Arizona struggles with budget crisis

By Nicholas Riccardi

Nov. 27, 2009 12 AM PT

Reporting from Phoenix — When the Arizona State Senate broke into disarray last week during its fourth special session in four months to deal with this state’s seemingly perpetual budget crisis, Senate President Robert “Bob” Burns told his colleagues: “It amazes me we’re having this much trouble. This is the easy part.”

It took until Monday for the GOP-controlled Legislature to pass $300 million in spending cuts, ones they had already approved in June but which were vetoed by the state’s Republican governor, Jan Brewer.

Even so, Republican lawmakers still argued among themselves over how to close what is a relatively small part of the state’s deficit. Looming on the horizon is a nearly $2-billion gap that remains in this year’s $10-billion budget. Next year the deficit rises to $3 billion.

In percentage terms, Arizona’s deficit is nearly as big as California’s, and although the state may lack a movie-star governor, there has been no lack of drama in Phoenix for several months.

The state has put its Capitol buildings on the block to raise money. It is trying to privatize its prisons, and some legislators are talking about a four-day school week. This month, the Pew Center on the States ranked Arizona as having the second-worst budget crisis in the nation, just behind California.

“There are actions they can take, but none of them are easy or pleasant,” said Dana Naimark, president of the Children’s Action Alliance, a local group fighting budget cuts.

Noting that legislators have already cut more than $500 million since February, she worried that the state is already reeling from reduced services. “It’s very disturbing, going backwards on so many fronts,” she said.

Most states need to have budgets in place each July 1, when the fiscal year begins. But with the economy in the tank, many states are watching new deficits pop up as tax receipts plunge and more and more people demand social services to alleviate their own financial woes.

Arizona and California -- which still faces a deficit of $20 billion -- are only two of the most extreme examples. Thirty-five states are still scrambling to balance their books for the current fiscal year.

“We’re seeing this in several states across the country because the revenues continue to drop faster than projected,” said Sue Urahn, managing director of the Pew center.

Arizona’s revenues are 16% lower than projections made as recently as this summer. Unlike California, the state grew rapidly this decade. Legislators, awash in tax money, cut taxes and expanded government.

But that growth was fueled by booming real estate. Now Arizona has one of the highest foreclosure rates in the nation, and its economy has ground to a halt.

For months, Brewer battled with members of her party, arguing that an emergency tax hike was needed to save vital programs. But conservative Republicans refused to raise taxes, saying it would devastate Arizona’s already weak economy.

This summer Brewer vetoed cuts in education and social services, insisting that the Legislature live up to a deal to place a penny sales tax hike on the November ballot. But the referral to the ballot failed by one vote, and Brewer signed cuts into law this week.

On Monday, Brewer and GOP legislative leaders are scheduled to meet to discuss how to get a possible tax increase on a future ballot. Kim Sabow, a spokeswoman for the governor, said the delay has been because “every single Democrat and a handful of GOP extremists have prevented solutions from passing -- choosing only to vote ‘no’ instead of being responsible for participating in solutions that have a chance of passing.”

The budget battle has so far been an all-Republican affair. The GOP holds commanding majorities in both houses of the Legislature. Democrats, who have voted against every major budget bill, complain that Brewer would not negotiate with them until days before the July 1 budget deadline.

“She has been unwilling to work with the Democrats to get her proposal through,” said David Lujan, minority leader of the House of Representatives. “The problem’s so big we can’t cut our way out of the crisis. We have to raise revenue.”

Steve Pierce, majority Senate whip, said the state may be able to come up with ways to raise money -- by cutting taxes. He said that cuts in business taxes may raise tax revenues, an argument made by believers in supply-side economics, a theory that most economists say is flawed.

Pierce said Arizona would have to find a new way to govern itself. “We’re going to have to redo government here,” he said. “There are good programs that were created in the past that we just can’t afford anymore.”

He floated the idea of cutting both the government workweek and the public school week to four days, and of violating the minimum funding levels the state needs to meet in K-12 education and healthcare to qualify for stimulus funds.

Burns, the Senate president, said that lawmakers would be unable to take decisive action until voters gave them direction. “We need to let the voters tell the Legislature what is your choice,” he said. “Do you want taxes or what some people call ‘draconian cuts?’ ”

Of course, putting that question on the ballot would require another special session of the Legislature, possibly as soon as December.

“This year, it doesn’t seem like it’s ever going to end,” Burns said. “It just keeps going.”

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