Budget numbers for fiscal 2006, which begins July 1, are starting to come into focus with the release of House and Senate leaders’ budget proposals and the adoption of the proposal in the House by its appropriations committees.

Both budgets released March 8 include more than $8.1 billion in general fund spending and revenues and an extra $120 million in revenue than previous projections, though the Senate’s proposal results in a $9.9 million carryover to fiscal 2007, while the House’s carryover is projected to be less than $1 million.

Included in the House budget are raises for all state employees, full-day kindergarten funding at the current level and $25 million in tax cuts. The House budget proposal also foregoes a $189 million deposit into the budget stabilization fund recommended by the Joint Legislative Budget Committee and pays cash for $169 million of the $300 million needed for new school construction, bonding the remainder.

Attempts by House Democrats to modify the budget recommendations to include more spending on social programs, full-day kindergarten and the downtown Phoenix medical school were unsuccessful.

House Assistant Minority Leader Linda Lopez said the Democrats also crafted recommendations to increase spending for the Department of Corrections and the Land Department, but did not introduce them because “we made our point.”

The House proposal will now be sent to House leadership, who will negotiate differences between the House and Senate budget proposals before creating the budget bills that will ultimately be voted on in each chamber. House Speaker Jim Weiers, R-10, said March 9 on the floor that he hoped to have a budget on the governor’s desk by the end of the next week.

The Senate budget includes raises for state employees on the Arizona State Retirement System to offset rising retirement premiums costs, which includes the bulk of state employees, but does not include any funding for full-day kindergarten or provide for any tax cuts. While the Senate’s budget proposal also does not make a payment into the budget stabilization fund, known as the rainy day fund, it does pay cash for the entire $300 million cost of new school construction.

“This represents the best recommendation we could make at this point in time, considering the needs of the state, considering where we’re at in terms of revenue, where we’re at on borrowing so far,” said Rep. Tom Boone, chairman of one of the two House Appropriations committees. “In our opinion, it moves in the right direction of continuing to make an effort to not debt-finance.”

House Minority Whip Pete Rios, D-23, said the House proposal is a small step in the right direction, though he cautioned that a lot of work and negotiating still needs to be done to reach a consensus that both parties can agree on.

“They’re moving closer to the middle,” he said. “The more they move to the middle, with the governor’s proposal being at one end and theirs at the other, the better. Are we there? Not by any means.”

Mr. Rios criticized the House budget, which eliminates funding General Assistance and does not match increases in Governor Napolitano’s proposed budget for children’s rehabilitation services and cervical cancer screening. Instead, Mr. Rios said, the House budget provides funding for what he called “pet programs,” such as sexual abstinence and marriage counseling.

Ms. Napolitano – never one to comment on legislation that hasn’t reached her desk – did not say whether the budget proposals coming out of the Legislature would face a veto, but she did say she was disappointed to see proposed cuts in social services.

“I’m not going to tip my hand,” she said, “[but] you don’t balance the budget on the backs of children in Arizona. We’re not going to return to those days.”

Up to this point, JLBC budget presentations have indicated the state would be facing a nearly $500 million deficit, largely because of the inclusion of the $189 million rainy day fund deposit and the $300 million cash payment for school construction, both of which Democrats opposed.

Senate Appropriations Committee Chairman Robert Burns, R-9, said a commitment to not borrow was the reason the Senate proposal does not include any money for the rainy day fund.

“The top priority was to stay away from borrowing, so in order to do that, in order to make it balance, that [no rainy day fund funding] was the only thing we had left,” he said.

With the rainy day fund deposit no longer on the table in either proposal, the largest spending issue will likely be how much cash to spend to build new schools.

Mr. Rios said the economic situation dictates that bonding is needed for school construction, not pay-as-you-go. However, both Mr. Boone and Rep. Russell Pearce, R-18, chairman of the House’s other Appropriations Committee, agreed that if revenues had been better, the House budget would have included no bonding and would have a scheduled a payment into the rainy day fund.

Absent that, said Mr. Boone, R-4, both of those issues will be handled by revenue triggers in the House proposal. If revenues exceed the projected amount, excesses will be used to pay off school construction debt and will be deposited into the rainy day fund.

Ms. Napolitano said bonding for school construction is needed and she will push for the state to continue to do so.

“Construction bonds should be utilized to spread the cost of construction over the generations of children that are going to be in those schools,” she said. “There are children not even born today who are going to be able to take advantage of those schools that are being built.”

