The financial mismanagement of the state by our Tea-Publican controlled legislature

There are two good opinions in the Arizona Republic about our Tea-Publican controlled legislature’s financial mismanagement of the state, but only one opinion tangentially mentions the underlying cause: Proposition 108 (1992), the “Two-Thirds for Taxes” Amendment, Arizona Constitution Article 9, Section 22.

As I have posted previously, If you want tax reform, repeal of Prop. 108 (1992) is a necessary prerequisite:

I consider Prop. 108 the GOP’s “weapon of mass destruction.” Here is why: it only takes a simple majority vote of the legislature to approve cuts to tax rates, or to enact tax exemptions and tax credits (tax expenditures). But these tax revenue reducers become permanent in practical reality because Prop. 108 requires a two-thirds super-majority vote in both chambers of the legislature to increase tax rates, or to reduce or eliminate any tax exemption or tax credit.

Since Prop. 108 was enacted by voters in 1992, the Arizona legislature has not increased tax rates, and has not closed “tax loopholes” as all the pundits decry that we desperately need to do. A tyranny of a minority of anti-tax zealots in the Arizona legislature are empowered to prevent any such tax reforms: 11 members in the Senate, or 21 members in the House.

This is how the anti-government, anti-public education, anti-tax GOP game is played: in each legislature since Prop. 108 was enacted, the legislature has enacted tax rate cuts and/or special interest tax exemptions and tax credits. This has had the intended effect of reducing tax revenues, creating a structural revenue deficit which results in a budget deficit. Because raising tax revenues is always off the table in the ideological GOP, the legislature takes out its meat ax and cuts the budget to essential state services like public education, health care and infrastructure (primarily roads).

The Arizona GOP can manufacture a perpetual budget crisis in Arizona by a simple majority vote for yet another one of their faith based supply-side “trickle down” tax cuts that have not magically produced the unicorns and rainbows they promised us. And because a tyranny of a minority of anti-tax zealots can prevent any reversal of these tax policies, Prop. 108 thus becomes a “weapon of mass destruction” of Arizona’s government, and of sound public policy.

Laurie Roberts writes, Where is Ducey’s promised second step for schools?:

In 31 days, we should know whether Arizona’s leaders are listening to the people for whom they work.

Whether Gov. Doug Ducey will follow through on his promise to voters and to the children we’ve been stiffing for years.

Nearly three quarters of Arizonans believe the state is spending “too little” on K-12 public education, according to an Arizona Republic/Morrison/Cronkite News poll. Republicans, Democrats and independents all panned the state’s financial commitment to public schools.

And that was in August, three months after passage of Proposition 123.

Ducey: Wait, that’s just the first step

You remember Prop. 123, Ducey’s plan to siphon money from the state Land Trust in order to pay the schools $3.5 billion over the next 10 years – or about 70 percent of what a judge has ruled schools are already owed, given a voter mandate that the Legislature fund inflation.

But Prop. 123 did nothing to reverse deep cuts to public education made during the recession.

During the campaign, Ducey promised that Prop. 123 was just the “first step” in better funding the schools.

“There’s many ideas we have,” Ducey said, in April. “But we know none of them come without the success of Prop. 123. Give us this next month-plus to have success on Prop. 123 and then we’ll be talking about that.”

After Prop. 123 passed, Ducey again hinted at good things to come.

“With the passage of Proposition 123, Arizona has taken a historic first step to provide schools with the necessary resources to continue providing students with a quality education,” according to a statement issued by the Governor’s Office.

Seven months later, Step 2 is … ?

Seven months later, we’re still waiting for that second step.

It’s difficult to see the Legislature as a champion of public education. Arizona schools endured some of the deepest cuts to K-12 education in the nation and ranks 48th in overall per-student spending, according to the U.S. Census Bureau. Now add in the fact that the new Senate president is Steve Yarbrough, a guy who has championed (and profited from) diverting public funds to private schools via tuition tax credits.

It’s difficult, too, to see Ducey as a supporter, given that his priority is to cut taxes every year.

And never, apparently, is enough enough.

In the last 20 years, the Legislature has slashed taxes time and again, shrinking the annual state budget by an estimated $4 billion.

The state is on the hook to lose another $796 million over the next three years, according to legislative budget analysts. Next year alone, $428 million in corporate tax revenue will vanish, thanks largely to 2011 tax cuts still being phased in.

Something to remember, when our leaders say they’d really love to do something for the schools but just can’t find the money. (Seems to me it’d be easy enough to postpone those cuts until the state’s revenue picture improves.) [And you’d be wrong.]

I never thought I’d say this, but state Superintendent Diane Douglas gets it. Last week, she called for $680 million in new funding to pay for teacher raises, school repairs and new buses.

“I am posing this question,” she wrote in her AZ Kids Can’t Wait plan. “As a state, do we want the best education system in the United States or the cheapest system we can get by with?”

In just 31 days, the Legislature convenes and Ducey – curiously silent since the passage of Prop. 123 – will have to answer that question.

