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A recent history of Arizona’s state budget

The $2.2 billion shortfall Arizona faces over the next two years didn’t show up overnight, and it isn’t due to a single person, decision or event.

State Republicans blame former Democratic Gov. Janet Napolitano and increased spending.

Democrats blame former Republican Gov. Fife Symington and tax cuts.

But the culpability lies with both too much spending and too little revenue, as well as spending restrictions, growing K-12, university, prison and state health-care populations and pushing the problem into future years with gimmicks such as delaying payments and moving money between different funds.

Costly cuts

Arizona shifted from financial struggles in the 1980s into an economic upturn that provided two decades of budget surpluses.

State leaders responded to the good times by slashing taxes.

Under Symington, lawmakers in 1993 passed a $30 million income-tax cut, followed by a $114 million cut in 1994 and $200 million in cuts each of the next three years.

Republican Gov. Jane Hull and Napolitano made more cuts.

In mid-2006, state coffers held a $1.5 billion budget surplus. Napolitano worked with a GOP-led Legislature to pass $500 million in tax cuts and $5 million for corporate tuition tax credits.

Arizona State University’s Morrison Institute for Public Policy estimates that tax cuts, credits and exemptions have removed more than $11 billion from the state’s coffers since 1993.

“That basically created a stream of revenue that was inadequate for the state’s needs,” said Democratic Attorney General Terry Goddard, who lost his November bid for governor. “Instead of saving and creating a big rainy-day fund … we acted as if the huge boom in the housing industry was going to go on forever. That just wasn’t realistic.”

Spending spree

At the same time they cut taxes, state leaders increased spending.

Growing populations forced some program costs to swell. Over the past decade, spending for the state’s Medicaid program grew to $1.4 billion from $483 million; K-12 education costs grew to $3.2 billion from $2 billion, and Department of Corrections costs grew to $890 million from $549 million.

Leaders made other spending decisions based on their agendas.

For example, Napolitano and the 2006 Legislature dedicated $35 million for bioscience and medical research, $100 million for teacher raises and $160 million for all-day kindergarten.

“Our increase in spending certainly mirrored the increase in spending in other states and the national government as well as in our personal lives,” said Speaker of the House Kirk Adams, R-Mesa.

Going bust

Economists say the recession officially began in late 2007.

In Arizona, the housing market collapsed, unemployment numbers began to rise and home prices began to fall.

State revenue, which primarily depends on sales tax, took a nosedive a�� this year’s general-fund revenue is about $2 billion less than it was in 2007, although state spending has remained the same.

The state has responded to declining revenue with a mixture of spending cuts, budget gimmicks and tax increases.

The $2.2 billion in spending reductions over the past two years have included eliminating state funding of all-day kindergarten, Dial-a-Ride and state parks as well as cutting funding for K-12 education, universities and services for the mentally ill.

Gimmicks have included delaying payments; selling about two dozen state buildings and leasing them back; borrowing against future income from the state Lottery; and sweeping balances from other state funds.

These all generated quick cash but essentially pushed the problem into future years. Leasing back buildings and borrowing carries interest rates while borrowing from lottery funds decreases future years’ allocations.

In May, voters overwhelmingly approved a three-year 1-cent-per-dollar sales-tax increase that Brewer promised would help preserve state spending for education and public safety. The tax was initially expected to bring in $1 billion a year, but it could be less if shopping doesn’t rebound as expected.

Spending restrictions

Some Arizonans have criticized Brewer and lawmakers for some of the cuts, particularly transplant services. But state leaders argue that their options are limited. Lawmakers can’t cut about two-thirds of the general fund because of federal, court or voter mandates.

In 1998, Arizonans passed the Voter Protection Act, which prevents lawmakers from cutting or redirecting funds mandated at the ballot. Lawmakers last month asked voters to let them take an estimated $345 million from the First Things First program for early-childhood education and $123 million from a land-conservation fund to help balance the General Fund. Voters overwhelmingly said no.

In 2000, voters expanded Arizona Health Care Cost Containment System, the state’s version of Medicaid, to cover all Arizonans living at or below the federal poverty level. The measure was to be largely paid for with revenue from the federal tobacco settlement.

But in the years since, both membership and costs have tripled. This year, AHCCCS is covering about one in five Arizonans at a cost to the state of $1.4 billion. The program has become the single biggest source of the state’s budget gap. Brewer has suggested the state ask voters to repeal the law to save nearly $1 billion next year.


The timeline


a�� 1988: State raises taxes by $179 million and makes various cuts to cover a more than $300 million shortfall blamed on tax cuts passed during the previous decade.


a�� 1991: State begins to recover from the economic slowdown of the late 1980s.

a�� 1992: State has a budget surplus of $11 million; passes more than $20 million in tax cuts. A decade of tax cuts follows.

a�� 1996: State eliminates the state property tax.

a�� 1998: Voters approve the Voter Protection Act, which prevents lawmakers from cutting or redirecting funds mandated at the ballot.


a�� 2000: Voters pass a law to provide health coverage to all Arizonans living under the federal poverty line, which will triple program membership and cost over the next decade.

a�� 2002: State overcomes a $500 million budget shortfall primarily by transferring money from special funds, delaying school construction projects and other one-time fiscal maneuvers. Experts project a $1 billion shortfall for the following year.

a�� 2003: Housing boom officially begins, increasing revenue and decreasing the projected shortfall. State further decreases the shortfall with more cost delays and a $310 million federal bailout.

a�� 2006: State has a $1.5 billion budget surplus. Gov. Janet Napolitano, a Democrat, works with a GOP-led Legislature to expand or create a number of state programs, including $160million for all-day kindergarten. They also pass $500 million in tax cuts.

a�� 2007: Housing boom begins to go bust. National recession officially begins.

a�� 2008: Napolitano joins the U.S. Department of Homeland Security; Secretary of State Jan Brewer becomes governor. Brewer suggests a tax increase to overcome budget shortfalls.

a�� January 2009: Brewer sworn in, putting the executive and legislative branches of state government in GOP hands.

a�� March: Brewer speech lays out a recovery plan that includes a sales-tax increase; two Republican lawmakers walk out.

a�� July: Brewer vetoes bulk of a legislative budget plan for 2010. Plan lacked a tax increase.

a�� November: Brewer signs a budget package that cuts $144 million from K-12 schools and $155 million from the state Department of Economic Security. For the first time, the state exceeds its threshold of $500 million in IOUs backed by state-held accounts and must turn to institutional lenders.


a�� January 2010: State for the first time goes to the public bond market to sell 14 state buildings, including the tower that houses the Governor’s Office, for $735.4 million. The state retains control of the buildings and leases them back at an interest rate of 4 percent. February: Legislature passes a bill to ask voters to pass a three-year 1-cent-per-dollar increase in the state sales tax. The state begins to close parks.

a�� March: Lawmakers eliminate KidsCare, a $22 million program for children from lower-income families but restores it after discovering the state would lose $7 billion in federal Medicaid dollars.

a�� May: Voters approve the state sales tax hike.

a�� July: State ends funding for all-day kindergarten, saving the state $218 million. November: Voters decide not to let the Legislature take $345 million from the First Things First early-childhood-education program and $123 million from a land-conservation fund to help balance the general fund.

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