Thursday, April 2, 2009

Goldwater Institute: Solving budget problem requires creativity and fresh thinking

Massages for state employees, tai chi classes, and comic books are just three items state government spends your paycheck on. Not all government spending wastes money so visibly, but there is credence to the saying that for every rat you see, there are 50 more you don't.

massageThe Arizona budget clearly needs a good scrubbing, but how much of the deficit really rests in lawmakers' hands? Revenues have plunged nationwide. Maybe our deficit is a casualty of the recession. As Tina Turner might say, "What's spending got to do with it?"

As it turns out, everything. If Arizona simply had sustained state services since 2002, we would be debating what to do with a $3.2 billion balance today. There would be no deficit this year or next.

Instead, Arizona has the largest deficit of any state in the country as a percentage of our budget, including states like California, Florida, and Nevada that are equally dependent on the real estate industry for revenue.

What happened? Arizona's historic revenue growth averages about 6.5 percent annually, and we saw a few thin years from 2001 through 2003. When revenues roared back with 7 percent growth in 2004 and 14 percent growth for the next three years, lawmakers fell into a spending bonanza.

Legislators doubled the size of agencies like AHCCCS, DHS, and Commerce. As revenue inevitably slowed, there wasn't enough money left to pay the bills.

Arizona must engineer a solution that won't lead straight into another financial disaster the next time the economy hits a rough patch. Smarter budgeting rules are vital.

Lawmakers currently spend every dollar they collect, leaving the state in a bind the minute revenue contracts. A spending limit would force government to live within a budget, leaving sufficient funds to ride out the peaks and valleys of natural business cycles.

Today Arizona faces many of the same challenges as Washington D.C. Just as Medicare and Social Security threaten to absorb the federal budget absent reform, local entitlements to health care and education consume an increasingly large bite of our budget.

Creatively rethinking the provision of public services can put Arizona on a sustainable path.

Consider education, our largest expenditure. It costs taxpayers 25 percent more to educate students in traditional public schools than it does in charter schools. Statewide test scores show charter school students learn more on average during the school year than their public school peers.

We could also use private school seats, where tuition averages 50 percent less than the public school tab. Working with the private sector gives families more choices in schooling and eases pressure on state funds.

Likewise governments worldwide save billions by letting private firms design and operate highways. Laws allowing private partnerships can pave the way for quality transportation at a lower cost to taxpayers.

Like our Utah neighbors, Arizonans would also benefit from a flatter tax code. Tax reform could position Arizona as the region's most competitive state, attracting capital and investments. Economist Art Laffer estimates that reform could usher in 100,000 new jobs, providing badly needed work as Arizona's unemployment climbs over 7 percent.

Getting a handle on spending requires government to think creatively about more efficient ways to provide services and to exit some businesses entirely. Who knows? We might even find a couple of services we can live without, like massages, tai chi and comic books.

Darcy Olsen is president and CEO of the Goldwater Institute.

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