Thursday, September 10, 2009

Goldwater Institute: Three steps to prevent future budget debacles

by Byron Schlomach, Ph.D.
The Arizona Republic recently ran a series of editorials on the state's budget crisis castigating legislative leadership for the budget debacle. The editors should have focused on the institutional structures that permit Arizona's legislative and executive branches to ignore their constitutional duty to balance the budget.

capitolThe state constitution could be clearer, but there is an expectation that policymakers will balance the budget when it says: "Whenever the expenses of any fiscal year shall exceed the income, the Legislature may provide for levying a tax for the ensuing fiscal year sufficient, with other sources of income, to pay the deficiency." Left unsaid is that the policymakers also may reduce expenses to meet income.

For three months, one-quarter of the fiscal year, we have operated with an unbalanced budget. In June, Governor Brewer vetoed specific spending cuts and conforming legislation, not to balance the budget, but that further drove up expenses. The result was pressure on the legislature to increase taxes.

While General Fund revenues have fallen at least 30 percent, expenditures have been reduced from their high-water mark by only about 8 percent. State spending has only begun to come down to a level that might be sustainable in the long run. In the short run, it's still completely unsustainable.

Several checks should be put in place in order to avoid these kinds of problems in the future. First, the constitution should state clearly that it's illegal for the state to operate without a balanced budget, and a statewide elected official other than the governor should certify that the budget is balanced. Second, the legislature needs to draft budget bills straightforwardly, stating spending for the next year rather than specifying spending changes relative to earlier years. This would protect against line item vetoes of spending cuts. Finally, it is abundantly clear that a spending limit based on population growth and inflation would have prevented much of the budget debacle. Such a limit imposed at the 2001 spending level would have ensured a $2.5 billion balance by 2008.

Policymakers should act now to prevent future budget debacles.
Byron Schlomach, Ph.D, is director of economic policy at the Goldwater Institute.
Learn More:
Goldwater Institute: Saving with Systemic Change

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