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Arizona Gov. Doug Ducey signed a stripped-down emergency state budget Saturday that contains $50 million in spending to help tenants, homeowners and small businesses weather the coronavirus crisis.
The $11.8 billion spending plan for the budget year that begins July 1 essentially contains no new spending beyond required inflation adjustments and promised raises for teachers. The package was hammered out among majority Republicans and Democrats in the Senate last week.
Republicans who also control the House balked at the plan after it was approved by the Senate but finally agreed to support it Monday.
The rare bipartisan Senate package includes money to prevent evictions and foreclosures during the crisis, provide services for the homeless, assist small businesses and pay for food bank operations. It also includes longer welfare payments and a waiver from work requirements. It added to a basic budget legislation the Legislature rushed through to ensure government keeps running amid the pandemic.
The budget adds to $55 million in emergency cash approved earlier this month to fund the health department’s virus response efforts. That money would come from the state’s rainy day fund.
The Legislature adjourned for at least three weeks after the House passed the budget. The absence may be longer because the Legislature’s budget analysts believe it will take until May to see the first major effects of the coronavirus crisis on state tax revenue.
That impact is likely to be huge. Ducey has shuttered restaurants, bars and movie theaters in most counties to slow the spread of the virus. Unemployment applications have soared as resorts, airlines and other employers laid off workers.
The Legislature began its session in January expecting a budget surplus nearing $1 billion on top of the state’s $1 billion rainy day fund.
Ducey hinted in an interview on KTAR radio Tuesday that he expects the rainy day fund to be tapped for the state’s financial hit from the crisis.
“This is going to be more than a rainy day,” he said. “We’re going to utilize every resource we have to protect Arizonans, to make sure we’re fighting this public health battle and then to make sure nobody falls through the cracks, and then as soon as its appropriate that we ramp that economy back up.”
For most people, the new coronavirus causes mild or moderate symptoms, such as fever and cough that clear up in two to three weeks. For some, especially older adults and people with existing health problems, it can cause more severe illness, including pneumonia and death. The vast majority of people recover.
Issue: rainy day fund
Ducey draws line in sand on rainy-day fund
Calling an economic downturn “inevitable,” Gov. Doug Ducey is pushing back against demands by lawmakers from his own Republican Party to use an unexpected cash windfall to pay down debt.
The governor said Monday he is sticking to his demand that the extra $155 million being taken from Arizona taxpayers go into the state’s “rainy day” fund. He wants to get that account, currently in the $460 million range, brought up to an even $1 billion.
The amount in that fund has been virtually unchanged since Ducey became governor. It also is far below the statutory cap on what is formally known on the “budget stabilization fund” of 7 percent of general fund revenues, a figure that this year would translate out to more than $700 million.
What irks some GOP lawmakers is the fact that the $155 million isn’t money the state earned, at least not through the normal political process of debating and setting tax rates. Nor is it some sort of unearned income in the form of a court judgment, like the cash Arizona got in the settlement of a lawsuit with Volkswagen over vehicles that were spewing more pollution than allowed.
Instead it’s a bit of fallout from the changes in federal tax law that lowered rates for most Americans. But a byproduct of the state “conforming” its tax laws to those changes is that some Arizonans will be paying higher taxes.
Senate President Karen Fann said her lawmakers think the best course of action is to use the windfall to pay down debt. She figures that would reduce the state’s annual debt obligation by about $24 million a year, money Fann said could be better used to actually provide state services.
Ducey said the plan is unacceptable to him.
On one hand, the governor said the Arizona economy is booming.
“But it would be irresponsible to not plan ahead for a rainy day,” Ducey said.
“And the beauty of a rainy-day fund is it gives you options in the downturn or the crisis,” he continued. “You can only pay down debt once.”
And the governor said he views it through the eyes of a business executive, which he once was.
“This is the way any responsible chief executive would look at the situation in the private sector,” explained Ducey, the former executive of Cold Stone Creamery. “I should bring that same loving care to the public sector.”
The governor also brushed aside Fann’s contention that the state would be better served in the long run by using its newfound cash to actually fund state services instead of paying interest to some lender.
“We continue to pay down debt every day in this state,” he said.
