DALLAS — Arizona’s current deficit is $2.1 billion, nearly triple the $825 million cited by the Legislature and Gov. Jan Brewer, according to a new study released Wednesday.
The report, from the Morrison Institute for Public Policy at Arizona State University in conjunction with Brookings Mountain West, outlines possible solutions to the state’s chronic revenue shortfalls. They include adoption of multiyear budgets and expanding the tax base.
“Arizona is now struggling with two related but distinct fiscal disasters,” the report says. “Recognized is the portion of the state’s budget crisis that has resulted from the sudden collapse of annual revenues after the real estate crash and economic downturn. Less understood is the depth of the state’s massive structural imbalance, which has arisen thanks in large part to policy choices made during the go-go years of the state’s recent past.”
Over the past three years, special sessions of the Legislature have been called to deal with the revenue shortfalls. Earlier this year, Arizona raised $750 million by issuing certificates of participation to mortgage state buildings.
Voters approved a temporary one-cent sales tax increase in May that has failed to produce as much revenue as projected. However, voters refused to sweep funds from dedicated education and children’s health programs into the general fund to cover the budget gap in November.
“With one-time fixes, gimmicks, and fund sweeps exhausted, budget cuts from this point forward could — if handled crudely — prove devastating and difficult to recover from,” the report said. “Serious discussions among state leaders have included opting out of Medicaid, cutting a K-12 system often cited before the recession for receiving the lowest per-pupil funding in the nation, and significantly reducing funding for the state university system.”
When lawmakers convene in Phoenix this month, they will immediately jump into the process of cutting spending in the wake of voter rejection of the internal funding sweeps. The institute says that estimates of the deficit are optimistic.
“The state had by far the largest estimated percentage structural deficit among its peers in the region in FY 2011, standing at over $2.1 billion, or a mammoth 21% of stable expenditures,” the report said.
It indicated that the figure is also far higher than the $825 million reported by the state’s joint legislative budget committee as the revenue shortfall for FY 2011 as of November 2010.
“This $2.1 billion figure roughly equals total state spending on the university-board of regents system along with all state spending on protection and safety,” the report said.
It suggests broadening the state’s tax base with measures such as a tax on services. That would be a more realistic way to tap Arizona’s real economy while producing more revenue, the report suggests.
Brewer took credit for steps that she said have already begun to restore the economy Monday in her inaugural address. She vowed to produce balanced budgets in coming years.
Alluding to the structural problems referenced in the institute’s report, Brewer blamed her predecessor, former Gov. Janet Napolitano, a Democrat, for the state’s fiscal condition.
“We started the Arizona Comeback by restoring fiscal discipline and we made deep cuts to spending — without harm to education and public safety,” Brewer said.