Busted Budgets

So far, Arizona state financial projections expect a $600 million shortfall this year. Last year the state legislature was forced to accept a ‘mere’ $600 million tax cut. One might be tempted to see a certain symmetry in those figures, but it’s just a coincidence. The budget shortfalls that are likely to result from last years’ irresponsible tax give-ways by the GOP (most of which, in classic GOP class warfare style, will go to the very wealthiest Arizonans, BTW) are likely to be much larger next year. That $600 million dollar tax cut is likely to cost us far more in terms of lost investments, interest payments on debt accrued to keep the state running, and the toll that the loss of necessary services will take on Arizonans’ lives as budget cuts impact fundamental state services.

This is where conservatives who have voluntarily turned their brains off in service to the ‘movement’ will cite supply side, trickle-down, investment-driven, Laffer curve supported nonsense. There is no arguing people out of an irrational conviction that is contradicted by all available evidence, so I’ve just stopped bothering to try.

Governor Napolitano has done her best to deal with the fallout from the GOP’s feckless budget busting tax give-away. She’s proposed a combination of $100 million in agency spending cuts, $300 million in short-term debt, and $200 million taken from the $700 million in the state’s ‘rainy day’ fund. Of course, it often seems to be the entire purpose of the GOP to be unreasonable and to criticize the Governor’s proposals, and, unsurprisingly they demand that the entire amount come out of agency spending. Once you realize that about $8 billion of the state’s roughly $10 billion dollar budget is statutorily off limits to the legislature’s budget process, it is apparent that the GOP majority is proposing to cut $600 million from essentially a $2 billion dollar discretionary budget: that’s more than a 25% cut to vital state services and investments.

That might scare the hell out of you, and it should, but it’s nothing compared to next year. The GOP purposely back-loaded the income tax cuts it demanded last year so that it could claim political credit for cutting taxes without having to actually create a budget that pays for that loss of revenue: that unpleasantness was left for the future, and the future is now arriving. The cuts reduced state revenues by a bit less than 1.5% this year. That, combined with increasingly difficult times for states’ revenue collection across the board, resulted in our current $600 million shortfall. It will be a challenge to bridge that gap this year while minimizing the harm to Arizona’s residents while the GOP is in charge of the legislature, but the real fun begins next year.

Next year the GOP’s income tax revenue reductions will reduce state revenues by at least 3%. The magnitude of the resulting shortfall in state revenue is anyone’s guess, but it is likely to be significantly larger than this years’, especially amid a falling dollar, rising interest rates, and the continuing across-the-board slide of state sales and corporate tax revenues.

GOP politicians like to tout themselves as fiscally responsible and business-like in their approach to government. Well, let’s examine that premise. When confronted with a budget surplus (also known in the real world as ‘profit’) a corporate CEO and his Board has several choices. One popular option is to distribute that profit to shareholders in the form of dividends. That is a proper and prudent management decision.

But imagine a CEO and Board who say, "Well, we can expect this level of profit or more every year, so we’ll go ahead and promise our shareholders not only this years’ profit as dividends, but the expected profits for the next two years, and we’ll guarantee those dividends no matter what our actual revenue actually is." The shareholders would revolt and throw the idiots out. That’s not fiscally sound management of the enterprise, that’s foolishness. Yet when the GOP legislature does this exact thing, they hail themselves as champions of the shareholders. Sure, the feckless, stupid and greedy shareholders love these guys, but investors who care about the future growth and viability of the enterprise are rightly disgusted by such chicanery.

This little example is exactly what the GOP legislature did last year. They parlayed one year’s profit (surplus) into a multi-year agreement to distribute dividends (tax cuts) from future years without any guarantee those funds would actually be available without having to liquidate parts of the enterprise. In business, that would be considered stupid at best, outright fraud at worst; in todays’ GOP politics, it’s called "fiscal responsibility."

But what else can a corporation do with a profit? Another popular option, especially if you are a fast-growing company intent on gaining market share and investing in your company’s future growth is to retain at least a portion of that profit to invest in the company. When a company is lagging significantly in important metrics behind its competitors it isn’t even really open to judgment that one must reinvest profits in future growth and better serving your customers, rather than issuing dividends. A CEO and Board who failed to invest in future growth and competitiveness of their enterprise wouldn’t last the year.

Yet even as Arizona finds itself to be the fastest growing state in the union, it’s mediocre or bottom of the barrel in important metrics for sustaining future growth and quality of life. Management that starves the enterprise of investment to improve productivity and market leadership to serve the greed of a few shareholders and their own venal ambition, would soon preside over either a high-flying failure or, if prudent investors got their way, a lemonade stand outside their mother’s house. In Arizona politics, we call them the Speaker of the House and Majority Leader of the Senate.

What kind of rational organization puts people in charge who are vocally and openly hostile to the success and future welfare of that organization? Imagine a CEO or Board issues a press release saying, "We intend to run this company, in which you shareholders have invested your savings, through which you employees support your families, and upon which our customers and partners rely, straight into the ground. We want to denigrate and destroy it so that we can wrestle it into a bathtub and drown it." They would be turfed out by the time it hit the wires. To those who consider themselves rational, prudent, common-sense conservatives, I say, "wake the hell up!" Your party is run by yahoos without a lick of sense, and they are going to ruin you. Take back your party.

Todays’ GOP fails even the most fundamental measurements of wise and prudent business leadership. I can understand why people fall for their shtick. If you promise people something (a modern system of governance) for nothing (continually lowered taxes), you are going to have a lot of takers. Unfortunately, when they are through destroying your credit, the grown-up professionals who understand that there isn’t any such thing as a free lunch have the thankless job of stepping in, picking-up the pieces, and informing people of the unpleasant and hard realities of life. Sometimes the job of being a Democrat is just no fun at all.