Governor Brewer’s bogus ‘Arizona Comeback’

Posted by AzBlueMeanie:

Linda Valdez at The Arizona Republic is appropriately skeptical of Governor Jan Brewer's State of the State Address, where the Guv injured her arm patting herself on the back. Brewer's speech: state of the state 2014 :

This time it was her announcement that she abolished CPS. Jaw dropping. But it will accomplish little if chronic underfunding is not corrected. Unless the new agency gets adequate staffing and equipment, Brewer’s bold move may be little more than a distraction. Let’s hope not.

She offered a litany of smiley-face ideas. Who is going to oppose helping abused kids or victims of human trafficking? Who isn’t glad Arnold vs. Sarn is settled? But these goals will be impossible unless the state has more revenue. But the governor is pushing more revenue-robbing corporate tax cuts.

That does not compute.

* * *

More tax breaks for business means less revenue for education.

Brewer approach to schools? Gotta get better.

Following recession-era cuts to K-12 that were among the worst in the nation, she talks an “ambitious” proposal to reward successful students. A nice idea. Interesting pilot. But this is no way to rebuild a fund that was attacked with a meat cleaver.

Calling on the Board of Regents to hold the line on tuition makes sense. But how can the universities pay for this?

The state of our state is strong? Count me among the naysayers, governor. After to-the-bone cuts to services and permanent reductions in revenue, Arizona is unable to provide the level of services its people expect from their government. Give us more than smiley-face fantasies.

The “Arizona Comeback”? Nice try, governor.

Today’s better budget days are thanks to the Arizona taxpayers, who approved the temporary 1-cent sales tax that got us through the recession.

Yes, Brewer pushed for the temporary tax.

But she also supported mortgaging state buildings, which will cost the state $616 million in interest, and she signed corporate tax breaks that will put Arizona back in the red when all they fully kick in.

The only thing coming back will be budget shortfalls.

Ms. Valdez's skepticism is well-grounded in fact. The state needs more revenue to accomplish Governor Brewer's "smiley face" ideas. Alia Rau of The Arizona Republic destroyed Jan Brewer's mythical "Arizona Comeback" fantasy in a lengthy report on Sunday. Brewer says Arizona financially sound again, but leveraged buildings say otherwise:

Screenshot-14Gov. Jan Brewer tells anyone who will listen about the great “Arizona comeback.”

In the five years since she’s been governor, she likes to say, Arizona has gone from being $3 billion in the hole to having a $1 billion surplus and a rainy-day fund to help the state avoid a future economic crisis.

She predicts the state’s budget will be structurally balanced — with more recurring revenue coming in than spending going out — by the time her term ends in January 2015. She credits her sound fiscal leadership with helping the economy and state revenue rebound.

* * *

But other state political and financial leaders say the comeback is incomplete and predict the surplus that has allowed the state to get by without a structurally balanced budget will be short-lived.

They call methods used to balance the budget during the tough years “idiotic,” and predict they will contribute to the state’s financial woes in future years.

For example, absent from Brewer’s upbeat perspective is a reminder that state government in 2010 sold some of its buildings to investors for $999 million via bonds and leased them back for 20 years. Bond-holders now own the Arizona Supreme Court building, the House and Senate chambers, the governor’s office, the state hospital and death row, among others.

Arizona taxpayers will be paying that debt, plus $616 million in interest, for the next 17 years — long after Brewer has left office.

Projections from the Joint Legislative Budget Committee and the Legislature’s more fiscally conservative Republican leaders show Arizona’s budget will continue to be structurally imbalanced through fiscal year 2016, when the state has exhausted its extra cash and is still spending more than it brings in.

“At some point, we don’t have a cash surplus anymore,” said Senate President Andy Biggs, R-Gilbert, who opposed the building sales. “And I don’t want to be here when we have another $3 billion deficit. We don’t have anything to lease anymore.”

* * *

he sale of the buildings and a temporary 1-cent-per-dollar sales-tax hike helped steer Arizona away from the fiscal cliff.

The state expects to end the current fiscal year with a balance of $200 million above what was projected, primarily due to more corporate income-tax revenue than anticipated.

But the two-year temporary tax expired in May. And a package of new business tax breaks is cutting into revenue numbers. As a result, the Joint Legislative Budget Committee says, the state’s $895 million financial cushion will be gone by fiscal year 2016.

Brewer’s staff isn’t concerned. By then, they promise, the economic recovery and growing revenue will ensure the state budget will be structurally balanced, with enough new money coming in to cover expenses — including annual debt payments.

In other words, blind faith in faith based supply-side "tricke down economics," the disproved and discredited economic theory that got Arizona into this mess in the first place. 20-plus years of GOP tax cuts have left the state with a structural revenue deficit. Gov. Brewer is promising to double-down and make that structural revenue deficit even worse because she believes in unicorns!

JLBC and state lawmakers — Democratic and Republican — say the governor’s projections are too optimistic.

