Arizona Chamber of Commerce and Industry

Arizona Tax Research Association Proposes Real Spending Reform

With a budget deficit for the next fiscal year (FY '10) projected in the $3 billion range - one of the largest as a percentage of a state's general fund in the nation - it is clear that expenditure reductions will need to be part of the solution. At the Arizona Chamber, in our budget document released in January, Weathering the Storm and Preparing for a Brighter Future, we offered the following guidance to Legislators:

First and foremost, the Legislative and Executive branches must act immediately to make significant expenditure reductions to non-essential programs and activities. Just as lawmakers acted to increase programs in flush budget years, they must now take corresponding action in lean budget years. Reductions are imperative to realign the state's commitments to available revenues and to minimize the deficit in subsequent budget years. When evaluating what cuts to make, the legislature should analyze the impact on the private sector's ability to help the state grow its way out of the deficit.

Given the growing severity of the problem, greater specificity and additional guidance are now needed. The Chamber is working on an updated document on how best to close the massive hole.  Part of our process is to review the body of work that has been completed by other organizations and fiscal policy experts.  Our goal is to integrate the best thinking with our own original ideas in order to offer policy makers the most useful guidance.

An outstanding piece of work to guide us on our updated spending reform recommendations comes from the Arizona Tax Research Association (ATRA).  Led by its President Kevin McCarty, ATRA's recommendations are a must-read for anyone interested in solving not only our current budget deficit, but in honestly addressing our state's structural shortfall.

Education is a long-standing priority for business.  Employers choose to locate where can access a qualified workforce, and the quality of the workforce is directly linked to the quality of the education system at all levels.  For this reason, we believe that expenditure reductions to education must be structured in a way that does not negatively impact student achievement. Further, we contend that a complete redesign of the state's school finance system is in order, although this must be a longer-term objective.

ATRA's recommendations are focused on adjusting outdated funding formulas, eliminating programs that do not improve academic achievement, and ensuring resources are better focused on student learning. Some of the key recommendations that ATRA offers to policymakers are:

• Update spending formulas: Contrary to what many believe, less than 40 percent of all spending in Arizona is actually voter protected.
• Don't exaggerate the state's obligation to adjust for inflation under Proposition 301 - a voter-passed initiative to increase funding for education.
• The state should minimize its exposure to homeowner rebate and 1 percent cap costs by phasing out local school district levies that are outside the public school equalization system.  For FY 10, this exposure is expected to be $414 million.
• Move from prior-year growth to current year funding, which could save $29 million
• Eliminate early Kindergarten for 4-year olds, which could save $26 million
• Reduce or eliminate redundant funding through dual and concurrent enrollment for community colleges, high schools, and Joint Technological Education Districts (JTED), which could save $4.4 million
• Eliminate state aid to community colleges for recreational classes, so that courses such as Single Again, Humor and Play, and Coping with Stress are not subsidized.
• Eliminate state aid for out-of-state university students (28 percent of the full time student equivalent in the university system is classified as out-of-state).
• Reform the state's retirement programs, which according to the report are among the most generous in the country.  The report states that from 2000 to 2008, the taxpayer costs for during the retirement portion of the Arizona State Retirement System increased 951 percent! To this end, the Arizona Chamber supports a defined contribution option for new state employees.

While closing Arizona's budget deficit is an enormous challenge, the strong and specific recommendations provided by ATRA will help our policymakers as they look for spending reductions.  In the process, Arizona's budget will be put on a path to true solvency. Look for a complete set if updated budget recommendations from the Arizona Chamber later this month.
 
For a full review of the ATRA document, please click here.