That most notably includes the nearly $1 billion borrowed by selling off some state buildings – including the House and Senate – under a lease-purchase plan to get them back. But the debt still remains at about $750 million.
Rep. Ben Toma, R-Peoria, who chairs the House Ways and Means Committee, said there may be a middle ground.
“I’m not one of the members of the House or the Senate, for that matter, that is basically a ‘hell no’ on putting money in a rainy day fund. But it’s going to require some give on the governor’s part.” Toma said. “The only way I would support putting that money into the rainy day fund is if we got a big win on conformity reform.”
That means adjusting the state income tax system for future years to ensure the state does not continue to collect the unanticipated windfall from federal tax reform and the resultant hit on Arizona taxpayers.
“In the end, for me, what’s more important is what we do in perpetuity, if you will, to offset the additional increases,” he said.
Even with that $155 million, that still leaves the state far short of the $1 billion that Ducey wants for the rainy day fund.
“Will we have the votes in House and the Senate to do that?” Toma said. “That’s going to be a tough lift.”
House GOP policy plan covers old ground, unfinished battles
Republican leadership in the House of Representatives released a general framework of policy and spending goals for the upcoming legislative session on January 9, laying out a broad-stroke vision for nine key issues to watch in 2020.
Some of these policy areas represent well-tread ground or unfinished battles from the last session – such as K-12 education funding and sex education, border security, tax cuts, criminal justice reform and corrections, water conservation policy and debt repayment. Others are issues that have long been elevated as priorities by the caucus but that rarely have received substantive debate in recent legislative sessions, such as transportation and infrastructure funding and health care.
“The shared policy goals for the upcoming session that are outlined in the Majority Plan reflect the collective feedback gathered from our caucus members,” House majority spokesman Andrew Wilder said.
The policy plan doesn’t make clear exactly how much money the caucus is willing to spend or forgo through tax cuts. Nor does it lay out a specific plan for what to do with the estimated $1 billion rainy day fund.
It does, however, give a sense of what majority leaders would like to spend money on.
Republican leaders in the House want to earmark money for K-12 education that will include “a significant appropriation for building renewal, new construction, school safety, and district additional assistance,” according to the plan.
Lawmakers from both parties generally agree that education funding is a priority, though whether existing resources are enough to cover that, or whether the state needs to increase taxes – either through a progressive income tax increase, or a sales tax increase favored by some Republicans – is more controversial.
And progressives say that it’s hard to reconcile the Republican talking point that funding is a priority when the GOP continues to cut taxes, something Gov. Doug Ducey has promised to do each session during his tenure.
The policy plan makes clear that Republicans want to bolster spending on the Department of Corrections, roads and infrastructure. But it also states that Arizona is “in a position to pass a meaningful tax cut.” The plan provides the least detail on this plank.
Indeed, Sen. J.D. Mesnard, R-Chandler, plans to carry a tax cut bill that would cost the state $400 million in revenue over three years, primarily by reducing the commercial assessment ratio and the state equalization tax rate. He’d also repeal the $32 highway safety fee a half-year earlier than scheduled.
House Speaker Rusty Bowers, R-Mesa, said there is anti-tax caucus sentiment in his party.
“And some people say, you know, if we’re getting that much money into the coffers, are we taxing too much? I’m not of that opinion. But I just want us to be wise with what we’re using and how we use it. I’d rather be prudent than selling buildings,” Bowers said.
Other spending priorities include additional resources “to better facilitate the resolution of water rights claimed throughout the state,” the plan states.
The rest of the plan outline addresses general conservative policy positions more than budgetary aims. For example, it states that any political subdivision that declares itself a “sanctuary city” should be legally liable.
And while it mentions funding for corrections and the Department of Public Safety and offers support for substance-abuse treatment and other rehabilitative programming, it stops short at calling for substantive change to sentencing laws, a priority of some members like Rep. Walter Blackman, R-Snowflake.
It also makes passing reference to the brewing sex-education debate in the Legislature, asserting that “parents have a fundamental right . . . to raise their children and make educational decisions for them. If necessary, legislation will be introduced to keep government in check and parents empowered.”
While light on dollar figures or detailed strategy, the two-page policy sheet appears to be a small piece of public evidence of the Legislature’s accelerated budget process. Republican appropriators in both chambers told the Arizona Capitol Times in November that they had already begun work on a plan that would detail what to do with an estimated $170 million in ongoing funds and $475 million in one-time appropriations.
