Exploring the Question: Is #AZBalanced?

In the wee hours of Saturday morning, the Arizona Legislature approved a new budget. The Governor lauded it as fiscally responsible, but is it strategically wise as we look at what it means to Arizona today and in the future?

This morning we await word on the Budget Packet that passed in the early morning hours of Saturday, March 7th after a long night of discussions on the Arizona Senate and House floors. The stated goal was to balance revenues and spending without a tax increase and provide Arizona with the first ‘structurally balanced’ budget since 2007.

Responses to the Budget are mixed with some lauding its fiscal responsibility while others decrying the manner and long term impacts of the manner of cuts that were made to get there.

The $9.1 B Budget has its share of proponents and opponents:

Budget Proponents

Budget Opponents

Fiscal Responsibility:

Balances the budget and forces government to live within its means
First structurally balanced budget since 2007
Eliminates the structural deficit by 2017
It sets priorities: Child Safety, Classrooms, Public Safety
$326 million in spending reductions
Overall 2.3% reduction to government spending
Protects taxpayers: No tax increase

Fiscal Responsibility:

Focuses on cost cutting versus strategic investment to increase revenues
Reduces Healthcare Provider payments under Medicaid by up to 5% or a “total $127 million over two years which mean a loss of another $588 million in federal matching funds from Arizona’s economy over that time,” (Assistant Senate Minority Leader Steve Farley, D-Tucson, Source)
Repeals the Job Training Tax in January 2016 thus de-funding the Job Training Fund.
Sweeps Job Creation and Job Training funds at the Arizona Commerce Authority
$11.2 M in cost shifts to Municipalities and $29.7 M to Counties

Child and Public Safety:

$849 million for Child Safety
$1.5 billion for Public Safety
16% of the general fund budget is for Child Safety/Public Safety
Delays construction of new prison beds for a $25 million savings and allows counties to bid for housing new prisoners

Child and Public Safety:

The budget makes Arizona the most stringent state in terms of benefits for poor families with children.
Limits parents raising children to a one-year lifetime benefit from the Temporary Assistance for Needy Families program. Currently, the state has a two-year limit,
Cuts $2 million for a rate hike for foster-care families, as well as $2.2 million for emergency placement of children in group homes.

Classrooms First:

In total, schools will have more than $10 billion including state, federal, capital and local funds
Nearly 20% increase in general fund investment in K-12 since 2010
49% of state general fund budget will go to education (K-12 and universities combined)
Protects classroom funding
Teach for America: $500,000 in new permanent funding

Classrooms First:

The budget cuts from education in several areas while adding money for inflation and enrollment growth, for an overall increase of $102 million.Opponents argue it amounts to a net loss of nearly $100 million because inflation and enrollment growth are mandatory components of K-12 funding every year. When other cuts are included — such as $117 million from additional school aid and $22 million for higher payments to schools that post improving test scores — the funding picture is a net loss. (Source)
The budget spares JTED, from a cut in state aid. But it puts them on a path for reduced state support in the future. (Source)

Higher Education:

Budget includes more than $600 million in general fund dollars for universities
7% of state general fund budget
Protecting rural community colleges from reductions

Source: Office of the Arizona Governor

Higher Education:

Reduction of $99 M for Arizona Universities
Eliminates all funding for Community Colleges in Maricopa and Pima counties
Provides no funding vehicle for the university infrastructure needed to support Universities in achieving the 2020 Vision Goal of growing research revenue from $1B to $2B per year by 2020. (Source)

The end result is a budget that is structurally balanced and strategically imbalanced if Arizona is to continue to grow its jobs and tax bases (revenue) while improving our education quality and our quality of life.

The Governor has said that our last election sent a strong message for “Arizona to live within its means” and this budget is the result. After this series of cuts, it will be interesting to see if this is what the people of Arizona truly asked for.

Here’s my 2 cents:

Arizona’s state sales-tax rate is currently 5.6 cents on the dollar, giving the state an average sales-tax rate, including local levies, of 8.16 cents on the dollar.

A 1 cent state sales tax increase (based on past estimates) generates roughly $1B per year. A 2 cent increase would generate $2B.

Continual belt tightening due to revenue constraints puts improvements to our state infrastructure on the back burner year after year. Perhaps it’s time to pitch in 2 cents on a dollar to get us back on the growth track and maintain the resources we already have. Here are just a few ideas…

1 Cent for Infrastructure Lease Purchase Financing to Support

Research Facilities and equipment at our Universities so that they have what they need to attract outside investments in research in our state.
Classroom or other educational facilities or equipment at our community colleges.
Maintenance and upgrades at our K-12 facilities so that our school districts can focus their funds in the classroom
Maintenance and upgrades to roads, highways, and other transportation infrastructure that have suffered under repeated budget cuts

1 Cent for Services and Community Benefits

Supplemental funding for healthcare services (especially those with a Federal Match)
Supplemental funding for families and children in perilous positions.
Funding for Residencies or tuition reimbursements for Physicians that agree to stay and work in our state thus addressing our looming physician shortage
Program Funding for educational and internship programs that prepare our classrooms, teachers and students for 21st century jobs.
Tax Credits for Research and Development and Angel Investors.
Matching funds to innovators for Angel and SBIR Investments in emerging companies
Matching investments in clinical trials performed here in Arizona so that our residents have early access to life changing innovations through increased clinical trial activity here at home.

Would you pitch in 2 cents for a better Arizona.

Arizona has a revenue problem. We don’t generate enough state revenue to serve our community’s needs. Cutting economic development programs, education, healthcare, and critical infrastructure investments is not the answer. Investment is.

Investment is the vehicle we can use to increase revenues and through the ongoing returns on investment, make the pie bigger for all of us.

In business, we reach out to investors and sell them on the value we can create with their dollars. In the case of a state, each taxpayer is our investor. Perhaps it’s time we make the case for investing 2 cents in Arizona’s future.