Budget impasse triggers talk of shutdown

If Arizona’s government were ever to shut down, 2021 would be the year.  

Budget impasses have pushed the state near the breaking point before, including a long summer night 12 years ago when the Legislature blew past the end of the fiscal year and delivered budget bills to then-Gov. Jan Brewer just after sunrise on July 1, 2009. 

But this year, as the unstoppable force of Gov. Doug Ducey’s desire for massive income tax cuts collides with the unmovable object of 47 Republican legislators who each effectively have veto power of their own, the end of the fiscal year is easier to see than any path to budget passage. 

“When you cross into June, I think it’s certainly in the backs, and maybe not even the backs anymore, of everybody’s mind,” said Sen. J.D. Mesnard, R-Chandler. “When the session started, just knowing that we’d never faced this political balance before, a situation like this was always possible.”  

If July 1 comes with no budget deal in place, Arizonans will likely see a local version of a scenario that’s played out multiple times in D.C. over the past several years. State parks would close indefinitely, construction would stop, non-essential government employees would be sent home until lawmakers and Ducey could reach a deal.  

Clock Strikes 12, But… 

The closest Arizona has come in recent years to seeing the government shutdown was in 2009, when the House and Senate passed their budget bills early the morning of July 1 and ignored the clocks and calendars showing the fiscal year was over. The Legislature came close in 1992, as well, under Gov. Fife Symington.  

Brewer ended up vetoing the bulk of the budget bills in 2009, and calling lawmakers back for a special session, but she signed enough to keep the government running until a budget landed on her desk. 

Mesnard, a Chandler Republican who worked on Senate staff in 2009, recalled that the Legislature just managed to pass a budget without any idea whether Brewer would sign or veto it.  

“We were prepared for anything,” he said. “But what she did blunted the full impact of a shutdown, while also forcing negotiations to continuation.” 

Brewer’s actions saved the state from having to deal with questions, including whether government employees who wouldn’t be allowed to work during a shutdown would receive back pay or be forced to use their vacation time for the days they couldn’t work, Mesnard said.  

Beth Lewallen of Italicized Consulting was also a legislative staffer in 2009 under then-Senate President Bob Burns. She said everything came together in the eleventh hour, when lawmakers sent the budget to Brewer and the governor vetoed budget reconciliation bills and line-item vetoed a good chunk of the appropriations bill.  

“She kept the funding in place to keep the government going without the additional detail in the BRBs and there were some big chunks that she line-item vetoed out, and then brought everybody back to the table,” Lewallen said. 

Lewallen, who still closely follows the legislative process, said there are many similarities between 2009 and today. While she doesn’t think a shutdown will happen this year, she said the possibility is still concerning. 

“I don’t think anyone really can quite prepare for how widespread that would be if it ever really did shut down,” she said, adding that there will be a lot of pressure to go around, but most will be on Ducey, who she said she can never see just letting a shutdown happen.  

For instance, Lewallen recalled Ducey refusing to let the Grand Canyon close during a federal government shutdown in 2019, when he declared that Arizona would function if Washington, D.C., didn’t. Letting state parks close going into the Fourth of July weekend would be particularly bad, she said.  

Federal Funds Shell Game 

Some major state agencies would be able to continue providing services through a shutdown because they receive funding from outside the General Fund, said Will Humble, former state health director under Brewer.  

The Department of Health Services receives federal funding and has employees that are paid with federal dollars, which means they could continue to work through any state shutdown. The agencies could also temporarily use federal grants to supplant state funding for other employees’ salaries.  

“One of the things that you could do – and is kind of a shell game – where let’s say your chief procurement officer is on state money, and you have these important procurements that you have to get out, then you would switch their funding source to a federal grant temporarily and then you could pay it back later,” Humble said, adding that there are a couple other ways to go around the loss of state money on a short-term basis, if necessary.  

Humble remembered meeting with Brewer’s staff and other agency heads to prepare a “short-term intervention,” where he said he was thinking about who on staff was paid from federal dollars  

Overall, he said the Department of Corrections might be the agency with the most to worry about, but as long as the state manages to pass a budget soon after the end of the fiscal year, nobody except state employees would be in real danger. 

“What actually happens in state government is you’ve got all these contracts that are out for these different services that people are providing for you, and you’ve encumbered that money, and then most of those contracts are cost reimbursement,” Humble said. “So, they provide the services, and then they turn in their reimbursement, and then they get paid after the fact. You could be well into the next fiscal year before the bills come due from the previous fiscal year on your contract.” 

In 2009, DHS planned to use state Lottery funds to cover any funding gaps. Humble said DHS could now rely on the Medical Marijuana Fund, if it wanted to. 

A Piece of the Surplus 

Childrens Action Alliance CEO David Lujan, who was the House minority leader in 2009, joked that he tried to block out memories of the year and its many special sessions and budget shortfalls.  

Throughout that year, Lujan remembers the Capitol being full of uncertainty about what would happen if the governor and Legislature couldn’t reach an agreement. At the time, Brewer was pushing for a ballot referral for a 1-cent sales tax increase for education and Republicans who controlled the Legislature balked.  

In 2009, lawmakers faced a budget shortfall of $1.6 billion and growing. This year, state budget analysts predict a surplus of $2.6 billion, but Lujan said that only makes passing a budget more difficult.  

“When you have a budget shortfall, all you can really do is cut, but when you have a budget surplus, you then have that contrasting argument of tax cuts versus more investments in state government,” he said. “You’re going to have these two very different opinions about how we should be using this revenue surplus, and then complicating that, you have very narrow majorities in both chambers.”  

Ultimately, Republicans are probably going to have to work with at least a few Democrats to stave off a shutdown, Lujan said.  

“The type of budget that they have put forward is something that you would typically see if they had a much larger majority,” he said. “It seems like it’s going to be very difficult to pass a flat tax, and the magnitude of tax cuts that could have the ability to decimate our future in this manner, with just a simple majority.”