DALLAS — For the second time in four months, Arizona Gov. Jan Brewer is preparing to call a special session of the Legislature to deal with a budget deficit that has grown to $1.75 billion.
Brewer, a Republican who is in her first year as governor, told a town hall meeting Monday that she could call lawmakers back into session as early as next week. She indicated that she wants to reduce the deficit by at least one-third. Lawmakers return for their regular session in January.
The governor and Republican legislative leaders remain at loggerheads over how the budget should be balanced.
Senate President Bob Burns and House Speaker Kirk Adams want to use only cuts, while Brewer seeks a three-year sales tax increase to restore lost revenue. Efforts to reach a compromise failed in the regular session ended June 30 and in a special session on July 6.
At the town hall forum on tax reform held at the Grand Canyon, Brewer referred to the canyon itself as a metaphor for Arizona’s gaping fiscal chasm. Despite calls for new tax structures, Brewer said that experimenting during a fiscal crisis is not a good idea.
Estimates of the budget deficit have run as high as $2 billion, or nearly a third of the $7.1 billion in state spending budgeted for the current fiscal year that began July 1. The Joint Legislative Budget Committee calls the state’s shortfall the worst in the modern era.
As Brewer prepares to call the session, the agency that collects state taxes is postponing plans to fire half its staff in hopes that adequate funding will be provided.
The Department of Revenue expected to lay off 450 of its 710 workers this month after Brewer vetoed a bill that provided funding for the agency. The target of the veto was another provision of the bill that included some funding for the department.
Department spokesman Anthony Forschino said legislators appear willing to restore the lost funding.
The Finance Department already cut 300 jobs last spring to bridge a gap in the previous fiscal year’s budget.
Projections show the deficit worsening as Arizona’s economy remains in deep distress. Even if a recovery were to begin, state revenue would continue to lag, according to a report from Standard & Poor’s.
“Because municipal issuers collect property taxes over the course of several years, there is usually a lag before economic shifts affect their financial results,” rating analysts observed.
“Essentially, the housing market values of today become the basis for tax revenue 18 to 24 months from now. As a result, most governments’ property tax revenues are just now starting to experience the effects of the housing bust as taxes are levied on lower assessed valuations.”
Standard & Poor’s and Moody’s Investors Service have both placed a negative outlook on Arizona’s credit. The state’s issuer rating is AA from Standard & Poor’s and Aa3 from Moody’s. Fitch Ratings does not rate the state.
