Arizona’s structural budget deficit is due to corporate welfare tax cuts – no new money for education

Earlier this year, the Arizona Republic reported Tax cuts have left Arizona short on cash:

State leaders blame lingering effects of the Great Recession for the state’s sluggish tax revenues and flat budgets. But economists say the real culprit is the cumulative impact of two decades of Arizona governors and lawmakers chipping away at the state’s bottom line.

Tax cuts over that period will cost the state’s fiscal 2016 general fund $4 billion in revenue, according to an analysis by economists with Arizona State University’s W.P. Carey School of Business.

The impact is expected to grow as already-passed corporate tax cuts continue to be phased in through 2019.

It leaves little room to reconcile Gov. Doug Ducey’s promise for more cuts this year with public demand for more school funding and Republican legislative leaders’ push for a structurally balanced budget.

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Because of the cumulative effect of the cuts, even if Ducey and the Legislature wanted to return the state to pre-recession funding for things such as education and health care, it would be nearly impossible.

Arizonans paid 30 percent less in general-fund taxes in 2015 than they did in 1992, according to the analysis by economists Dennis Hoffman and Tom Rex.

“More than 90 percent of the decline in revenue resulted from tax reductions … the remainder is due to the incomplete economic recovery from the last recession,” the economists wrote.

The Arizona legislature just received an update on what to expect when the new legislature returns in January.

The Arizona Republic reports, 5 things we learned about Arizona’s budget, economy:

Another budget shortfall

At the moment, the state is expected to finish the current budget year with a $50 million structural shortfall, which means normal revenues and usual expenses are out of line.

That’s not great, but it’s a far cry from the years when shortfalls were in the hundreds of millions. It amounts to about 0.5 percent of the expected customary general-fund expenses. Also, cash and special, one-time revenues are expected to more than cover the shortfall at this point.

Still, it’s October and the financial picture could worsen before the fiscal year ends in June.

Expect rain

At least credit-ratings agencies expect it, which is why they reserve their best scores for states with much higher rainy-day cash stockpiles.

State lawmakers may be tempted to pad the rainy-day fund to help lower future borrowing costs. The state has an expected $101 million cash balance and $460 million in other reserves. Together, they are 5.8 percent of the expected 2018 budget.

That’s not bad by conventional standards, but Moody’s expects its best credit risks to hold 10 percent. Standard and Poor’s expects at least 8 percent.

Those higher demands will make it harder to come up with new or noticeably higher spending in the budget.

Court costs ahead?

The state has at least three significant legal challenges that could dent its finances.

A case challenging the way the state changed its Medicaid assessment could cost $250 million.
Another case challenging the use of rental-car taxes for stadium subsidies could cost $150 million.
And a federal case claiming inadequate foster-care services is too early to affix a price tag, but it may not be cheap.
Throw in the usual margin of error for revenues and the state could easily feel squeezed for cash again.

Bye-bye business (revenues)

Arizona’s corporate income-tax collections continue a disappearing act largely driven by tax cuts passed years ago.

State sales-tax collections are up 3.7 percent this year compared with last year. Individual income-tax collections are up 4 percent. Corporate income taxes are down 31.3 percent.

The state expects to take in $454 million in corporate income tax this year. That’s less than half of what it took in 10 years earlier. Still, it’s better than the $281 million expected by 2020.

Offsetting that somewhat is the growth in insurance-premium taxes, 12.6 percent, and other revenue sources, 134 percent. The insurance collections are expected to top corporate income tax collections this year.

Wait ’til next year

Remember the talk of a lost decade during the Great Recession? Here’s one measure of how time moves on even if the budget doesn’t.

The state’s general-fund budget is expected to reach $9.66 billion in fiscal 2018, which begins next summer. If it does, that will finally surpass the $9.62 billion budget in fiscal 2007.

Those numbers don’t account for the effects of inflation or population growth over that decade.

Last month, the Arizona Republic/Morrison/Cronkite News poll found 74 percent of registered voters said the state is spending “too little” on K-12 public education. Poll: 74 percent said Arizona schools need more money:

And the concern appears to be across the board. The numbers of the latest poll don’t waver dramatically when broken down by political party registration, education levels, gender, location or race of the individuals polled.

• Sixty-three percent of registered Republicans said the state was spending too little, compared with 88 percent of Democrats and 74 percent of independents or other parties.
• Seventy-six percent of those with a bachelor’s degree or higher said the state was spending too little, compared with 70 percent of those with some college and 72 percent of those with a high school diploma or less.
• Seventy-six percent of women polled said the state was spending too little, compared with 72.5 percent of men polled.
• Eighty-two percent of Hispanics polled said the state was spending too little, compared with 73 percent of individuals who identified themselves as white.
• Seventy percent of those polled age 51 and older said the state was spending too little, compared with 82.5 percent of those age 36-50 and 77 percent of those age 18-35.

Well, for those of you who were duped into for voting for Prop. 123 earlier this year on Governor Doug Ducey’s vague promise that this was only a “first step,” there is no additional money for education next year (unless it is taken from other already shorted budget items). Poll: Some Prop. 123 supporters regret their vote.

The Republic’s Laurie Roberts correctly notes, Here’s why Arizona schools are starving:

Well, looks like Gov. Doug Ducey’s (and before him Gov Jan Brewer’s) goal of cutting corporate taxes and cutting corporate taxes and yes, cutting corporate taxes is going swimmingly well.

Unless you have the rotten luck to be a school kid in Arizona, that is.

The Republic’s Ronald J. Hansen reports that while state sales-tax and individual income-tax collections are up 3.7 percent and 4 percent respectively this year, corporate income taxes have plunged.

Specifically, businesses are paying 31.3 percent less than a year ago.

Meanwhile, Ducey has pledged to further reduce taxes every year he’s in office.

Where’s all that [trickle-down] prosperity they promised?

In all, the state expects to take in $454 million in corporate income taxes this year, Hansen reports. That’s less than half of what it collected a decade ago and close to twice what it’ll collect by 2020.

And you wonder why the public schools are among the poorest in the nation?

All of this largess – toward corporations, not our kids – is courtesy of the Republican-controlled Arizona Legislature, which has spent the better of two decades cutting taxes. The current free fall is largely attributable to a series of the tax cuts approved in 2011 but still being phased in.

The cuts — a wide ranging set of tax breaks for both large and small business to be fully phased in by 2018 — were proposed by Gov. Jan Brewer and raced like wildfire through the Legislature as the state faced its fourth straight year of budget deficits.

No worries. Our leaders assured us at the time that the tax cuts would usher in a new era of economic prosperity — one that would bring us all manner of high paying, skilled jobs and more money actually flowing into the state treasury.

“This,” Brewer said at the time, “is the most historic piece of legislation to be heard by the Legislature in decades.”

Boy, I’ll say.

If you really do care about Arizona’s children and providing them with a quality education, you simply cannot vote for any Tea-Publican this November because, regardless of what they say about education on the campaign trail, when it comes time to actually vote on legislation they are anti-tax and anti-public education.

You can only stop the insanity by stop voting for Tea-Publicans.