Their figures show the state will bring in $8.3 billion in ongoing revenues this fiscal year, and spend $8.8 billion.

“And we’re still paying for all those buildings,” Biggs said.

They foresee a continued structural deficit come 2016, and without the financial cushion provided by the now-expired sales tax, they predict the state will be $202 million in the red. By fiscal year 2017, they predict the shortfall will grow to $505 million.

“Somebody has to be out there telling it like it is,” Biggs said. “We are not back to where we were pre-recession as far as employment.”

Democrats agree.

“Biggs is right. We’re not doing as well as people want to say,” said House Minority Leader Chad Campbell, D-Phoenix. “(The ‘Arizona comeback’) is not true. We still have a higher unemployment rate than most states.”

Campbell criticized Brewer for “horrible financial planning,” saying her administration has handed out tax cuts to the richest corporations via the new business tax breaks and used gimmicks to balance the budget.

“The sale-leaseback for the buildings was idiotic,” he said. “She did a lot of short-term maneuvering. It was a Band-Aid when it should have been a tourniquet.”

Alia-budget-graphic

According to the Arizona Joint Legislative Budget Committee, a state budget is structurally balanced when the ongoing revenue in a year exceeds the ongoing expenditures. But that’s only happened a handful of times in recent years. The state brought in more money than it spent in fiscal years 2005-07 and again in fiscal years 2012-13. State budget analysts once again expect Arizona to operate on a deficit in the coming fiscal year, though Gov. Jan Brewer’s budget planners disagree with that assessment.

Tom Rex, associate director of the Center for Competitiveness and Prosperity Research at the W.P. Carey School of Business at Arizona State University, leans more toward the conservative projections. Arizona is creating jobs and people have again begun moving here, he said. But the state hasn’t yet made up even half of the job losses and retail sales revenue, he said.

“You can certainly reach different conclusions based on perspective, but it’s difficult to reach a conclusion like the governor’s that things are going great,” Rex said. “It’s hard in Arizona to look at the data in any way and get too upbeat.”

Rex said JLBC is conservative in its projections, but not ridiculously low.

“The state’s outlook in terms of its budget may well get worse despite the economy because they’ve got more tax cuts coming,” he said. “So much revenue has been permanently eliminated.”

* * *

After Brewer’s staff unveil her budget Friday, the Legislature will take her requests under consideration and develop its own spending plan, likely by sometime in March.

This budget negotiation will be conducted behind closed doors with the governor's staff and GOP legislative leaders. Typically they will not include the Democratic leadership because they are viewed as "irrelevant" (unless their votes are needed). If there is one statutory change or constitutional change that this state badly needs, it is a requirement that the budget process must occur in open committee hearings with public testimony. It needs to be open and transparent. No more secret backroom deals sprung on the legislature late in the session.

[Minority Leader] Chad Campbell said that while the state needs to move forward carefully, he thinks Biggs is “overselling our impending doom.” Democrats will push in a different direction. A balanced state checkbook is not such a great thing if the roof is leaking and the kids don’t have shoes to wear, Campbell said.

“What’s the point of being structurally balanced if Arizona can’t succeed at anything? Is that something to be proud of when our education is one of the worst in the country … when we have 6,000 (CPS) cases uninvestigated?” he said. “We need to look at how to begin investing again in key things for the state.”

Campbell said the state needs to increase its investment in education, CPS, renewable energy and tourism. Campbell, as he has for several legislative sessions, is pushing tax reform, particularly closing loopholes in the sales and income taxes, as a way to bring in more revenue.

“It would probably raise taxes on the richest Arizonans, but it would lower taxes for the majority of people,” he said.

ASU’s Rex said the financially responsible thing for the Legislature to do would be to increase revenue and reverse the tax cuts. If that doesn’t happen, he said, then the Legislature should at least consider not adding any new spending.

“Without restoring any revenues, the situation is just grim,” Rex said. “Not only do you have the near-term problem that JLBC is foreseeing, you know the economic cycle at some point is going to change.”

Projections now say it could be 2016 or 2017 before Arizona’s economy is back to full strength, he said.

Which brings me to my annual reminder that tax reform in Arizona is impossible so long as Prop. 108 (1992) remains law. It empowers anti-tax zealots to engage in a tyranny of the minority by requiring a two-thirds super-majority vote in each legislative chamber to increase any tax or to eliminate any tax exemption  or tax credit. Democracy runs by a simple majority vote for regular legislative business like tax and spend budget matters. Prop. 108 is anti-democratic, and must be repealed if Arizona is ever going to fix its broken tax system and address its long-standing structural revenue deficit.

One response to “Governor Brewer’s bogus ‘Arizona Comeback’

  1. Rewarding only “successful” schools is not a reasonable approach to improving education. Funding schools according to their needs makes a lot more sense. If you can’t deal with that, then fund all schools on an equal basis. Leave it to the school boards to “reward” schools who make more than regular growth if they believe this is the way to go. Whatever happened to local control, or is everything to be run in Phoenix?