Published Friday, January 21, 2005 in East Valley Opinions of the Arizona Republic as “Republican myopia created deficit.”
The state budget tops the legislature’s agenda, but we’re not getting the debate we deserve. Governor Janet Napolitano released her proposed budget last Friday including a pay raise for state law enforcement officers. That was one of the few aspects that House Appropriations chair Rep. Russell Pearce (R-Mesa) likes, but then he commented, “I’m not sure how we’ll pay for it.”
Republican leadership clamors about a $477 million “structural deficit.” The structural deficit is defined as what it takes to fund existing programs relative to expected revenues. We shouldn’t have a deficit. We’re three years into an economic growth cycle, albeit a somewhat sluggish one. Either our spending system is broken or we have a faulty revenue stream.
Republican leaders rightly desire to stow away $189 million to build a cushion for the next recession. They are also correct when they argue we need to stop accounting tricks like the $191 million K-12 rollover, which transfers spending at the end of the fiscal year to the next one.
They also are clear on the cause. “Spending is simply out of control,” says House Speaker Jim Weirs. Rep. Russell Pearce has categorized state expansions of Medicaid to all poor citizens and subsidizing day care for lower income families as examples of “reckless spending.”
That’s where Republican leadership deludes us. The structural deficit is their doing; when the stock market was riding high in the 1990’s, a Republican-controlled state government impulsively reduced the revenue stream resulting in a system that now fails to meet our minimum needs. Our structural deficit was foretold by Harold Hovey. Back in 1999 his study for the National Center for Pubic Policy and Higher Education outlined how our ill-equipped tax structure would cause a structural deficit by this year.
Since 1994 the Republicans’ lack of foresight has cost the state dearly. The state established a “rainy day” budget stabilization fund in 1990 to protect against recessions. But the fund’s cap was downsized from 15 percent of general fund revenues to 5 percent in 1995 (it’s now 7 percent). From 1995-2000, ASU economist Tom Rex notes that $430 million was diverted from the fund to permanent tax cuts.
Considering all tax reductions and adjusting for Proposition 301, which increased the sales tax, today we have $1.5 billion less in revenue as calculated by University of Arizona economist Marshall Vest. $600 million of this amount formerly came from the richest 5 percent of households in the state, based on a report I authored for the Citizens Finance Review Commission.
There is no spending excess in Arizona. When Colorado’s Bell Policy Center compared government expenditures among eleven peer states, Arizona came in last in per capita spending and had the lowest growth in per capita spending for fiscal years 1992 through 2002. Meanwhile, our high school dropout rate is the highest in the nation. High school dropouts make up most of our inmates, yielding one of the country’s highest incarceration rates. By contrast, Minnesota has one of the best high school completion rates and one of the lowest imprisonment rates. Minnesota also has higher taxes.
We should be discussing how to move Arizona forward and develop an adequate revenue stream to get us there. We must reduce our dropout rate and at the same time improve the skills of high school graduates. We need to ensure families can access healthcare and afford to send their children to college. We must reduce our prison population and work to transform inmates from criminals to productive citizens when released. Public investment alone will not solve these problems, but it needs to be part of the debate.
Dave Wells of Tempe holds a doctorate in Political Economy and Public Policy and teaches at Arizona State University. Reach him at Dave@MakeDemocracyWork.org.
Sources:
Quote by Russell Pearce #1 on pay hikes came from an interview broadcast on KJZZ on Saturday, Jan. 14.
Quote by Russell Pearce #2 based on op-ed he authored for the East Valley Tribune:
EV Tribune December 17, 2004
“But too many legislators have become addicted to spending your money. Increasingly, Arizonans have to pay for a variety of services ranging from health care that beats what most of us in the real world can obtain to substantial subsidies for day care.
These “unearned benefits” threaten to sink Arizona into a pit filled with red ink ready to spill over, with the only remedy a tax increase.
An additional challenge the Legislature has is mandatory formula-driven spending increases that have caused some programs to grow at unsustainable rates and voter-passed initiatives that have had serious intended and unintended consequences the Legislature has no authority to fix. We must send these back to the voters to allow flexibility in budgeting in bad times and to allow constitutional programs to have priority — such as public safety and education. For instance, AHCCCS, Arizona’s Medicaid program, has more people on it than are in our public schools.
Last year, while inflation was at 5 percent the budget was irresponsibly expanded by 15 percent. This kind of reckless spending must stop.”
KIMBLE: Gov. will need ‘powers of persuasion’ to get things done
Thursday, January 13, 2005
MARK KIMBLE
Tucson Citizen
“But it didn’t take long Monday for their real feelings to emerge. Within 90 minutes after Gov. Janet Napolitano had finished delivering her State of the State speech, the GOP leadership was savaging the Democratic governor with the kind of anger you knew was seething just below the surface. “Spending is simply out of control,” clucked Rep. Jim Weiers of Phoenix, the House speaker.”