The hope was that if lawmakers could meet in small groups and with agency heads before the new year, it might be possible to have a skeletal budget ready before Ducey releases his budget proposal – reasserting legislative authority in the spending process that has diminished in recent years. Fittingly, the House GOP policy plan was released several days prior to the governor’s State of the State Address next week.
“We’ve had a review of our senior budgeting team with (Joint Legislative Budget Committee) of our demands, but … we have a skeleton of where we are, what our ongoing expenditures are that we can get, what we can easily cover with our present budget or present income and what’s capable for ongoing support,” Bowers said on January 8. “We’re blessed to have the money to do some things. The challenge of that is what happens next.”
House Republican threatens vote against budget
Saying the budget agreement crafted by GOP legislative leaders and Gov. Doug Ducey is “not a conservative budget,” Rep. Tony Rivero, R-Peoria, vowed to vote against it Thursday unless his colleagues agreed to several significant changes.
Republicans hold a slim one-vote majority in the Arizona House of Representatives, and as lawmakers prepare to put the final touches on a $11.8 billion spending plan and close out the marathon legislative session, Rivero’s threat of breaking with his caucus puts the plan in jeopardy.
To pass the fiscal-year 2020 budget proposal, which is scheduled for a vote Thursday, Republicans will have to cut a deal to satisfy Rivero’s demands, or negotiate with Democrats who have shown little appetite for working across the aisle.
House Republican leadership has previously boasted of their caucus’ lock-step agreement on the budget deal, which was crafted behind closed doors by Republicans and the governor over the weekend, then shopped to rank-and-file Republican lawmakers Monday.
Instead, all eyes have been on the Senate, where a handful of Republican holdouts have threatened to vote against the budget unless Ducey and GOP legislative leaders agreed to concessions.
On Wednesday night, Rivero told the Arizona Capitol Times that House Speaker Rusty Bowers had not listened to his concerns about the budget, and unless GOP leaders agreed to changes, “I’m a ‘no’ on the budget.”
Rivero complained that the budget was crafted in secret without input from rank-and-file Republicans, and that Ducey seemed to have gotten the better of legislative leaders in negotiations.
“This budget has not been transparent. That’s a big problem for me. As a conservative, I believe in transparency,” he said.
Specifically, Rivero said Ducey’s plan to put $1 billion into the rainy day fund – a sticking point for Ducey in negotiations – was akin to stashing the public’s money in “a bureaucratic slush fund.”
Rivero wouldn’t say how much, exactly, the state should save in its rainy day fund – essentially the state’s savings account which can be called on during an economic downturn, or for any other purpose. But he said when the government has $1 billion in taxpayer money just sitting there, it’s too much.
And he argued the state should adopt an income tax reform plan pushed by his colleague, Sen. J.D. Mesnard of Chandler, rather than the one Ducey prefers, which is included in the budget.
The tax reform package included in the budget would reduce the number of income tax brackets from five to four, while slightly lowering tax rates for each bracket. Mesnard’s proposal would reduce the number of brackets to three, lowering taxes, especially for those who itemize deductions.
Rivero argued the proposal in the budget deal, unlike Mesnard’s plan, “does not do enough to hold taxpayers harmless” from higher income taxes due to changes in the federal tax code after President Trump’s tax cuts.
As of Wednesday night, Mesnard was among at least three Republicans who had vowed to vote against the budget in the Senate, where Republicans can only afford to lose two votes from their caucus before they have to look for hard-to-find Democratic support for the budget.
While several other Senate Republicans have grumbled about the budget, and some have since had their demands met, Sens. Paul Boyer of Phoenix, and Heather Carter of Cave Creek were also still vowing to vote against the budget Wednesday night.
Both were concerned GOP leadership had refused to allow a vote on Boyer’s legislation expanding the statute of limitations for survivors of childhood sexual assault to bring civil suits against their abusers.
Rivero said he is also demanding lawmakers pencil in a low income housing tax credit as an incentive for developers who build low-income housing. However, he said he could wait for funding for that until FY23, as long as lawmakers put the policy on the books this year.
