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Brewer budget plans for slow growth, cautious spending

Gov. Jan Brewer discusses some of the specifics of her fiscal year 2013 budget during an impromptu press conference Friday. (Photo by Evan Wyloge/Arizona Capitol Times)

Gov. Jan Brewer is treading carefully and offering a multiyear budget that plans that includes hundreds of millions in one-time expenditures, but gives the state a financial cushion for the coming fiscal cliff in 2014.

The Governor’s Office today unveiled budget plan for fiscal year 2013 and the remainder of 2012 that is projected to leave the state in the black by about $329 million when the Proposition 100 sales tax increase expires and federal health care mandates are expected to take a major toll on the state budget in fiscal year 2014.

Much of the expected cash surplus the state is expecting this year will go to one-time expenses such as debt reduction, new prison beds, school facilities and IT upgrades. Some of the money will also go to recurring expenses, such as a five-percent pay hike for employees affected by Brewer’s personnel reform proposal.

Under Brewer’s budget proposal, the state budget would jump from a fiscal year 2012 baseline of about $8.9 billion to about $9.2 billion in fiscal year 2014.

John Arnold, the governor’s budget chief, said Brewer will not restore most of the $1.5 billion in cuts that were made over the last couple years. Brewer, he said, is planning for “long, slow, but positive growth in the economy.”

“Any decision we make has to look forward,” Arnold told reporters during a budget briefing on Friday. “We are not going to restore funding for the sake of restoring funding. There was a lot of rhetoric that these were only temporary cuts. They were not. They were permanent cuts.”

Brewer said the state must prepare not only for the end of the Proposition 100 tax hike and the expansion of the Medicaid population it will be forced to take on because of the federal Affordable Care Act, but also for possible reductions in federal money to the states and ongoing lawsuits over past budget cuts that could cost the state hundreds of millions.

“We know what’s going on at the federal level and we need to have some carry-forward to give us some kind of cushion in regard to some federal issues that might come our way so we have a backstop there,” she said.

The biggest chunks of the projected $1.3 billion surplus the state is expecting through the end of fiscal year 2013 will be one-time funding for K-12 schools, paying off the debt from the lease-buyback of state buildings, upgrades for the state’s aging financial records system and prison capacity to meet the needs of a growing prison population.

“We have this opportunity to go in now with one-time fixes for certain things that we have neglected forever and ever,” Brewer said.

The state is projecting a budget surplus of about $615 million by the end of the current fiscal year, and Brewer wants to put $106 million of that into an escrow account that would be used to pay off the debt from Arizona’s 2009 sale of state buildings. The state cannot pay off the actual debt until 2019, but it will be able to get back the title to the state House and Senate buildings, as well as the executive tower, by setting the money aside in an escrow account.

For 2012, the School Facilities Board, which lost most of its funding during the budget crunch, will get $100 million to pay for school maintenance that the governor expects to last for three years.

And in fiscal 2013, Brewer wants to provide $200 million to K-12 schools for soft capital – meaning computers, textbooks and other equipment – and to compensate the schools for the $952 million in “rollovers” the state has used to balance the budget on paper.

Arnold said the money will be accompanied by an overhaul of the formula the School Facilities Board uses to determine maintenance costs and the establishment of a new statewide schools inventory system.

K-12 schools would also receive an additional $40 million for building renewal and another $35 million to compensate for the loss of federal funding from the Education Jobs Act.

But the governor also proposes eliminating the construction of new schools in districts where she believes students can be served by other nearby facilities. Under the proposal, growing school districts wouldn’t get money for new schools if there other schools within a 10-mile radius that could accommodate more students.

Districts would still have the option of issuing bonds for new schools.

Brewer included $50 million to the Department of Corrections for 2,000 new beds in medium security facilities and 500 maximum security beds at the Arizona State Prison Complex-Lewis. The medium security beds would be in private prison facilities.

One of the biggest items in the budget was $105 million to replace the Arizona Financial Information Systems, the state’s official accounting system, as well as other IT upgrades.

“It’s old. It’s obsolete. It’s stupid,” Arnold said of the aging AFIS system. “It is an existential threat to the state if is stops working. If it stops working, the state stops working.”

One of the recurring expenses Brewer included in her budget was $53 million to cover a five-percent pay raise for all state employees who forgo merit protection under her personnel reform proposal. All new employees would be uncovered, but the raise would also go to pre-existing employees who opt out of merit protection.

Brewer also wants about $39 million to provide treatment for the seriously mentally ill, in order to comply with the Arnold v. Sarn court ruling. The treatment was suspended in 2010 under an agreement with the plaintiffs, but that deal will expire on June 30.

The governor said there will likely be “a tweak here or a tweak there,” but she doesn’t expect many disagreements with legislative leadership over the budget.

“The Legislature, when they met with me, it was stated that they didn’t think we were very far off. So I thought that was very encouraging,” she said.

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