Mr. Pearce said he wishes the House budget were more frugal, but said too many people would have opposed it if it included the rainy day fund payment and paid cash for all school construction. He said he expects to be able to get 33 or 34 votes in the House for the House budget in its present form.

While House leaders are confident the current proposal will garner the required votes, it appears there are not enough votes in the Senate. Mr. Burns seems to have acknowledged that with his announcement that, rather than negotiate the budget in the Appropriations Committee, it will be hashed out in the Republican caucus.

“I think there’s a significant number of members here in the body that won’t support the budget no matter what we do to it, so to have those people parade before the Appropriations Committee would possibly set us up for significant delays…” he said. “It’s time for those people to let us know why they’re ‘no’s’ and to step forward…”

Senate Recommendations

The Senate’s is the more fiscally conservative budget. Among its recommendations are:

• $26 million to give a 2.55 per cent raise to all state employees paying into ASRS to hold them harmless for retirement premium cost increases.

• Continuing the KidsCare Parents program, which allows the parents of children on the state’s child health care program to also receive some health care coverage.

• Returning the redetermination period for AHCCCS recipients to six months from the current 12-month period.

• Fully funding community colleges formulas.

• $8.6 million to provide 2.55 per cent raises for Department of Corrections employees not on ASRS.

• Increasing funding for developmentally disabled services by $3 million.

• Eliminating the General Assistance Program, which provides $150 a month to single people who do not qualify for other welfare programs.

• Lowering the child-care subsidy income eligibility level to 145 per cent of th
e federal poverty level from 160 per cent, which will remove an estimated 2,400 children from the program. For a family of four, that reduces the maximum income eligibility to $27,300 from $31,100.

• Increasing basic state aid to schools by $151 million.

• Continuing to fund the Water Quality Assurance Revolving Fund at $10 million.

• Establishing a $10 copay for Department of Health Services vaccinations for non-AHCCCS children.

• Saving $22 million by not making this year’s payment on school construction debt, as a result of refinancing the debt.

• Eliminating state aid for undergraduate students with more than 140 credit hours.

• $4.3 million for the planned Phoenix Medical School.

• $18 million to pay for the increase to state employee health care premiums.

• Reducing out-of-state travel by state employees by 25 per cent, saving $1.2 million.

• Eliminating unfunded vacant full-time employee positions.

House Recommendations

Among the recommendations in the House’s budget proposal are:

• $47 million for a 2.5 per cent raise to all state employees, regardless of which retirement system they are on.

• $3 million to help rural hospitals meet obligations to the uninsured and underinsured.

• JLBC review of major fund shifts within the Department of Corrections budget.

• Fully funding community college formulas.

• Increasing funding for developmentally disabled services by $3 million.

• Eliminating the General Assistance Program, which provides $150 a month to single people who do not qualify for other welfare programs.

• Establishing citizen commissions to oversee Child Protective Services and investigate ways to increase adoptions.

• $1.2 million for a marriage skills program.

• Using household income instead of individual income to determine eligibility for childcare subsidies and limiting the amount of time a child and household can receive the subsidies.

• Increasing basic state aid to schools by $123.5 million

• Maintaining full-day kindergarten funding at the fiscal 2005 levels

• Saving $22 million by not making this year’s payment on school construction debt, as a result of refinancing the debt.

• Funding the Water Quality Assurance Revolving Fund at $15 million.

• $1 million to fund sexual abstinence programs.

• Establishing a $5 copay for Department of Health Services vaccinations for non-AHCCCS children.

• Providing funding for three new Superior Court judgeships.

• Phasing in the elimination of state aid for undergraduates with a certain number of credit hours. In fiscal 2007, the threshold would be set at 155 credit hours, decreasing by five hours each year until reaching 145 credit hours.

• Eliminating all funding for student newspapers published by the three state universities.

• $18 million to pay for the increase to state employee health care premiums.

• $60 million to help offset the ASRS cost increase to teachers.

• Eliminating unfunded vacant full-time employee positions.

• Providing $25 million for some sort of tax reform to be decided on later

• Neither budget proposal includes money for Flores v. Arizona to additionally fund English language learner programs for students.

Among the recommendations House Democrats attempted to include in the budget proposal were $7 million for the Phoenix Medical School; $4 million for a KidsCare outreach program; $16 million for the second year of phase-in to full-day kindergarten; $11.5 million to increase CPS staffing; $4.2 million to keep the General Assistance program; and $21 million to eliminate the waiting list for child care subsidies. —

Senate reporter Phil Riske contributed to this story.