His final sticking point is more personal. Rivero, who is chair of the House Local and International Affairs Committee, said he won’t support the budget unless it has funding for Arizona trade offices in Chihuahua and Guanajuato, Mexico, and in Israel.
Those offices would cost about $275,000 each in one-time funding, and about $200,000 annually in ongoing costs. But he said those offices are worth it because they would build relations between Mexico and Israel and create Arizona jobs.
Rivero said he’s open to negotiations with legislative leaders, but so far, his demands have fallen on deaf ears.
“The needs, the considerations, of the people I represent have not been heard,” he said.
Lawmakers are racing toward the end of a historically long legislative session, and are attempting to push through the budget before the Memorial Day weekend, after which absences will become a problem for Republican leadership, due to the Party’s narrow majority in both chambers.
And Rivero knows that Republicans’ slim majority in the House puts him in a strong negotiating position.
“Every vote counts,” he said.
Lawmakers grateful for rainy-day fund, some hold to principles against it
As some grocery store shelves lay as bare as Cactus League stadiums and restaurant dining rooms, lawmakers in the Arizona Legislature are scurrying to wrap up their business, begin their social isolation and hunker down for a storm. Their rainy day is here.
Gov. Doug Ducey pushed over two legislative sessions to fill a rainy-day fund against resistant Republicans who preferred to use an abundance of revenues to address the state’s debt, and Democrats who wanted to enhance government services.
The state tapped into the $1 billion savings account March 12 to wage the medical fight against COVID-19, a pandemic that is decimating economies worldwide, and while those resistant Republicans and Democrats are grateful for the extra cash, they stand by their arguments against the rainy-day fund.
When Ducey came into office, the state had about $455 million in the rainy-day fund, an amount that remained steady for the first few years of his governorship and one he worked to increase each year of his first term. In 2018, the same year the state got an unexpected $155 million windfall in state income tax revenue changes from federal tax law, Ducey demanded that money be saved, not spent, and that the fund be brought up to $1 billion.
In order to do that, he had to convince Rep. Mark Finchem, R-Oro Valley, and a few other Republicans who wanted that money spent to pay down state debt or put back into taxpayer pockets. While Finchem and others were not against the idea of having money stowed away, they weren’t as receptive to savings as much as Ducey was asking for.
For Finchem, it wasn’t the best way to “recession-proof” an economy – he says taxing less is.
“When government takes less money, we are helping people with preparing for an economic downturn,” Finchem said. “But if government takes that money and puts it into the rainy-day fund, well, now the folks are less prepared to deal with changes in their own personal financial condition.”
The balance of taxing what’s necessary and spending and saving wisely on a government level is a tough balance, Finchem said.
Finchem was one of the few Republicans vocally advocating against raising the rainy-day fund to $1 billion in the 2018 legislative session and instead wanted to raise it to $750 million in that time, push for the $1 billion threshold in the 2019 session and include a tax reduction. In the end, he was overruled and he said he’s OK with that.
“Either way, we built up the storehouse, if you will, for a day when things were not so good, and we appear to have arrived at that day,” Finchem said. “I’m somewhat ambivalent at this point. The money is there, but I pray that we are cautious, very cautious and prudent about how we extend those resources for the greatest community.”
If and when they have to dig into the fund, an abundance of caution is crucial in the weeks and months ahead, Finchem said, because once that billion is gone, it’s gone. But that’s dependent on how bad future state revenue projections are.
That’s what Finchem and other Republicans hope to find out in about a month, assuming they pass a so-called “skinny-budget” Ducey approves of and return to work to pass a budget using more current and accurate revenue forecasts.
Democrats, including Minority Leader Charlene Fernandez, D-Yuma, said while they do believe in the idea of a rainy-day fund and are grateful to have one, the severity of this economic uncertainty could have been lessened.
Had the state invested more in public education, health care services, agencies and other budget items Democrats argued were crucial, Fernandez said, the state may have been in a better place. Instead, the state may need to partially bail out these things with emergency funds if the economy worsens exponentially.
With these things at a lower capacity than Democrats asked for, Fernandez said, they’re worried that essential public services, like unemployment insurance, might not be available at the level they could have been. Fernandez compared the budget to maintaining a home.
