Thursday, May 7, 2009

Goldwater Institute: Holdouts are the holdup to state budget fix

Senate President Bob Burns wisely has chosen to make solving the state's budget deficit job one for the Arizona Legislature. And yet after four months, they still haven't reached an agreement. What's the holdup?

The holdup is holdouts. Republicans hold majorities in both legislative houses, but angry protests against cutting funds for health care and education have made some Republicans fearful about passing a responsible budget. Holdouts in the legislature seem to think they can have their cake and eat it, too. They talk big about fighting off tax increases but aren't willing to reduce education or health care expenses, no matter how redundant.

At least Governor Brewer is being honest. She's not willing to cut what is required to balance the budget, so she supports a tax increase.

Is it conceivable to protect education and health spending from budget cuts?

As shown below, almost 80 percent of the revised 2009 General Fund budget is health and education spending. Janet Napolitano left Arizona with a 30 percent budget shortfall for 2010. A third of that shortfall has been replenished with federal stimulus money. The rest has to be made up with budget cuts or taxes. Leaving health and education immune from examination would practically eliminate the rest of the state budget, including prisons, law enforcement, and courts.

byron chart 1

From 2001 to 2009, the General Fund grew 54 percent, twice as fast as population growth and inflation combined. As can be seen below, by far the bulk of that growth was in health and public education.

byron chart 2

If state spending was reduced to 2005 levels, the budget shortfall would more than disappear given the federal contribution. Suspending programs implemented since 2005 and eliminating duplicative programs would be a good first step to meet this budget goal. But there are also systemic changes that could be made to save the state money now and well into the future. Expanding tuition tax credit programs, authorizing more charter schools, and eliminating school district bureaucracy would help reduce the long-term pressure on the K-12 budget. Moving state employees to health savings accounts and ensuring Medicaid is reserved for the truly needy would help get health spending back under control.

It's time for the holdouts at the legislature to be specific--and public--about how they plan to close the gap.
Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.
Learn more:
Goldwater Institute: Saving With Systemic Change
Joint Legislative Budget Board: Fiscal 2009 Revisions
Joint Legislative Budget Board: Fiscal 1979 - 2009 General Fund Spending

No comments: