Voter mistakes guide a fiscally indifferent Legislature

By Kevin McCarthy

SPECIAL TO THE ARIZONA DAILY STAR 

May 16, 2004

Historically, the development of the state budget was the major issue of each legislative session. Spirited debates surrounding the desired level of spending for education, health care, corrections and employee benefits were commonplace. Appropriately, the debates surrounding funding for state programs were carried out against the backdrop of available revenues. Today, although the budget continues to be a major issue, some profound changes have impacted the context in which it is developed and debated.

First, a series of voter-approved initiatives have limited the Legislature's ability to do comprehensive budgeting each year. Initiative-driven spending - coupled with the effects of Proposition 105, limiting the authority of the Legislature to make changes to voter initiatives - has greatly limited budget flexibility. In addition to raising the sales tax for education, the lasting legacy of Proposition 301 in 2000 was the mandated annual funding increases for K-12 schools. That spending, which is over and above the spending provided from the increased sales tax, falls on the general fund. Proposition 204, approved by voters in 2000, earmarked all of the tobacco settlement funds for expanded eligibility for publicly funded health care. However, it also left to the general fund any costs not covered by the tobacco funds. For Fiscal Year 2005, that general fund obligation will exceed $263 million.

Second, the judiciary has complicated the budget process by dictating spending increases and reducing the state's flexibility in managing its fiscal affairs. Following the determination by the Supreme Court that Arizona 's school capital finance structure was unconstitutional in 1994, the courts essentially dictated state funding for school facilities in 1998. The financing for this new state obligation was left to the Legislature to figure out. In 2000, the courts again dictated higher spending, this time for the education of Spanish-speaking students in Arizona . The Legislature has directed an additional $30 million annually to the program and still more may be required by the court.

The direct impact that the initiatives and court decisions have had on the Legislature's and governor's ability to establish state fiscal policy is now well documented. However, more significant is the impact these budget handcuffs seem to have had on state leaders' sense of fiduciary responsibility for managing the state's fiscal affairs.

Clearly, for some the frustration over the restraints placed on their budgeting power has now eroded into indifference about the growing damage being done to the state's fiscal health. Worse, the voters' mistakes seem to now provide cover for state leaders to make some of their own. What's another hole in a ship that is sinking anyway?

Faced with a huge budget deficit last year, the state's major achievement was racking up $740 million in new debt for the Phoenix Civic Plaza and university research facilities. Recognizing that they have no money to finance these projects, and showing great confidence in future policymakers' ability to make tough decisions, they chose the "no payments for 48 months plan." In fact, debt financing has become so easy that the state has rolled up close to $3 billion in principal and interest debt in just the last two years.

Growing more comfortable with this approach to budgeting, this year's on-going budget deficit debate has been highlighted by efforts to add another major program to the budget. The governor, along with some business leaders, are pushing a phased in expansion of Arizona 's kindergarten program from the current half-day to full-day. Like the Civic Plaza and university research facilities last year, the full cost of funding this program, an estimated $280 million, would be left for policymakers in 2010 to figure out.

Arizona 's elected leaders have every right to be frustrated with the budget cards they have been dealt from the voters and the courts. However, as much as they would like to pretend otherwise, they are still responsible for both the short and long-term consequences of the budget decisions they make. Let's hope that their legacy will not be a budget "house of cards" that collapses on future policymakers.