“You have to have a savings account, of course you do, but you also have to maintain your home and make sure that the water is running and all those things too, to make sure our government is prepared for this,” Fernandez said. “Who prepares for a crisis like this? Who would have known?”
What made building up this fund possible, Fernandez said, was stripping agencies “to the bare bones” and creating an artificial, unearned budget surplus.
Senate Minority Leader David Bradley, D-Tucson, has long advocated for state leadership to focus less on building up a rainy-day fund and more on restoring cuts made during the recession and before.
The state doesn’t have a budget surplus, he insists. Instead, it’s underwater on a debt to underfunded state agencies.
But while he has criticized the rainy-day fund, he said he’s glad the state has some money set aside to deal with the current crisis.
“In the large scheme of things, is it good that we have some resources to deal with this crisis to the extent that we know about it?” he asked. “Yeah, that is true. That’s true. Even though those might seem like conflicting statements.”
These arguments are nothing new for Corporation Commissioner Bob Burns, who said he’s heard, and settled, them before. In late 1993 when Burns was chairman of the House Appropriations Committee, he helped lead discussions with other lawmakers and Ted Ferris, then-executive director of the Joint Legislative Budget Committee, who first suggested the idea of a rainy-day fund.
That idea became Burns’ project, which he made a reality by the end of that session after pushing against a lot of resistance, mostly from conservatives who thought it was a “method of government growth.”
After weeks of meeting with members, Burns and others finally convinced enough people that it was a good idea and while the formula for the rainy-day fund has slightly changed, the idea in principle has remained consistent.
“My philosophy has always been to have money in the savings account,” Burns said, speaking from personal experience.
When he and his wife moved to Arizona, they financially disciplined themselves to live only on his salary. During good and bad years, he spent frugally and saved what he could while she continued to work and save all of what she made – they eventually used that money to start a business.
The same philosophy applies to state government, Burns said, when even during an abundance of “good” economic years, it’s important to remain hesitant to spend in anticipation of what could come.
“You never know when a downturn could occur and you don’t continue to grow forever – it’s a cycle,” Burns said. “You got to be careful how you spend your money and, and especially careful when you’re in that sort of lucrative income period. That’s when you get in trouble.”
Ducey inherited a projected $1 billion dollar deficit, partially due to pending K-12 litigation, as well as debt from the Great Recession and because of that had to make cuts to agencies and services to generate a surplus. These cuts came at the expense of some pet projects lawmakers wanted, who called the effort to grow the fund a public relations gimmick.
Republicans, like Rep. Regina Cobb, R-Kingman, one of the members leading budget talks, wanted more of that money spent on paying down the state debt. In fact, she joined Finchem in calling for the $1 billion rainy-day fund balance to be met this year instead of last year, but was also overruled.
Despite how the state got here and built up the fund, it’s here and its economic future remains foggy until forecasts come. Cobb said that feeling of uncertainty is affecting budget talks for now, but she’s glad the fund is here.
“Whether it’s a gimmick or whether it’s not a gimmick, it’s there,” Cobb said. “I know there wasn’t a broad support for a billion dollars for it, but it’s there and thank God we have it. This is our rainy day.”
Reporter Julia Shumway contributed to this story.
Q&A with Gov. Doug Ducey
PHOTO BY KATIE CAMPBELL/ARIZONA CAPITOL TIMES
Gov. Doug Ducey will lay out his priorities for the legislative session in his “State of the State” address to the Legislature Monday. But Ducey sat down with the Arizona Capitol Times on Jan. 10 to talk about his top issues for the year. Here’s what the governor had to say:
Obviously the big water agenda this year is to pass the Drought Contingency Plan, but will you push any other water agenda or any other water-related bills.
Step one is DCP, without a doubt. There are other things we need to do on water, but those will be left for another day.
Can you give us a hint of what those other things might be?
We want to bring all the focus and attention we can to the urgency of this issue now. But I have said in the past that things like a generational project, like we’ve seen with Roosevelt Dam, the Central Arizona Project, those are things that are in our future. Those are certainly things that will happen after a second term, but we can lay the groundwork.
So you are thinking long-term in terms of Arizona’s water situation?
Absolutely.
Is climate change playing a role in the reduced water levels in the Colorado River?
I’m not certain. I think it’s entirely possible. I think we need to prepare as if this [current water predicament] is the situation going forward.
