Budget director: State economy helping budget but picture still isn't rosy

By PAUL DAVENPORT
Associated Press Writer
November 20, 2004

SCOTTSDALE -- Arizona 's improving economy helps state government's fiscal situation but surging costs for health care and education are among budget challenges facing lawmakers, the Legislature's budget aide says.

Legislators kept the state in the black in recent years largely through borrowing and other relatively painfree fiscal maneuvers that allowed the state to spend more than it took in as revenue.

Many lawmakers now want to eliminate that so-called "structural deficit" -- the gap between continuing spending and continuing revenue -- but that will be tough to do, legislative budget director Richard Stavneak said Friday.

Lawmakers start work in earnest on the 2005-2006 budget when they return in January.

The structural deficit in the current $7.3 billion budget is $283 million but is actually $537 million if it includes approximately $250 million school construction costs now being covered by borrowing, he said.

Experts consulted by the Joint Legislative Budget Committee staff see economic strength that will translate into healthy growth of sales and income tax collections, the state's biggest revenue sources, said Stavneak, JLBC director.

The state faces rising costs for health care and education at a time when other priorities such as school construction and a pay raise for state employees are also being discussed, Stavneak said.

"That's before people begin to talk about (expanded funding for) full-day kindergarten. That's before people begin to talk about (money for) water issues, trust land issues," Stavneak said.

K-12 education and the Arizona Health Care Cost Containment System, or AHCCCS, each required spending increases of $175 million this year and it'd be unreasonable to think the next year's budget also won't require big infusions of more dollars, Stavneak said.

Enrollments in social programs based on income eligibility usually drop or at least grow more slowly during economic good times, so state officials were left scratching their heads to explain a big jump in AHCCCS enrollment.

JLBC figures indicated AHCCCS enrollment rose by approximately 54,000 to 779,689 in four months ended Sept. 1. The 2004-2005 budget was based on a projected increase of only 20,000 through the entire fiscal year.

Explanations offered included a decision to return to a longer interval between rechecking enrollees' eligibility and elimination of a backlog in applications, Stavneak said.

"Clearly we're going to have a budget issue that we need to look at," he said he told a legislative preview conference sponsored by the Arizona Tax Research Association.

Asked later about the spike in AHCCCS enrollment, Gov. Janet Napolitano said her administration hopes the increase "evens out" by the June 30 end of the current fiscal year.

Senate Appropriations Chairman Bob Burns, R-Peoria, said efforts by some lawmakers to rein in spending increases, particularly in K-12 education have largely failed because many other legislators balk.

"They're a political hot potato," Burns said.