Report: Arizona has bounced back to middle of states for fiscal health

WASHINGTON – Arizona bounced back in just one year from one of the worst budget shortfalls in the nation to build a budget surplus comparable to most other states, according to a national report released Tuesday.

The report by the National Conference of State Legislatures said Arizona’s economic outlook is “stable,” with the state having $850 million in the bank from rainy day funds and money left over from fiscal 2012. It joined 32 other states with a “stable” ranking.

The excess money is a stark difference to the estimated $3.2 billion deficit the state faced in fiscal 2011, said Matt Benson, spokesman for Gov. Jan Brewer.

“It’s great that other states have turned over finances as well, but I doubt that any state turned its situation around as fast and as well as Arizona,” Benson said.

He blamed the state’s fiscal woes on an expansion of Medicaid and the 2008 housing market collapse. Cuts to state programs, Medicaid in particular, and a temporary 1-cent increase in the sales tax corrected the deficit and left the state with the extra funds, said Benson.

“Arizona is the textbook example of how a balanced approach and tough decisions can turn around a state budget,” Benson said. “The governor and legislature made a lot of difficult cuts to state spending.”

But one Democrat accused the administration of cutting its way to fiscal health and hurting working families in the process.

“We do have the surplus but it is at the cost of middle-class families and children,” said Rep. Anna Tovar, D-Tolleson. “Republicans don’t have priorities of protecting families.”

The report said Arizona had a bank balance equal to 4.4 percent of its general-fund spending at the end of fiscal 2012 and is on track to have a balance of 8.2 percent by the end of fiscal 2013.

But Arizona, like most states, will need that fiscal cushion as unexpected expenses and challenges loom in coming years, according to the report, which looked at year-end balances of all 50 states and compared them to future projections. It said most states are in a good position to face coming budget challenges.

Those challenges include potential post-recession economic shocks and a possible expansion of Medicaid under the Affordable Care Act, the report said.

The extra revenue in Arizona now is “an insurance hedge on future expenses that are difficult to calculate and predict,” said Rey Torres, spokesman for the Arizona House Republicans.

“We have recently seen a higher-than-anticipated level of revenues that help shore up any pitfalls that have been created from the recession,” Torres said.

“A lot of it depends on the November election,” said Torres. “There’s a lot to be feared because it will leave states scrambling.”

Brewer’s decision on Medicaid expansion is expected in January. While an expansion would come with federal funding, it would also require additional state funding, Torres said.

“The carrot that is put out there is outweighed by the stick that could come down on us,” he said of the Medicaid deal.

While the excess funds give the state “more flexibility,” they will not determine the Medicaid decision, said Benson.

“The biggest factor for Medicaid is the right long-term choice for Arizona rather than becoming a prisoner to the moment and what is here and now,” Benson said. “We recognize the surplus that we have here and now is not necessarily indicative of state finances.”

The expansion of programs like Medicaid is what “led the state to such a pickle in the first place,” said Benson, and reining in that expansion helped improve the state’s fiscal picture.

The state has anticipated the expiration of the temporary sales tax increase next May, Benson said.

“It was always intended to be a temporary measure to bridge the state to a stronger economy,” Benson said. “And that is exactly what it’s done.”

Benson said the state doesn’t expect another budget shortfall until fiscal 2015.

But Tovar said Republican leaders were “hanging their hats on a rainy-day budget.”

“You have a budget that is laced with wrong choices and misplaced priorities,” she said of the current budget. “The surplus will be drained by 2015 and there will be a $150 million deficit.”