Health of the Arizona Economy

Possible $800 mil deficit means tough calls for state

57 commentsby Mary Jo Pitzl - Oct. 2, 2008 12:00 AM
The Arizona Republic

State government will continue to tighten its belt - perhaps to the point of cutting off circulation - while looking for new ways to bring in money without raising taxes, Gov. Janet Napolitano said Wednesday in discussing a state budget deficit that could amount to $800 million.

For example, the state could charge a fee to other states that send prisoners to private prisons in Arizona, she said. And it could sell off the revenue flow from money due the state from a tobacco-suit settlement, as well as state Lottery dollars, she said.

She cautioned that she would look at that proposal only under the most "pessimistic" budget conditions.
Concern about the deficit in the current-year budget took center stage at the state Capitol on Wednesday.

While the Democratic governor cautioned that it's still early in the budget cycle to make draconian budget moves, House Speaker Jim Weiers, a Republican, said that he foresees a shortfall of $1.3 billion and the need for "some very hard decisions."

Weiers convened an unusual meeting of state lawmakers and legislative candidates to hear a presentation about the state's fiscal situation.

Legislative budget officials said the current year's budget, which began July 1, faces a likely $300 million shortfall to date, based on preliminary reports of September tax collections. By the time the fiscal year ends June 30, the deficit could range from $550 million to $1 billion.

And depending on what moves lawmakers take to close that budget gap, the deficit for the coming 2009-10 fiscal year could be $1.5 billion to $2.6 billion, said Richard Stavneak, director of the Joint Legislative Budget Committee.

The state's budget woes are driven by the depressed housing market and the ripple effects it set in motion, from reduced consumer spending on big-ticket items such as automobiles and appliances to growing unemployment.

"Our problem is as serious as anyone else's," Stavneak told the gathering, noting that other states with rapid housing growth, such as Florida and California, are also hit hard.

"Arizona is one of the worst states."

Weiers said he will meet with the governor today to begin laying the groundwork for a budget fix. Both he and Napolitano said it was unclear if there would be a special session of the Legislature this year, or whether the work would be done in the new year, when a new Legislature is seated.

Weiers said he didn't have specific proposals about how to cut the budget, saying those plans would come after meeting with members of the Republican caucus.

The proposals mentioned by Napolitano earlier Wednesday were a start, Weiers said, but more cuts would be needed to make the budget balance.

Napolitano outlined three budget scenarios, from optimistic to pessimistic, and the steps she would take to reduce the deficit in each case.

Those solutions include more cuts to state agencies, using the remaining $120 million in the state's rainy-day fund, transferring $50 million from various state funds, and other moves, such as encouraging more teleconferencing in lieu of traveling to meetings and continuing a state hiring freeze in place since early this year.

The governor noted that 45 percent of the budget is off limits to cuts, because of voter protections, federal law or court mandates. The remaining 55 percent, or $5.4 billion, will have to absorb the deficit.

However, the governor said she believes it would be folly to rely on budget cuts alone to close the deficit, which is why she's looking for other ways to bring in more funds.

http://www.azcentral.com/arizonarepublic/local/articles/2008/10/02/20081002statebudget1002.html