Why no state budget? Governor Ducey’s university bonding plan

This was supposed to be the week that the Arizona legislature passed a budget and then declared sine die. Didn’t happen.

According to the Arizona Capitol Times (subscription required), the holdup is Governor Doug Ducey’s university bonding proposal, the one he mentioned in his State of The State Address back in January but has still not fleshed out the details at this late date. Ducey’s bonding plan for universities has more questions than details:

Gov. Doug Ducey’s university bonding proposal is a vast unknown for Arizona lawmakers.

He doesn’t offer any long-term growth projections or specifics on how the state’s three universities will spend the $1 billion that the plan is supposed to generate. There is also no mention of oversight from the Governor’s Office or from the plan’s backers.

Lawmakers do understand the broad strokes of the universities’ wish list if they get the money: new buildings, research programs and repairs.

But the plan almost certainly will generate much more than needed to pay off a $1 billion loan over the course of its 30-year life, a fact acknowledged by both backers and foes, and that’s something lawmakers question.

Lawmakers are also hearing from cities and counties, which look to lose millions of dollars under the plan. Ken Strobeck, president of the League of Arizona Cities and Towns, said the plan is opaque by design, and he’s done his own analysis that shows the universities will gain more than $1 billion.

“These are not uninformed people,” Strobeck said. “I think they knew exactly what they were doing.”

In fact, county officials across the state are warning they could be on the brink of financial disaster if the state doesn’t stop stealing their revenues through “fund sweeps.” Arizona counties in crisis after a decade of state funding sweeps:

Counties have shouldered more than $500 million in funding sweeps and cost shifts by state lawmakers since the Great Recession of 2008 blew a gaping hole in state finances, according to the County Supervisors Association of Arizona, a research and advocacy group representing the state’s 61 county supervisors.

Continued financial pressure from the state after a decade means counties are watching roads crumble, reducing law-enforcement patrols, patching together decades-old equipment, closing facilities and considering the unthinkable in conservative Arizona: raising taxes.

“Year after year after year, (state officials) put their hands in the county’s pockets to balance the state budget,” said Mohave County Supervisor Steve Moss, whose county has borne about $16 million in fiscal hits.

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Perhaps most alarming: At least two of Arizona’s smallest counties now are unable to make payroll several times a year. After burning through rainy-day funds, Graham and La Paz counties are resorting to bank loans to survive negative cash balances between tax revenue cycles.

Leaders there hope the state provides relief before they have to consider bankruptcy.

“The state has boasted balancing the budget while cutting taxes, but a certain part of that budget has happened on the backs not just of counties, but of cities and schools,” Graham County Supervisor Jim Palmer said.

The borrowing plan, the biggest hurdle to Ducey and lawmakers reaching a budget agreement, has been touted as a way to allow Arizona State University, Northern Arizona University and the University of Arizona to pay for deferred maintenance, infrastructure projects and research and development.

Its boosters say the plan will allow the universities to issue up to $1 billion in bonds by letting them keep the money they would ordinarily pay in transaction privilege tax, Arizona’s version of sales tax, to the state. That amounts to $30.3 million in state sales tax and $6.5 million in taxes that otherwise would be shared with cities and counties in 2018.

But it’s unclear exactly how large the pot of money diverted from the state’s general fund to universities could grow, and the folks involved in the plan haven’t made public any long-term analysis.

And lawmakers say they need to know what they’re paying for, like what the universities could be building before they give their stamp of approval.

Aversion to the bonding proposal varies. There are many reasons not to like the deal, depending on who is asked, said Sen. Debbie Lesko, R-Peoria.

Legislative leaders are talking to lawmakers to see “what they will agree to, if anything,” said the chairwoman of the Senate Appropriations Committee.

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JLBC ran the numbers for several hypothetical scenarios regarding the bonding plan, but Rep. Don Shooter, R-Yuma, refused to divulge the details, saying it would be counter-productive to share JLBC’s report. When asked about any analysis of the bonding plan’s growth, JLBC said it hadn’t done a “formal” analysis.

As the stalemate between the Legislature and the Governor’s Office continues, lawmakers are searching for details, Shooter said.

“If this thing goes through, there’s going to be a lot of questions that have to be answered before it’s approved,” he said.

Lawmakers want to know exactly how universities plan on spending the money, such as which buildings will be constructed, which maintenance issues will be resolved and what operational costs would be covered. A budget plan from the House of Representatives shows a $15 million appropriation to the universities, but no money for bonding.

Shooter said having a capital expenditure plan is not unreasonable.

“This is the taxpayers’ money,” Shooter said.

According to documents from ABOR, the universities have $671 million in deferred maintenance, including needs like fire alarms, roofs and asbestos abatement.

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The League of Arizona Cities and Towns, which analyzed the plan, found that over the 30 years, cities and towns would lose out on $143 million and counties, $232 million.

The league believes the TPT that’s redirected for debt servicing will grow at 3 percent annually, conservatively, and there will also be a lot of economic activity, and therefore sales tax growth, generated by construction, Strobeck said.

Strobeck also commented on the amount of money beyond the $1 billion, despite the fact that the bonding plan is being touted as a $1 billion investment over 30 years by the universities and the governor.

Essentially, the universities will get an “open checkbook,” he said.

Sen. Karen Fann, R-Prescott, said the compounding nature of the governor’s TPT set-aside concerns her.

“That’s a lot of money that’s being diverted away from tax dollars that perhaps should be going into highway infrastructure funds and to K-12 education. There’s just such a plethora of things that this money really could go into. Is that really the best way to spend this money?” she said.

Others say allowing the universities to keep their sales tax, instead of having an annual appropriation go toward debt servicing, lacks oversight.

Senate President Steve Yarbrough said accountability over the university bonding proposal is a key concern. And Yarbrough has personally not seen any simulation of the growth of the TPT diversion over 30 years “other than the general representation that it’s a $1 billion proposal.”

Some lawmakers are concerned about the prospect of a runaway revenue stream, so to speak, Yarbrough said.

All of this is because of the GOP’s First Commandment, “Thou shalt never raise taxes, for any reason.” You can rob Peter to pay Paul, you can forgo paying for necessary maintenance and upkeep until everything falls apart, but you will never raise taxes, for any reason. This is insane.

Here is a summary from the Capitol Times.