Tuesday, February 26, 2008

Slowing Down Arizona’s Budget Rollercoaster

As Graph #1 shows, Arizona’s recent budget history looks a lot like a rollercoaster.

(Link to Graph #1: http://download.yousendit.com/B1C1CF3C05F36A48)

During years with strong economic growth, state politicians allow spending to shoot up to unsustainably high levels. Then, during economic slowdowns, when revenues fall off, state spending goes crashing downward.

On a themepark rollercoaster, the screaming during the big drop means that people are having fun and enjoying the ride. But with the state budget, the screaming is not an indication that the people of Arizona are having fun.

Some of the screams come from government employees who face layoffs. Other screams come from spending lobbies and from center-left editorial boards. And still other screams come from inside the aching heads of agency heads and city managers, who must struggle to balance their budgets.

Even fiscal conservatives find themselves screaming, when they realize that large deficits create political pressure to increase taxes and pile on debt (future taxes) in order to sustain high levels of spending. Some of the Big Spenders in the Arizona Legislature are already using the deficit as an excuse to justify increasing property taxes next year.

Sadly, many of Arizona’s politicians have consciously chosen to send the state on this scary fiscal rollercoaster ride.

Since 2002, the Arizona Federation of Taxpayers (now a state chapter of Americans for Prosperity) and the Goldwater Institute have urged the state government to adopt an expenditure limitation based on population plus inflation. Instead, Gov. Janet Napolitano and majorities of the Arizona Legislature have chosen to grow state budgets at rates that were not only faster than population plus inflation, but also significantly faster than the rate of growth of the state economy, as measured by personal income.

As Graph #2 shows, Arizona’s budget problems really got out of control in FY 2006 and FY 2007, when the size of state government as a portion of the state economy exceeded 6.5 percent—levels of spending not seen since the early 1990s. Spending as a portion of the economy is down a little this year, but the trend is strongly upward.

(Link to Graph #2: http://download.yousendit.com/2D18090D69A29384)

Without voter-imposed restraints, the Governor and the Big Spenders in the Legislature will soon push spending even higher.

The good news is that Arizona already has a constitutional spending limit. The bad news is that the limit—7.41 percent of state personal income—is far too high to provide meaningful restraints on state spending.

This session, some legislators have introduced HCR 2038, a referendum bill that would allow Arizona voters in November to reduce the spending limit from 7.41 percent of personal income to 6.4 percent.

The 6.4 percent bill is a fiscally moderate proposal: It allows state government to grow, but only as fast as the state economy. If a Legislator believes that government should get larger as a portion of the economy, he or she is a Big Spender, not a fiscal moderate.

Every budget from FY1998 to FY2005 would have qualified at the 6.4 percent level. HCR 2038 also allows the Legislature to lift the cap in emergency situations with a two-thirds vote.

From the point of view of fiscal conservatives, it would be far better to adopt a spending limit based on population plus inflation. However, given the proven inability of the Governor and legislative majorities to restrain spending, the achievement of fiscal moderation via the 6.4 percent bill would be a major step forward.

The 6.4 percent bill would not stop the budget rollercoaster, but it would at least slow it down.

--Tom Jenney is state director of the Arizona chapter of Americans for Prosperity, www.aztaxpayers.org.

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