DALLAS — Arizona has no plans to issue any debt in the next year amid continuing recovery from the Great Recession and the end of an emergency sales-tax increase, according to John Arnold, director of the Governor's Office of Strategic Planning and Budgeting.
"We're in a little bit of a weird period because our expenditures are going to exceed our revenues, but we have enough balance to cover that," Arnold said. "The plan has always been that the temporary 1-cent sales tax increase would go away and we would fall into a deficit. We've saved up money in fiscal year 2013 to smooth through the loss of that money."
Gov. Jan Brewer, who championed the three-year sales tax increase in 2010 to preserve vital programs during a period of record deficits, marked the end of the 1-cent tax with some positive spin.
"Today we can say that the Arizona comeback has arrived," Brewer said at a press conference to celebrate the last day for the levy on May 31. "It worked. Today we have a balanced budget and a cash carry forward."
According to Arnold, the higher sales-tax rate represented about $960 million in annual revenue that ended with the 2014 fiscal year on June 30. However, the $895 million balance remaining from the previous 2013 fiscal year offset the loss.
One key to balancing the budget is accepting federal funds for the expansion of Medicaid to the working poor, people whose earnings are 133% of the federal poverty level or less, the governor's office acknowledges.
In contrast with some other Republican governors, Brewer announced on Jan. 16 that Arizona would accept federal funds for Medicaid expansion, which would provide an additional $1.6 billion in the first year. With a federal match of funding at a ratio of 10 times state funding for the program, Arizona will receive $7.9 billion over four years, Brewer said.
"Arizona can leverage nearly $8 billion in federal funds over four years, save or protect thousands of quality jobs and protect our critical rural and safety-net hospitals," Brewer said in announcing the decision at an event with leaders in the state's health-care industry. "The business and health care communities are uniting with me in this effort because they know how important this issue is to Arizona.
In an executive briefing, the governor's staff equated the additional revenue to adding another Luke Air Force Base, another Intel facility or three Cactus Leagues for Major League Baseball's spring training.
"In competing with other states for jobs and business, it is important that Arizona offers a competitive, low-cost, efficient and effective healthcare delivery system," the executive report said, noting that all neighboring states except Utah had also agreed to expand Medicaid.
Brewer's staff is preparing her budget proposal that will be published Jan. 17, four days after she outlines her priorities in the annual "State of the State" address to the Arizona Legislature.
When lawmakers return to the copper-topped capitol in Phoenix, they will find state finances in far better shape than any year since the financial collapse of 2008, but they will also face new demands for funding, particularly from public K-12 education.
A good deal of uncertainty surrounds a state Supreme Court ruling in a case known as Cave Creek Unified School District v. Ducey, which upheld a law passed by Arizona voters in 2000 that requires the Arizona Legislature to fund the K-12 education budget to annually account for inflation.
Lawmakers veered off the voter-mandated school funding course in the 2010-11 budget to cover severe revenue shortfalls. Several school districts and other parties, including Cave Creek USD, sued the state, maintaining that the state's voter mandate trumped state legislation.
"We hope our elected representatives get the message loud and clear," said Tim Ogle, executive director of the Arizona School Boards Association, when the decision was rendered Sept. 26. "When the voters pass something, you are bound to uphold it."
According to the Arizona Education Association, the state has cut more than $1 billion in education spending since 2008. The state's decision to hold funding below the inflation rate over the past three years translated to a loss to schools of nearly $300 million, the association said.
The Supreme Court did not order the Legislature to repay the $300 million that had been withheld. However, based on a previous Arizona Court of Appeals ruling in January 2012, funding did increase for the first time in five years, according to the AEA.
Higher education has also been clamoring for more funding for maintenance and operations, as well as capital needs.
"Investing in education, especially in higher education, has to be near the top of the list," Dennis Hoffman, director of the L. William Seidman Research Institute at Arizona State University, said in a Nov. 26 report. "Universities used to be the second-highest general fund priority. Now they are fourth, just behind the prisons."
According to accounts from economists, Arizona's population boom is slowing to a crawl, even as the economic indicators continue their positive trend.
Arnold, formerly head of the Arizona School Facilities Board that managed debt for new school facilities, said the need for new construction is waning.
"There is still some money going to school projects," he said. "But our population growth has been flat, so there isn't as much need for that."
Arizona received more confirmation of its fiscal recovery on Nov. 26 when Standard & Poor's and Moody's Investors Service both revised their outlook for Arizona to positive from stable.
Standard & Poor's affirmed Arizona's AA-minus issuer rating and its A-plus certificates of participation rating.
Moody's affirmed equivalent Aa3 issuer and A1 COP ratings. The actions come ahead of the sale of $80 million of Arizona School Facilities Board refunding COPs.
Despite that ratings progress, Arnold said the governor and lawmakers have no plans to issue more debt in the coming year, even as counties and cities are seeking restoration of funds cut for local transportation programs over the past five years.
"It's going to be difficult in the near term for us to put any additional money into transportation," he said.