Kevin Olson and Sheila Breen from the 109th Arizona Town Hall write, Viewpoints: How low taxes and bad investments hurt Arizona’s future:

A group of diverse Arizonans concluded that Arizona’s government financing system does not follow the best practices for government finance systems, fails to adequately invest in basic needs and, instead, creates larger than needed costs for incarceration and other social services that could be avoided with wiser investments that take a longer view.

Our conclusions and recommendations took time and effort. In preparation for the 109th Arizona Town Hall on “Financing Arizona’s Future,” participants reviewed a comprehensive report about our state’s revenue and spending.

At the Town Hall, we spent three days hearing from national experts and discussing and deliberating the issues. The background report provided a wealth of insight about general fund revenue and spending that exceeds $9 billion each year, including these examples:

• Almost 90 percent of revenue comes from individual and corporate income taxes (46 percent) and sales taxes (44 percent);
• Over 90 percent of spending is allocated to only five major areas: K-12 education (45.5 percent), AHCCCS and other health care (19.5 percent), prisons (11 percent), universities (7.5 percent), and economic security and child safety (9.5 percent).

The problem: We haven’t invested wisely

For more than 20 years we have consistently reduced revenues and spending as a percentage of our state’s economy. In addition, we have become more dependent on highly cyclical income and sales taxes, producing surpluses in years of high growth, but large deficits when we are hit by recession.

Town Hall participants concurred that we have not been investing properly and that the bias in favor of tax decreases has gone too far, to the point of harming our economic future. We must invest in educating Arizona’s children so that they become productive citizens and we can meet the workforce needs of high-wage employers.

We also need to provide the infrastructure necessary to compete in national and international markets. And we must provide preventative services for Arizonans that will help reduce high incarceration costs.

The group concluded that Arizona’s finances should be based on a set of comprehensive guiding principles that recognize both our status as a low-tax state and our need to invest in areas that will impact our future. These principles for our tax system should include transparency, openness, fairness, simplicity, stability, accountability and predictability (all areas where we currently fall short).

We need a strategic plan so that we can eliminate structural deficits and help citizens understand where their tax dollars are invested. We must move away from a system driven primarily by short-term [political] objectives and special interests.

Where we need to invest (and reform)

The Town Hall’s major themes focused on the need to invest thoughtfully to ensure a robust future. These include:

Education. Spending cuts have hurt our ability to compete. To compete in a global economy, we should seek to be a leader in providing high-quality education at all levels. Well-directed investment will pay off when companies want to relocate to Arizona because of our well-educated workforce. We must restore a viable level of funding to achieve specific measurable outcomes for education and consider long-term solutions for financing education, including renewing and increasing the funding in Proposition 301.

Mental health care. Our prisons and jails are filled with people who would be better served with mental health care and it would save us precious tax dollars. We need to better meet the mental-health care needs of Arizonans and stop turning our prisons and jails into de facto mental-health care providers at a much higher cost.

Infrastructure and natural resources. Infrastructure and natural resources are critical to our future. Careful stewardship will allow us to improve and maintain our transportation and utility systems, satisfy our water resource needs, create healthy forests, protect wildlife, and promote tourism and recreation. We should consider a broad range of sources to finance the needed investments, including the gas tax (which should be increased and then indexed); public-private partnerships; toll roads; increased vehicle-registration fees; taxes on vehicle services; a mileage tax (which may become more important as electric cars replace gas powered vehicles); community facilities districts; and tax increment financing.

Public safety. Arizona’s allocation of funds for criminal justice is adequate overall — indeed, our failure to invest in education and mental-health care may well have led to more prison spending than would otherwise have been necessary. Our problem is that the funds are not properly allocated. We would be better served by funding programs that provide intervention before incarceration. Town Hall participants recommended that mandatory sentences should be eliminated and the sentencing guidelines should be re-evaluated with an emphasis on cost effective alternatives to prison for non-violent criminals, including prevention and diversion programs.

Social services. Arizona needs to invest in other social programs, including housing and family services for underserved populations, to provide for the well-being of all its citizens. For instance, adequate funding should be provided for Department of Child Safety programs to help keep families together, as well as programs to help care for Arizona’s aging population, particularly veterans.

Change laws to comply with best practices for government finance. Broaden and simplify our tax code to provide more stable and predictable revenue. Adopt a citizen initiative to repeal the two-thirds majority requirement for raising taxation and instead require only a simple majority. [Prop. 108 (1992)] Facilitate long-range planning by increasing legislative terms and eliminating term limits.

Three steps to improve our future

The failure of Arizona’s government financing system to properly invest in the future of our state negatively affects Arizonans and our future economic prospects. It imposes large costs for incarceration and other social services that could be avoided with a few wise and consistent investments.

To provide the best future for our state, we need to (a) adopt the principles of sound government financing; (b) invest wisely in education, infrastructure and preventative services; and, (c) stop our practice of short-term thinking and instead develop a long-term strategic plan that focuses on outcomes and supports spending that invests appropriately for the well-being of the state’s citizens.

We cannot realistically do any of this until we address the prerequisite of repealing Prop. 108, the “Two-Thirds for Taxes” Amendment, Arizona Constitution Article 9, Section 22. If no one is aggressively advocating for repeal in the legislature or governor’s office, then all of the Town Hall proposals above are just pie-in-the-sky wishful thinking.