The “477 million dollar” structural deficit is based on the Joint Legislative Budget Committee’s report from last week. FY 2006, JLBC Budget Overview, JLBC Staff, January 11, 2005
http://www.azleg.state.az.us/jlbc/powerpt/powerpt45/frame_files/frame.htm
Tom Rex: From “Public Finance in Arizona” December 2002 “Over the five years through FY1999, a total of about $430 million called for by the formula was not transferred to the BSF because of the reduction in the original 15 percent limit — nearly half the amount of tax cuts passed by the Legislature during these years.” (other parts of information on the Budget Stabilization Fund) , p. 15.The Joint Legislative Budget Committee in 2001 developed a list of all the tax changes excluding Prop. 301. The total they had was $1.2 billion, if you start in 1994. If you start earlier (as taxes were raised in the early 1990’s), the sum is $800 million. The problem is that these are simply a sum of nominal dollars. So if it cost $400 million in 1997, it was still being counted as $400 million in 2004. What really needs to be taken into account is the overall change in the tax base to which the tax rate is assessed (essentially inflation and economic growth). Using these adjustments I made a extremely conservative estimate of $1.4 billion (using lower than actual economic growth numbers) in my report for the Citizens Finance Review Commission. If you used more accurate figures for economic growth you’d get the $1.8 billion that Marshall Vest is quoted on two occasions in the Arizona Daily Star. However, considering revenues are up about 11% this year, a more accurate count would make that at least $2 billion for the coming year.
The Arizona Daily Star
July 31, 2003
Author: Barrett Marson
“Marshall Vest, an economist at the University of Arizona, said the state can afford the new education money by just repealing the tax cuts enacted during the last decade.
“There is plenty of untapped tax capacity within our system to raise $1.8 billion,” Vest said. “I think what taxpayers are going to have to decide is what they want this economy to look like 20 years from now. Many states believe that the state with the best work force wins the economic development game.”
Panel says Napolitano plan could raise taxes
The Arizona Daily Star
February 20, 2003
Author: Barrett Marson
Part of the problem, Vest said, stems from the tax cuts enacted during the 1990s. He estimates those cuts mean a loss of $1.8 billion a year for the state.
From the $2 billion, I deduct $500 million as the approximate revenues from the 0.6% sales tax of Prop.301. In FY 2001-2002, the education tax generated $439 million based on data from the Department of Revenue. By FY 2006, this should be closer to $500 million.
$2 billion minus $500 million yields $1.5 billion.
I had calculated in my report for the Citizen’s Finance Review Commission that 34% percent of the 1995-2002 tax cuts went to the riches 5% of households. 34 percent of $2 billion is $680 million. From this $680 million needs to be deducted the portion of the Prop. 301 sales tax paid by the richest 5%. Based on the spreadsheet I developed for that research, their share of a sales tax increase would have been about 12 percent or $60 million. So $680 - $60 million = $620 million. I’ve rounded this down to $600 million in the text. (reference: “Building Equity: Tax Reform for Arizona’s Future” for Arizona Leadership Institute and Arizona AFL-CIO, presented to Governor’s Citizen’s Finance Review Commission on July 10, 2003. (available on-line at Commission’s web site http://www.azcfrc.az.gov/reading_material_5.html)).
Bell Policy Center Report, “Ten Years of Tabor” is accessible on line from their web site. The eleven states included Louisiana, Georgia, Arizona, Colorado, Oregon, Texas, Tennessee, Maryland, Illinois, Missouri , and Minnesota. See page 18 of their report.
Rankings:
Kids Count 2004 Data Book ranks Arizona 50 (worst) in Teen Dropouts from High School—based on 2001 data. Minnesota ranks #13. (best). More data on high school completion rates from National Center for Educational Statistics seems to be consistent with these rankings (though there is some error which makes rankings somewhat imprecise—though Arizona is not close to hardly any states even with the error. http://nces.ed.gov/pubs2002/droppub_2001/14.asp?nav=2
Were found at these sites with reputable sources. Arizona ranks #12 in incarceration rate and with these figures and #36 in education spending per capita (for 2000) and #10 for 2001. A better measure is per pupil spending—and by that measure we rank #50. Minnesota has the lowest or second lowest incarceration rate.
http://www.motherjones.com/news/special_reports/prisons/methodology.html
http://www.motherjones.com/news/special_reports/prisons/rankings2.html http://www.morganquitno.com/CR03samp2.pdf http://www.angelfire.com/rnb/y/ratesusa.htm#states Arizona is 50th in pupil spendingStingy reputation confirmed
Pat Kossan
The Arizona Republic
Jan. 5, 2005 12:00 AM
The Arizona RepublicJan. 5, 2005 12:00 AMArizona’s reputation as a state that’s stingy with money for classrooms was confirmed again in this year’s Quality Counts 2005, an annual state-by-state education report.
http://www.azcentral.com/arizonarepublic/local/articles/0105edquality05.html
If you examine the Department of Corrections population summary based on reported education by inmates, just under half have less than the equivalent of a high school degree, and one-third report having a GED, which meant they likely dropped out of high school as well. (These figures may overstate education levels, since they are reported by inmates and not verified).