie her hands in future, said Kevin McCarthy, head of the Arizona Tax Research Association.

"It sets the stage for an extraordinarily large budget deficit in 2005," McCarthy said. "You look around the country and see people make tough decisions. We need to make those tough decisions now, and we will be better off because we will have corrected the ship."

Slivinski has the same concern.

"It does postpone the inevitable," Slivinski said. "There is a gamble that there will be revenue growth. We've got to make sure we are not setting ourselves up for a bigger fall in 2005."

* Contact Barrett Marson at 602-271-06234 or at bmarson@azstarnet.com.