Debt financing not solution

By Kevin McCarthy
My Turn
Jan. 16, 2003

In her first State of the State address, Gov. Napolitano made a strong point of her desire not to balance the state budget on the backs of Arizona's children.

Programs that affect children will no doubt top the priority list of policymakers when they begin the difficult task of balancing next year's budget. To that end, children, as well as all future taxpayers of Arizona, should be considered when the debate begins on whether to debt finance our way out of fiscal problems.

Estimates on the deficit for fiscal year 2004 run as high as $1.5 billion. The good news is that both the governor and Legislative leadership have stated their opposition to increasing taxes to close the deficit. Their opposition to solving the problem on the back of an ailing economy will force them to do what they should do: re-examine every state program and reprioritize state spending.

However, opposition to raising taxes is no assurance that the budget deficit will be closed through spending reductions. Last year the fiscal year 2003 deficit was closed primarily through a combination of debt financing, budget gimmicks, fund transfers, and one-time cuts, digging a deeper hole.

The pressures on state policymakers to maintain government programs and not cut budgets will be great. In reality, the only check on that pressure is the need for more taxes to fund the spending. That is unless they decide to punt the problem again into 2005 through more debt financing. For decades debt financing has been the path of least resistance for elected officials without a nasty debate with taxpayers.

The proponents of debt financing argue that it is an acceptable form of financing major capital improvements. After all, most of us debt finance our homes and even cars. If the state were financing a major one-time capital project the argument would have merit. However, just as you wouldn't buy a new house every year without selling the old one, the state can ill afford to debt finance general fund expenditures.

 

Kevin McCarthy is president of the Arizona Tax Research Association.