The fiscal 2005 budget may not be the battleground many feared.

The difference between spending proposals offered by Governor Napolitano and legislative leaders is not as great as it was for the fiscal 2004 budget when haggling did not end until Thanksgiving. That’s when the Arizona Supreme Court rejected a Republican challenge to the Democratic governor’s line-item vetoes.

Ms. Napolitano has recommended spending $7.29 billion in fiscal 2005 while the Joint Legislative Budget Committee has projected spending $7.26 billion. JLBC says the governor’s recommendations spend $222 million more and create a revenue shortfall of $555 million.

Last year at this time, Ms. Napolitano was recommending $6.7 billion while JLBC was projecting $6.1 billion, and the anticipated shortfall was nearly $1 billion.

Plus, the two sides do not sound as combative as they did a year ago.

“We have established a blueprint for building the budget,” said Senate President Ken Bennett, R-Dist. 1, on Jan. 20 following the unveiling of the JLBC projections. “We’ve got a lot of decisions to make.”

At her weekly media briefing on Jan. 20, Ms. Napolitano had not seen the JLBC projections, but she said, “What I hope we have is at least the beginning of a process by which reasonable people can sit down around the table and figure out a reasonable, fair and smart budget for Arizona.”

The JLBC spending projections are based on increases dictated by growth and inflation formulas in state law for K-12 education state aid, indigent health care (referred to as Title 19) and the Students First program for building and maintaining school facilities.

Those increases along with the $7 million supplemental appropriation approved during the recent special session for Child Protective Services total $571 million in new spending, according to JLBC.

At this time, the JLBC projections freeze all other state spending at its fiscal 2004 level while the governor’s recommendations call for $63.6 million for “executive initiatives,” plus $53.2 million for state and university employee pay raises and $31 million to help pay employee health insurance premiums.

Mr. Bennett says legislators now will begin studying to see what they might want to do about spending.

“There may be some areas where we want to do more,” he said. “Or, maybe we will want to accomplish something with the same dollars. There may be other areas where some cuts should be made.”

JLBC Predicts $333 Million Short Fall

Also, the JLBC projections make no specific suggestions on how to resolve the projected revenue shortfall. Even with its spending freeze, the JLBC projections anticipate a shortfall of $333 million.

Ms. Napolitano’s recommendations do have specific proposals for making up the shortfall, which she says will be $310 million.

Besides her initiatives and employee pay and insurance funding, a major difference between Ms. Napolitano’s recommendations and the JLBC projections is how the two handle money for the Ladewig tax refund settlement and the Students First building renewal.

The JLBC projections include $120 million for the Ladewig settlement and $70 million for the building renewal fund, which has been the center of much litigation in which the state is currently prevailing.

Ms. Napolitano recommends using leaseback arrangements on state buildings to raise $128 million for Ladewig expenses, and she proposes no funding for school building renewal.

Republican leaders are looking askance at Ms. Napolitano’s Ladewig funding suggestion and bonding proposals for new school construction, and they criticized her method of increasing the state’s debt to boost spending.

“We want to decrease the deficit,” said House Majority Leader Eddie Farnsworth, R-Dist. 22. “Our goal is to get to a point where we are complying with the Constitution [to have a balanced budget], and we don’t have a structural deficit.”

Ms. Napolitano defended her proposals saying, “The bonding we are recommending is for construction for long-term capital assets. That is prudent fiscal management. It takes pressure off the general fund so we can pay for things like education, universities and AHCCCS. It recognizes the reality that these buildings are going to be with us over time. It’s appropriate to pay for them over time, just as you would as when you buy a home.

“Our debt level remains very low,” she continued. “Under my budget it hovers around 1 per cent of the general fund. We are phasing things in over time precisely to manage this in a prudent way.” —