State government is likely to have lots of extra money to spend in future years – if the national economy doesn’t collapse.
New reports Thursday from the staff of the Joint Legislative Budget Committee show that revenues in the fiscal year that ended June 30 were 10 percent above predictions. That was fueled by a big increase in individual income tax payments in May.
All that should mean the state will have $694 million unspent when this budget year ends next June 30 on top of the current $11.8 billion budget, money that could be allocated for the next fiscal year.
But Richard Stavneak, the agency’s director, warned lawmakers against spending it all, particularly in creating new and expanded programs.
He figures that perhaps just $170 million of that is likely to be available on an ongoing basis, meaning legislators should be able to count on it year after year.
And Stavneak said it would be prudent to hold back $50 million in reserve.
The remaining $475 million? Stavneak said he and his team of economists are unwilling to predict that is any more than a one-time bubble. And that, he said, means the most prudent way to spend those dollars would be on one-time expenses.
All that comes with caveats.
Budget staffers told lawmakers the numbers have some uncertainty built in, like changes in tax laws that in future years will double the standard deduction that individuals can take.
Stavneak also said some of the predicted revenues are based on assumptions of how much Arizona will be able to collect from out-of-state retailers. A new state law requiring some larger retailers to collect the state tax kicked in less than two weeks ago.
And there’s something else.
Stavneak pointed out that a survey of economists by the Wall Street Journal found 77 percent were predicting a recession by 2021. And all that could make the predictions go out the window.
Economist Elliott Pollack, a member of the state’s Finance Advisory Committee, told lawmakers there are a host of factors that could affect all that.
On one hand, he said, Arizona population growth is running above the national average. But he said that, unlike the pre-recession increases of 3.5 percent a year, the state should instead look to year-over-year changes of less than 2 percent.
One factor? Changing demographics and a sharp decline in birth rates.
“While baby boomers are doing the job of dying, millennials aren’t doing their job of creating new population,” Pollack said.
There are other issues complicating the economy. One of those, he said, is student loans.
“Many young people have been lured into large amounts of student loan debt that their qualifications have not equipped them to repay,” Pollack said.
“In other words, they didn’t receive the commensurate increase in skills to justify the debt,” he continued. “It was a bad investment.”
And if people are still paying off student debt, they’re less likely to be able to afford to buy a home.
Pollack also worried openly about the effect of politics and the election next year.
“If that gets too crazy, that could destroy confidence,” he said.
Still, Pollack said, he thinks that even if there is a financial slowdown Arizona is in a relatively good position to weather it.
“I’d rather be here than almost any place else,” he said.
All that still leaves the question of how much new money state lawmakers will have to spend and how they can spend it.
Stavneak said there are plenty of ways the state can allocate that $475 million in one-time dollars, those that he does not believe are likely to keep coming in future years.
One big priority, he said, could be giving cash to public schools to pay for needed repairs.
The state at one time had a formula that provided regular amounts to schools. That, however, was scrapped during the recession.
Lawmakers did agree to provide $63 million this fiscal year to be divided up in grants. Stavneak said legislators may want to provide an identical amount for the coming budget year.
The current-year budget did not increase base aid to universities, with lawmakers instead giving the schools $35 million to divide up. Stavneak said repeating that next year also is an option.
But there’s something else looming on the horizon: the needs of the state prison system.
The Department of Corrections is asking for more than $385 million for projects, including $31.7 million to fix locks and fire systems at the Lewis and Yuma prisons.
The former facility in Buckeye has been plagued by problems with doors that do not lock, resulting in inmates being able to leave their cells and start fights and fires. And the temporary solution was to put pins in door locks, something that violates fire codes.
Corrections officials also want another $35.2 million for other locking projects throughout the rest of the system and $115.6 million to upgrade the evaporative cooling systems at nine prisons.