To balance the budget, lawmakers must cut spending, find more money or do some combination of the two.
But within those simple prescriptions is a dizzying array of options — some imminent, others far-fetched — that carry implications for people across Arizona.
Gov. Jan Brewer and the GOP Legislature have signaled that they will rely heavily on cuts to state-agency spending.
But they can’t get there by cuts alone. About two-thirds of the budget is off-limits because of mandates from the voters and the federal government.
However, state leaders might challenge the mandate to provide health-care coverage for low-income Arizonans who earn up to 100 percent of the federal poverty level. If successful, the coverage reductions could save the state an estimated $1 billion, although it would imperil $7 billion in Medicaid dollars that covers people including the poor and the elderly in nursing homes.
Lawmakers probably will cut other state agencies not shielded by mandates, but given the relative small size of those agencies’ spending compared with the state’s overall budget, they’re nibbling around the edges. Which means lawmakers will focus on the “big three” of the state budget: Education, health care and prisons.
At 48 percent of the budget, education from kindergarten through the university system is the major component of state spending. But technically, those budgets can’t be cut to help erase this year’s $825 million deficit without violating federal requirements to maintain funding at the same levels the state had in 2006. The penalty could be loss of federal funds or a requirement to pay back some of the stimulus dollars.
Health-care mandates will continue into future years, leaving lawmakers little flexibility to cut the AHCCCS budget without risking big penalties.
Prisons have been sheltered, so far, from the bruising cuts that hit other agencies.
A fledgling effort to reform sentencing laws, which could save money on prison costs, has run into a powerful roadblock as incoming Senate Judiciary Chairman Ron Gould, R-Lake Havasu City, has vowed to kill the bill.
Cuts aren’t the only way to eliminate the budget deficit, and it’s clear lawmakers and Brewer will rely on other tactics to bring in more money, or delay expenditures.
Lawmakers have relied on one-time solutions to help bridge budget gaps: Sweeping fund balances from various programs, selling state buildings for a quick infusion of cash, delaying payments — primarily for schools — into the next budget year.
But those choices are dwindling because of heavy reliance on them over the past two years. The state’s rainy-day fund was drained more than a year ago. Borrowing is still an option, and one that Brewer’s office says it will use, in part, to help close the gap in this year’s budget.
But continued borrowing threatens the state’s credit rating, which has been declining. Standard & Poor’s downgraded Arizona’s rating to AA- from AA, making Arizona one of only three states to see its credit rating decline in the past two years.
Delaying school payments could strain the ability of some school districts, particularly those in rural districts, to meet payroll.
Another way out
Not everyone believes that curbing spending is the only solution.
“The overall problem we have is not an expenditure problem, it’s a revenue problem,” said George Cunningham, budget chief under former Gov. Janet Napolitano and now a member of the Arizona Budget Coalition, which argues for alternatives to cuts.
The state’s tax burden per $1,000 of income is at its lowest in decades, data show.
To Cunningham, that suggests there’s room for a tax increase of some sort, or a restructuring of the tax code to close loopholes and bring in more revenue.
He believes the public would go along with that, given the success of Proposition 100, the temporary sales-tax increase Brewer championed this year.
“The majority (in the Legislature) may not be willing to increase the revenues, but the public is much more attuned to the basic obligations we have to our citizens,” he said.
However, attempts by Democrats to close loopholes or limit tax credits have gone nowhere, as the GOP majority has dismissed them as tiny solutions to a giant problem.