A Message From State Representative Russell Pearce

Avoiding Arizona’s Fiscal Train Wreck
By Bob Burns and Russell Pearce

Arizona has the largest budget deficit in the country, and the growing gap between state tax revenues and projected spending will soon force the state government into a gigantic fiscal train wreck.

For Fiscal Year 2009, which begins on July 1, Gov. Janet Napolitano and the liberal majority in the Legislature want to spend $11.4 billion. The amount of tax revenue available to spend is $9.4 billion. That leaves a gap of $2.0 billion.

The Governor has proposed a variety of approaches to the deficit, including a $500 million increase in unconstitutional debt, a $90 million increase in traffic-camera fines, and a $60 million shift in prison burdens to Arizona counties.

Combined with a $300 million K-12 rollover and a $200 million payment from the Rainy Day Fund, her approaches would reduce the deficit by roughly $1.2 billion—still nearly a billion dollars short of closing the gap. In the real world, there are only three possible solutions to the deficit:

1) Raise taxes.
This is the worst option. Arizona families and businesses already labor under heavy tax burdens, and a recession is a bad time to make those burdens worse. Even so, the Governor has already proposed increasing state property taxes by $250 million, and is heading up an effort (the TIME Coalition) to increase state sales taxes by 18 percent.

2) Increase (unconstitutional) debt.
This is another bad option. Increasing debt usually means increasing future taxes. Further, the debt service payments required for the Governor’s proposed debt schemes would soon be over $200 million a year—meaning that the fiscal holes in 2010 and beyond would be that much deeper. To climb out of those holes, Arizona would have to see spectacular economic growth, with revenue growth of over 15 percent per year for three years in a row.

3) Reduce spending.
According to the Governor’s budget office, state government spending now consumes 7.01 percent of the state’s economy—more than it has at any time since 1980. Our proposal is to reducing spending to more reasonable levels.

We have identified more than $1.5 billion in reductions to state agencies. Combined with the K-12 rollover and a payment from the Rainy Day Fund, those reductions would balance the budget without increasing debt or taxes.

Although it sounds like a lot, $1.5 billion in operating budget reductions to the Executive’s request would take us back to the overall spending levels we had in FY 2007—not exactly the end of the world. Government spending as a portion of the state economy would still be larger than it was in FY 2003, before the Governor and Legislature went on a five-year spending binge.

Further, many of the agency reductions we propose could be avoided if a majority in the Legislature would refer to the November ballot a measure (HCR 2044) by which the voters could give the Legislature emergency discretion to temporarily suspend voter-protected spending mandates. As it is, much of the state budget is on autopilot, with automatic spending increases of over $500 million a year.

Sadly, there may not be enough fiscal conservatives in the Legislature to get $1.8 billion in spending reductions to the Governor’s desk, or to refer HCR 2044 to the ballot. That means large increases in unconstitutional debt. And, if the fiscal train really goes off the tracks, it could mean large tax increases and heavy long-term damage to our economy.

As Americans for Prosperity (http://www.aztaxpayers.org/) has explained, the only good card fiscal conservatives hold in this year’s fiscal-policy poker game is the wild card of grassroots taxpayer activism. With strong grassroots pressure on liberal legislators from both parties, the Legislature would be able to bargain harder with the Governor for spending reductions and refer HCR 2044 to the ballot.

To avoid future fiscal train wrecks, voters must enact a firm constitutional spending limit that will keep the government from growing faster than the economy. As the current train wreck shows, the Governor and the liberal majority in the Legislature simply do not have the will to restrain themselves when it comes to spending our tax dollars.

Rep. Russell Pearce (R-Mesa) is the Appropriations Chairman of the Arizona House of Representative, Sen. Bob Burns (R-Peoria) is the Appropriations Chairman of the Arizona Senate.