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Financial advisory group projects smaller revenue growth in FY12

A legislative economic panel, whose recommendations legislators typically use in forecasting how much cash the state will get, has downgraded its revenue forecast for next year.

The Finance Advisory Committee, which includes more than a dozen economists and state officials, estimated state revenue would only grow by 4.2 percent in the upcoming fiscal year.

In January, the Financial Advisory Council projected a 5.4 percent growth rate.

The budget that was approved last month assumes revenue growth will be 5.7 percent.

If the committee’s projections prove correct, the state will face a revenue shortfall in fiscal year 2012.

And assuming a 4.2 percent growth rate, that deficit would be at least $100 million, according to sources with knowledge of the state’s finances who were not authorized to speak publicly.

Senior Republicans are aware of the revised growth projection.

Rep. John Kavanagh, chairman of the House Appropriations Committee, said the downgrade represented a worst-case scenario for Arizona, and could be the first signs of the economy dipping back into recession.

But if a “double-dip” recession doesn’t materialize, Kavanagh said the state might actually have some surplus.

He also said lawmakers intentionally low-balled revenue estimates expected from a tax holiday, which also means the state might have some extra from this revenue source.

“That gives us a little cushion in case the revenue estimate is off,” he said.

The growth assumption in the budget is always a political decision, and it is often a source of conflict between lawmakers and the executive. This year, GOP legislators pushed for a more conservative projection, while Gov. Brewer sought a higher growth rate.

But even before the budget was passed, policymakers received feedback that the committee might downgrade its revenue projection, largely because of expectations the housing market will continue to struggle.

The cautiousness can be more fully explained when looking at the state’s employment landscape.

Revised unemployment data indicates the national recession hit Arizona’s job market far harder than previously believed, and the sputtering job growth continues to dampen reports of positive growth in other sectors of the economy.

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