How do you anticipate the state will pay for the $35 million you’ve pledged to go with the Arizona drought plan?
We have a booming economy right now. We have the largest projected budget surplus in a decade so $35 million is certainly a significant amount of money, but with the amount of people that are moving into our state, the amount of businesses that are growing, it’s a number we can certainly handle.
Will there be any other big ticket items in your budget that we may not know of yet?
I think that you’ll see a “State of the State” that focuses on things that matter, things that are important inside our state and things that will secure the future for Arizona and put us in a position to continue to grow and prosper.
You previously said you want to scrap legislative immunity, is that still a priority?
Stay tuned.
Will you bring back your school safety plan?
We’re going to have a pretty broad school agenda. Part of it will be school safety.
What will you do differently to push through your school safety plan this time?
Part of what happened last year with school safety was 1. How it was launched. It really was a reaction to what had happened … I saw Rick Scott speak at the White House after what happened in Parkland, and I came back and challenged my senior staff as to why are governors only reactive on these issues? Then bringing the Legislature along when it was a highly charged political issue complicated it. We’re not in that type of setting right now. We’ve got a fresh start with the election cycle behind us, and I believe it’s still our responsibility to make Arizona schools as safe as we possibly can. We’re going to be counting on our Legislature to work with us to prevent and avoid a tragedy.
Will your school safety plan this year still include the Severe Threat Order of Protection?
Yes. We think that the STOP order is something that had broad support and it’s a reasoned approach.
How could a closer split in the House affect your legislative agenda?
The agenda we have is a very broad agenda and bipartisan or nonpartisan in many ways. Is water a political issue? Is school safety a political issue? Is financial responsibility a political issue? Is good government a partisan issue?
What will be the most unexpected part of your legislative agenda?
I’m looking forward to you coming to the “State of the State.” I think you’ll enjoy the speech.
You had some agency directors underperform during your first term. I’m thinking of folks like Tim Jeffries and Sue Black. Is there anything you’ll do differently on hiring in the future to prevent that?
I’m really proud of what we were able to accomplish in terms of government reform and consolidation in those first four years. We focused on the government. We said it was going to be streamlined. We wanted to operate at the speed of business, and when you’re going to focus on that, you’re going to have some disruption. So, we’re going to continue to focus on hiring the best possible people we can and we’re going to hold them accountable. When they do good things, we’re going to call them out. And when they don’t get it done, we’ll work with them to improve. If they continue to go in the wrong direction, we’ll be finding new people.
Some criminal justice reform advocates are pushing for de-felonization of marijuana and for an expungement law, do you support either of those ideas?
My biggest concern is with victims of crime in our state. With that being said, we’ve had a real focus on reducing our prison population, giving people that are in prison a real second chance and we’re seeing some success with that. We’re going to continue to focus on that and broaden that program. That will definitely be part of the “State of the State.
We’re going to prioritize reducing recidivism and reducing our prison population. And I’m going to be talking to Bill Montgomery, Sheila Polk and AG Brno on what opportunities they see, if any, for room for improvement on criminal justice reform.
Montgomery’s recent article in the Capitol Times made an impression on me. How he differentiated what’s happening at the federal level versus what has happened at the state level, and I think it’s important that we separate these out.
Do you foresee any difficulties in completing the 20×2020 teacher pay raises?
Not at all. 20×2020 is going to be our continuing priority.
Some GOP lawmakers want you to use tax conformity to return money to taxpayers, you want to put the money in the “rainy day” fund. How are you going to solve that dilemma?
The first thing we’re going to do is we’re going to conform and we’re not going to raise taxes. I am going to negotiate with legislative leaders on the most responsible path going forward.
What was the best book you read last year?
“The Leader’s Bookshelf”
The Breakdown: Rumor has it
The budget is coming! Or is it?
Today’s the day lawmakers in both the House and the Senate hope to introduce budget proposals, but don’t hold your breath for sine die just yet.
Leaders announced an impending budget before shopping the details to members. What remains unsettled? What do we know? And what did the House’s quasi-Boyer bill really accomplish?
Don’t forget to subscribe to The Breakdown on iTunes and Stitcher.
Music in this episode included “Creative Minds,” “Piano Moment” and “Energy” by Bensound.
