The biggest differences between the Republican budget proposal released April 27 and a draft leaked to the press a month earlier were two components designed to generate more than $500 million in revenue without raising taxes. And those two ideas have created the biggest backlash against the latest proposal.
One element of the budget would take $210 million in unspent development impact fees from cities and towns to help balance a $3 billion deficit in the upcoming fiscal year, which begins July 1. The other would sweep $300 million in education funding that school districts have saved over the years to help cover emergency costs.
It is unclear exactly how the state would get its hands on the impact fee money, but there are two scenarios that top Republicans have examined. One would require cities to voluntarily rebate a portion of the tax revenue they share with the state each month. And, in exchange, lawmakers would temporarily lift restrictions on the use of some of the impact fees, allowing cities to spend the money on general operations.
Another way for the state to get the money would be to change the urban revenue-sharing rate in a way that would allow the state to keep an extra $210 million that would have gone to the cities, and to suspend the restrictions on using impact fees to help cities sidestep any negative financial impacts of the state takeaway.
The idea of taking money collected by cities to help pay for infrastructure was criticized by the League of Arizona Cities and Towns. Ken Strobeck, executive director of the league, called the issue “a non-starter” and said there isn’t that much money available for the state to take.
“All that money is already committed to, pledged for or paying for infrastructure,” he said.
Lawmakers, though, said the league was on board with the plan initially and even provided the figures that led to the proposal to allow the state to keep the additional $210 million in shared revenue.
Strobeck denied he or his organization had any involvement in crafting the plan other than to inform House Republicans that the league did not support the effort.
“That is just simply not true. We did not provide any numbers,” he said.
He pointed the finger at the Home Builders Association of Central Arizona, saying that group originally proposed the idea to Republican lawmakers. The Home Builders Association has tried over the years to limit the development impact fees collected by cities.
The fees are charged to developers and are designed to offset the immediate costs of growth. The money generally is used to pay for things like roads, sewer expansions and public safety.
Officials from the Home Builders Association did not return multiple calls seeking comment.
Some lawmakers were not sold on the idea that the state should take money from the cities because they are facing similar budget problems caused by the economic recession.
House Appropriations Committee Chairman John Kavanagh, a Republican from Fountain Hills, said some legwork still needs to be done to determine if the funds would be available for the state to use.
“I’m not ever sure that I’m on board,” he said.
Also, there could be some legal challenges to overcome if the Legislature opts to take the money.
Gov. Jan Brewer said, “We certainly have been contacted by the cities, and they are concerned in regards to that. So, that’s something that we’re going to have to look at and take under advisement and see exactly what that impact is, and then again to see if it’s even legal.”
The legality and practicality of taking the money from cities was supposed to be the focus of debate during a joint hearing of the House and Senate Appropriations committees that was scheduled for April 28. But the meeting was cancelled about an hour before it was to begin, with Kavanagh and others saying the Home Builders Association wasn’t prepared to make a presentation.
Meanwhile, the proposal to take $300 million from school districts has drawn fire from education advocacy groups and lawmakers from both parties. The plan to take the money from schools was first identified as a budget component April 17 in a story in the Arizona Capitol Times,
Groups such as the Arizona School Boards Association and the Arizona Association of School Business Officials have argued that the amount of money Republicans hope to capture is unrealistic. Rep. Rich Crandall, chairman of the House Education Committee and former president of the Mesa Unified School District board, agrees.
“There’s not $300 million (available). Not even close to that,” Crandall said, speculating that less than $100 million would be available to the state.
Crandall, a Republican, said he hopes a committee hearing will allow closer examination of the issue.
“Putting this out there and then holding public hearings, it’s a great way for everyone to hear the same thing — is it legal, what does it mean, and so on,” he said.
The latest budget proposal includes fewer cuts than were presented in the March draft. The earlier version included more than $840 million in spending reductions, but the new House proposal would cut spending by about $667 million. The Senate plan calls for $647 million in cuts.
Funding for the Arizona Health Care Cost Containment System represents another key point of disagreement between the House and the Senate. The Senate wants to cut $45 million more than the House, largely by reducing reimbursements for some medical services.
Funding for public education is another sticking point between the two chambers. The House is pushing to freeze a portion of the K-12 funding for two years, a move the Senate opposes.
The House plan calls for freezing the property tax rate districts can levy at its current level instead of decreasing it to correspond with the decline of property values in the past year. Senate Republican leaders said that would amount to a tax increase on homeowners.
The plan also makes permanent roughly $600 million in cuts that were included in the fiscal 2009 budget.
House Minority Whip Chad Campbell, a Phoenix Democrat, said the cuts to education and other fund sweeps included in the budget proposal would disqualify the state from receiving the bulk of the federal stimulus money that’s available to Arizona.
“It’d be nice if we had a real budget to discuss,” he said. “It’s April 28 and this is the best budget they can come up with? This is a travesty, this is a shame and this is an insult.”
Some Republicans see the budget draft as a fluid document that will need changes in order to convince enough members to vote in favor.
“I think what you see on paper is far from where we are going to be,” said Rep. Vic Williams, a Tucson Republican.
Other lawmakers said they anticipated complaints from cities and schools and said those concerns aren’t enough reason to make significant changes to the budget proposal.
“It might be goring some oxes that some find unacceptable, but that’s to be expected in this kind of environment,” said Rep. Sam Crump, a Republican from Anthem.
Sen. Sylvia Allen, a Republican from Snowflake, said lawmakers will have to tweak the document, but the changes should be minor.
“We are working it and tightening the numbers,” she said.
Other lawmakers, meanwhile, are calling on Brewer to take a more assertive role in the budget process. To date, she has given no indication about what specific items she would like in the budget, and some say time is running out for her to act.
There are only 36 working legislative days — the typical legislative work week is Monday through Thursday — before the fiscal year ends. Assistant House Minority Leader Kyrsten Sinema, a Democrat from Phoenix, said she would like to see Brewer detail how she intends to spend the federal stimulus money.
“That creates a framework for a budget discussion,” Sinema said. “It cuts down the places (in the budget) where you can screw around.”