They could include more cuts, tax hike, wider revenue base
Officials are warning that the state budget shortfall, already at $1.6 billion, could get worse.
The Legislature's budget arm released an analysis earlier this week saying the gap may continue to grow by the time lawmakers begin their new session in January, given ongoing weakness in tax receipts and what is looking like perhaps "too optimistic" a forecast.
This, after an ugly special session in November took baby steps to cut $425 million from the budget — but not before it featured a walkout of a key Republican vote and a refusal by Demo-crats to vote for the package.
Lawmakers originally talked about coming back this week to deal with equally sticky questions about whether to raise revenues, but that's not going to happen.
Senate President Bob Burns, a Republican, said he's counting heads to see if there is enough support to come in this month before he starts losing members to holiday travel.
"If the Legislature is unwilling to make the reductions necessary, then we are probably in a situation where we ought to be thinking about revenue," said Burns, who's all but convinced that he can't get the two-thirds requirement to flat-out raise taxes. So it's likely any revenue measure will have to go to the ballot, where it could meet the same fate as a California package of budget fixes and tax increases voters nixed in May.
Burns doesn't like the idea of more taxes, saying he's fearful it will prolong the recession. "But it's obvious the Legislature hasn't had either the opportunity or the intestinal fortitude to make the reductions that are necessary. And now the problem is we've waited and waited, and it's going to be very painful."
It's little consolation, but 45 states faced shortfalls totaling $144 billion in their fiscal year 2010 budgets. Now that states are well under way into those budgets, gaps reopened in 30 of them.
"Anything and everything is on the table," said Luke Martel, a policy association with the National Conference of State Legislatures, a nonpartisan clearinghouse that tracks state policies. "And the choices are getting harder and harder because a lot of the easy decisions have been made. States are going to have to be creative."
Arizona has already taken unusual steps to close the budget, including moves to privatize state prisons and offering up state properties for lease-back agreements.
In Massachusetts, they're extending the state sales tax to liquor. In New York, taxes and fees are going up for nuclear plants, racehorse owners and pesticide applicators. Colorado eliminated its sales tax exemption on cigarettes for two years. And in Michigan, there's talk of a 1-cent tax per bottle of water.
There have been suggestions here to borrow against future revenues, such as the lottery, for a one-time infusion of cash. There have been suggestions to scale back the tax credit for private school tuition. But here are some of the more popular options facing lawmakers:
• Raise the sales tax.
Pushed by Gov. Jan Brewer, a 1-cent-per-dollar sales-tax increase would raise roughly $1 billion a year, or $90 million a month, for three years. Of all the choices, she's said, it's her favorite because she believes it has the least negative impact on the state's economy, is more politically palatable than other tax increases and is easy to collect.
She hasn't been able to get lawmakers to put it on the ballot yet, but her spokesman, Paul Senseman, said she isn't willing to wave the white flag on a special session this month. "The crisis is too deep. We've got to keep pressing."
• Expand the sales tax base.
Other states have enacted new sales taxes on computer software, soft drinks and theater tickets.
So the House Democrats are in good company with their suggestion to expand the sales tax to services that aren't currently taxed. That could include haircuts, pet grooming, dry cleaning and oil changes.
Senseman said that while the governor is willing to consider all ideas, there are some weaknesses, largely because it takes a new structure for collection that doesn't currently exist, so there would be limitations on how much could be collected to resolve the immediate fiscal crisis.
But House Minority Leader David Lujan, a Democrat, said it's the option that makes sense. "It brings in more revenue, and it creates a more stable system than we have now because we're taxing more things," he said. "When you have a service economy and yet so many services are exempt, it makes it that much more difficult to raise the revenues you need."
• Audit your way to prosperity.
Social service advocates are already terrified more services will be slashed given the state can't do much more to cut education or health-care costs because of entrenched formulas and the risk of losing federal stimulus dollars. They have pitched restoring cuts to state tax collectors and auditors.
Timothy Schmaltz, a coordinator of the Protecting Arizona's Family Coalition, said revenue collection should be the first place to start. "You get a 10-to-1 bang for your buck. If you made the decision and had those people on board in January, it would be fast enough to have an impact," he said.
Anthony Forschino, a spokesman for the Department of Revenue, said a rule of thumb is that each collector brings in about $800,000 a year, and an auditor $400,000.
Among 300 positions lopped out of the department's budget in February were roughly 100 collectors and 100 auditors. And although 60 were brought back, bringing the current staff up to 710 positions, he said that is 1986 staffing levels.
Schmaltz said cuts alone clearly won't work, and lawmakers are going to have to find ways to add new revenues into the mix. "It's either that or destroy the public education system, the public social services system or the university system."
"The governor herself realizes you can't cut your way out of this, and she's not exactly a flaming liberal."
• Chop chop.
The Arizona Tax Research Association, a fiscally conservative organization once on record supporting the sales tax referral to the ballot, has since changed its position. Director Kevin McCarthy said the state has not done the hard work it needs to do to clamp down on spending, and he won't support any new revenues until that happens.
Among his suggestions: Insisting all kindergarten students turn 5 before Sept. 1, given the expense of 4-year-olds, who frequently end up repeating. Better oversight over student counts to head off fraudulent or sloppy accounting of students. Less funding for "virtual" schools since they don't require the same staffing levels for online coursework. And a reduction in redundant funding for students who might be concurrently enrolled in high school as well as taking coursework through community colleges or a joint technological education district.
The Goldwater Institute's Byron Schlomach is on board with that sentiment. "It's possible to balance the budget with cuts, and I wouldn't call the results of that 'devastating,' " he said, calling such characterizations hyperbole.
Among the sacrifices he suggests: arts funding and the commerce department.
"It would shrink government considerably."