Republican legislative leaders are still waiting for the technical details on how Governor Napolitano was able to add $65 million in spending to the fiscal 2004 budget by using line-item vetoes to see if they can challenge her in court.

House Majority Leader Eddie Farnsworth, R-Dist. 22, said they might not be able to make a decision until the week of June 30.

Ms. Napolitano used a series of line-item vetoes to increase spending by about $65 million for education and health and human services, using $75 million that had been aside for a court settlement.

At a June 17 press conference, Ms. Napolitano was proud of her handiwork.

“We will have a budget better than any other state I can think of,” she said. “We have protected K-12 education. We have protected vital services. We will not have a tax increase, and we have decreased our deficit. We can look at next year without the specter of a large tax increase hanging over our head.”

Republican leaders contend she exceeded her authority.

“I don’t know how she can take $75 million out of one pot and put it anywhere you want,” said House Speaker Jake Flake, R-Dist. 5.

“Did she actually appropriate the money? She doesn’t have the authority to appropriate.”

Ironically, Ms. Napolitano played a prominent role in a 1992 challenge of a governor’s authority on line-item vetoes. She was the attorney for then Senate President Pete Rios, a Democrat, who took former Governor Fife Symington, a Republican, to court.

In that case, the Arizona Supreme Court upheld Mr. Symington’s veto of special fund transfers and of program lump-sum decreases in spending. The court did overturn Mr. Symington’s directives to agencies to revert money to the state general fund.

University & Plaza Bills Pass

Two major spending bills, H2332 to provide state funding for a Phoenix Civic Plaza expansion, and H2529 to provide funding for university research facilities, were passed just before adjournment.

Trailer Bills Die

Meanwhile, the House on June 18 passed four “trailer” bills, which make adjustments to the budget. But the bills then were amended in the Senate and House opposition to the Senate amendments doomed them.

Rep. Linda Lopez, D-Dist. 29, said H2540, the health and welfare reconciliation bill, was “a pretty good bill.” She and other fellow Democrats voted for it as it was passed 45-7.

However, Ms. Lopez said the bill would probably die along the other three because of the all-or-nothing strings attached to them.

At the other end of the spectrum, H2338, the education budget reconciliation bill, barely passed 32-19, getting just one more vote than required.

Ms. Napolitano unveiled her handiwork on the budget on June 17 and immediately created a firestorm among legislative Republicans.

Mr. Flake said later that the governor had some fun with legislative leaders beforehand.

The Veto Bluff

“She started off by saying she was going to veto the budget,” said Mr. Flake. That announcement was followed by a deafening silence in the room.

“I’m not a poker player, but I knew she was bluffing,” said Mr. Flake. He said the governor then began smiling and everybody knew she was joking.

The fun came to an abrupt end as Ms. Napolitano explained she had used a series of line item vetoes on program spending cuts to restore funding.

Mr. Flake said legislative leaders question whether vetoing an appropriation for fiscal 2004 means funding reverts to the fiscal 2003 level.

In its ruling on the vetoes by Mr. Symington, the Supreme Court said that a veto of an amended appropriation reinstates the previously appropriated amount.

The vetoes and reinstated funding used about $65 million of the $75 million taken from the Ladewig set-aside.

In the Ladewig case, the courts have ruled that a tax break the state gave on dividends from Arizona-based companies was unconstitutional and ordered refunds to individuals who paid a higher tax on out-of-state dividends between 1986 and 1989.

A settlement reached in September 2002 put a $350 million cap on the refunds the state will have to pay. Refund payments are scheduled to begin August 2004 and be completed by July 21, 2006. Legislators had put $75 million in the fiscal 2004 budget to soften the impact of the payments later on.

Senate President Ken Bennett, R-Dist. 1, claimed Ms. Napolitano had gone back on a promise she made during negotiations on a fix on the fiscal 2003 budget.

A $150 Million Hole,

“I am very disappointed,” said Mr. Bennett. “The final payments will have to start in about 13 months. This really creates a $150 million hole [in the budget].”

Ms. Napolitano said the state has other resources to fall back on, if it was in a financial pinch, when it would have to start making the payments.

She said the budget approved by the House on May 15 included a $128 million transfer of vehicle license tax revenues into the general fund and $250 million from the sale of state assets.

“Those [items] are not in the final budget, but those options are still open to us,” said Ms. Napolitano.

Overall, Ms. Napolitano exercised her line-item veto authority 35 times on the four of the five budget bills — H2531, H2533, H2534 and H2535. —