Everyone seems to dislike the new state budget, but how did it come to this?
The quick answer is that spending growth and tax collections have been out of step for some time, says Alan Maguire, an economist and president of The Maguire Company in Phoenix.
Going into this budgeting cycle, the state estimated a deficit of at least $500 million. That left two choices: Cut spending or increase taxes. And both new Gov. Doug Ducey and the Legislature's Republican majority made clear that they wouldn't raise taxes.
Indeed, as the charts show, the state has a long history of reducing income tax rates and even eliminating some taxes. One exception is the sales tax, but as Alberta Charney, senior research economist at the UA Economic and Business Research Center, points out, "the share of income spent on taxable items has fallen by a third" since 1990, reducing the state's taxing capacity.
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The final piece of the tax story is the recessions since 2001, which took a huge bite out of state revenue.
On the spending side, voters chose in 2000 to expand the Arizona Health Care Cost Containment System — the state's version of Medicaid — to cover more poor people. That has come at substantial cost. Twenty years ago, AHCCCS's share of the budget pie was 10 percent. Now it's 13.
Prisons ate 7 percent of the pie 20 years ago. In the new budget, prisons account for 14 percent. Behind that increase is this fact: We are locking up many more people.
For K-12 education, the comparable shares were 37 percent in 1995 versus 42 percent now. Yet this remains contentious because the Legislature is funding schools at a much lower dollar amount than what voters have said they want.
While a small number of departments are driving spending increases, other functions of state government have taken big cuts. As recently as 10 years ago, for example, Pima Community College received $22.8 million in state funds; In the new budget, Pima gets nothing.
Universities' share of state spending has dropped from 13 percent to 7 percent over 20 years. The cut in the new year is particularly steep.
Charney is pessimistic about the future. Cutting taxes does not lead to economic growth and greater revenue in the long run, she says. Cutting spending will weaken the economy and revenues will decline, she predicts.
Maguire says the new budget will help bring long-term spending and revenue in alignment. But he is worried about what will happen if the economy weakens and revenues drop.
