State Lawmakers Address $970+ Million Budget Shortfall

(STATE CAPITOL, PHOENIX) The Arizona Senate and House Appropriation committee chairs, and JLBC staff have been working the past few weeks to analyze the budget problem and prepare a starting point for the appropriation committees to address and resolve the FY 2008 shortfall and construct a budget for FY 2009. Under the baseline, current levels of authorized spending for FY2008 exceed available revenues by $970+ million. The challenge ahead is monumental and some difficult decisions are going to be required to get our fiscal house in order, said Sen. Bob Burns, R-Peoria, and chairman of the Senate Appropriations Committee. This will be one of the most difficult times in state history as far as the economy and budget go, said House Appropriations Committee Chairman Rep. Russell Pearce, R- Mesa. I understand the challenge before us and I intend to do the right thing and involve as many in the process as possible. Structural deficit = gap between ongoing revenue vs. ongoing spending. FY 2008 structural deficit = $1.25 billion (with carryover cash deficit = $970+ million) (carryover is one time and will not be available for FY 2009) Current projected revenue: FY 2008 $9.76 billion, FY 2009 $9.41 billion, FY 2010 $9.75 billion (FY 2008 higher than FY 2009 due to carryover into FY 2008) The economic advisors of the JLBC Finance Advisory Committee are predicting a slow recovery coming out of this current economic downturn. A significant element of this slow recovery is the time it will take for the states economy to absorb the large surplus of available housing. Burns and Pearces proposal constitutes a first step in resolving a problem that is seriously past due for correction. One-time adjustments will only push the problem into the future while reducing the options available. The chairmens proposal includes the following: * Based on the FY 2008 baseline, the FY 2008 budget has a $970+ million deficit. The chairmens proposal includes $460+ million in ongoing adjustments and $510+ million one-time adjustments. The spending covered by one-time adjustments will carry over into the following fiscal year. * The FY 2009 baseline, with proposed one time adjustments included, leaves a $1.7 billion problem. The chairmens proposal includes $740+ million in ongoing adjustments and $980+ million in one-time adjustments. Again, spending covered by one-time adjustments carry over into the following fiscal year (FY 2010). * The chairmens proposal, in order to cover one-time adjustments, uses cash reserves (budget stabilization fund, K-12 rollover and the use of fund balance surpluses). Without a significant number of ongoing adjustments implemented by the legislature during this upcoming session, the states bank account can be expected to GO OVER THE CLIFF in FY 2009. At that point one time cash options for solving the problem will be completely exhausted and no longer available. Ongoing adjustments must be made NOW! Another element of our budgeting problem is the amount of the budget that is on auto pilot. With statutory formulas and initiative driven spending the annual average spending growth without any legislative action is $500-600 million. This does not include additional items of budgeting such as employee pay increases and etc. These additional items cost approximately $100 million last year. The Legislature, with pressure from the governor, has seriously overspent, especially during the FY 2004 through FY2007, Burns said. Americans have a great love for freedom, individualism, morality, the family patriotism and honor. Today, America has become a huge, bloated welfare state teetering at present on the brink of national and local bankruptcy, Pearce said. Even with the permanent spending adjustments in the Appropriation chairmens proposal, the structural deficit in FY 2010 will be $1.2 billion. The point is a tremendous effort beyond the baseline remains for this legislative session.