Governor Napolitano has unveiled a revised proposal for fiscal 2005 that envisages $88 million more in revenue and $81 million less in spending. Meanwhile, legislators are struggling to reach a consensus.

During an April 21 Senate Republican caucus, President Pro Tem Carolyn Allen declared, “We’re in a stall, and it’s a dilemma as to how we get out of it. The House doesn’t talk to us anymore.”

In the House, Majority Leader Eddie Farnsworth continues to meet with his Republican colleagues. He will only say he is making progress, but declines to speculate on when he may have a proposal to make public.

Copies of a House Republican budget proposal were circulating in which $142 million in cuts were outlined in an effort to deal with an anticipated $333 million deficit.

Mr. Farnsworth labeled the document obsolete, but acknowledged House Republicans were studying “some” of its concepts.

George Cunningham, the governor’s budget and finance deputy chief of staff, says the House proposal has “a lot of meat ax cutting.”

Mr. Cunningham presided at an April 16 briefing on the governor’s revised budget.

He said the governor was now proposing a $7.2 billion operating budget and projecting $7.3 billion from various funding sources to cover it, leaving an ending balance of slightly more than $100 million.

He said the revised budget takes into account revenue collections for the first nine months of fiscal 2004 and reflects some changed situations for state agencies.

The revised budget had an olive branch of sorts for the Legislature. According to calculations by the Governor’s Office of Strategic Planning and Budgeting, the revised budget would create a structural deficit of $148 million for fiscal 2005.

“Structural deficit” was a term interjected into negotiations on the fiscal 2004 budget. The Joint Legislative Budget Committee staff defined “structural deficit” as the gap between permanent revenue, excluding one-time funding sources, and mandated spending.

In June 2003, JLBC was projecting a structural deficit of $786 million for fiscal 2005, which begins July 1, and Republican legislators have been adamant that the growth of the structural deficit must be kept in check.

House Projects $303 Million Deficit for FY2005

The House document has JLBC now projecting a structural deficit of $303 million for fiscal 2005.

But, the governor’s revised budget now goes a step further and projects the elimination of a structural deficit by fiscal 2007, when a $68 million surplus is anticipated.

“In my experience, this is an unprecedented document,” said Mr. Cunningham of the revised budget. “This shows that with an improving economy, revenue will continue to grow, and fiscal bridges [fund transfers] will not be required.”

In a response to Mr. Cunningham’s briefing, Senate President Ken Bennett claimed the structural deficit would be $364 million and that the Legislature was attempting to cut it to between $200 million and $260 million.

He said the chances were 50-50 that the projection of surplus revenue would come true.

Among the changed situations state agencies have experienced, Mr. Cunningham cited AHCCCS and the Department of Corrections.

He said as the economy has improved the AHCCCS caseload dropped by 30,000 individuals, meaning the budget request for AHCCCS has dropped to $859 million from $928 million.

DOC has worked out a revised plan for housing inmates, and its request has dropped to $607.5 million from $613.5 million.

One significant request increased. The request for state aid for education was increased to $3.159 billion from $3.137. Mr. Cunningham said projections now show school attendance will increase more than anticipated. —