Governor Napolitano

Jan. 18, 2006

Transcript:

Michael Grant:
Good evening, I'm Michael Grant and welcome to Horizon. Normally we talk to the governor the first Thursday of every month but this month we didn't want to. No, that's not true, but because so much is supposed to start in the legislature after the first Thursday of this month we moved the talk to tonight. We'll discuss her budget, her sate of the sate address and other stuff. Here now to join us to talk about what looks to be a very interesting legislative session is Arizona governor Janet Napolitano. Good to see you.

Janet Napolitano:
Good to see you.

Michael Grant:
Happy New Year.

Janet Napolitano:
Yeah, we live in interesting times as Confucius says.

Michael Grant:
The Chinese curse, that's right. I want to get to the budget but lets start with more breaking news because as you know if something breaks on the show we fix it. I stole that line. (Laughter) The Flores lawsuit you were meeting with legislative leaders just this afternoon, in fact I think you came straight from there to here, any progress on Flores?

Janet Napolitano:
No, I can't say there's been major movement on either side. Unfortunately, the legislature, for whatever reason, decided to pass one of the bills I vetoed last year the first day of the session basically so I had no choice but to say, "look, we don't have a resolution on Flores and we have an '07 budget we need to resolve so I vetoed those bills as well. So, I think we'll get a little bit of unhappiness and then people are going to have to understand we're going to have to resolve Flores and that resolution may be part of the federal government to intervene one more time.

Michael Grant:
Everything I hear is they are not going to move your way on another Flores and I I'm reading you consistently you're not going to move their way on this case. You will never tell me if you'll veto in advance. But the legislature was talking about some adjustments to the bill they sent you last year. Would those adjustments make the bill any more palatable in 2006 than you found it in 2005?

Janet Napolitano:
Some changes have been made. But in my meetings with leadership I've pointed out some real structural problems with the bill that I think make it problematic on several fronts. They'll either choose to address the issues I've raised or not. At some point, either this week or the beginning of next week I'll have a piece of ridge commission on my desk and make my decision.

Michael Grant:
What's wrong with their approach, which I would basically summarize as follows. There would be a basic amount of money appropriated for the first year. But after that, school districts, you come back to us, you put together what you're doing. You put together all your sources of funds. And if you need some more money to instruct English language learners we will give it to you.

Janet Napolitano:
You know, that's really what the bill said, if, that sounds so logical. But the bill creates a whole machinery, creates a whole new division within the department of education, has no guarantee about your funding which has been a real issue for the school districts to rely on what's going to happen and do their planning and hiring and classroom building and so forth accordingly. All of those things have been raised, raised last year, are raised in meetings with legislative leadership which have been perfectly pleasant. But again not a lot of movement.

Michael Grant:
All right. Let's say neither side blinks. We start incurring half a million dollars in fines which ramps up next Tuesday, I think. Or it doesn't ramp up. I think it goes into effect on Tuesday.

Janet Napolitano:
I think the attorney general actually filed a motion today. When the judge entered his order he said 15 days from the end of the session not realizing if the legislature acted on the 14th or 15th day, which the very possible, the governor has five days in which to make a decision about whether to sign a bill or not. I suspect the court was not aware of that. It had no intention of depraving the governor of her constitutional right to have time to review a piece of ledge commission. So legislation.

Michael Grant:
So we might be let's say 10 days away from when the fines lock in. But in any event, would the state challenge the federal court's ability just to impose fines?

Janet Napolitano: Well, the state does not appeal the court's order. Has not. The time for appeal has elapsed. At some point, you know, the federal judge -- the federal judge was requested earlier on to say, give us your view on what it will take to comply with the prior consent judgment. He declined to do that. So there may come a time in the near future where the federal court -- he's got life tenure. Sometimes when people are at loggerheads the judge is for those situations.

Michael Grant:
Isn't it an important point, placing aside the underlying dispute to clarify whether or not the federal court has the ability to fine a state?

Janet Napolitano:
I think the law is very clear. Arizona has been find before. When I was an attorney general representing the state we were fined by the federal court on a prisoner inmate suit called hook. There are cases after cases and state after state where if you don't comply the court has the ability to impose sanctions to protect its jurisdiction. I've heard that argument. But based on the case law I've seen over many years don't think it holds much water.

Michael Grant:
So the power to tax may be the power to destroy but the power to fine --

Janet Napolitano:
The power to fine in judicial parlance is the power to protect one's jurisdiction.

Michael Grant:
Let me move to another -- in fact you referenced you did veto four pieces of legislation that went up to you. I rarely read your veto messages. But I was killing time waiting for you. I did receipt this one. "Deer speaker Weiers today, I vetoed this bill. This is now the fourth time I have vetoed legislative efforts to appropriate federal funds. My reasons doing so are the same as set forth in my veto letters or 2003, 2005, 2005. "Is this just a classic legislative executive struggle over who should control?

Janet Napolitano:
Yeah. That particular bill is, I think every governor since governor Hunt has probably gotten a similar piece of legislation and has vetoed it. I know my predecessors have vetoed similar pieces of legislation. What the legislature chose to do was some of the vetoes they were unhappy with and think I misled them on at the end of last session and shove them basically through the process early in the session. Normally they haven't even heard bills really by now. And without a resolution to Flores, I think they kind of said, you know, well, you either take them or leave them. And I said, well, guys, that bill but the other bills can all be resolved in the context of the 2007 budget. You declined my offer to have a special session in the fall. I'm not in a position to sign those bills right now.

Michael Grant:
Let me see if I would appropriately interpret gubernatorial strategy at this point in time. I think the key one of these four was from the legislature standpoint was the corporate tuition tax credit.

Janet Napolitano:
No doubt, yes.

Michael Grant:
Bill. Do you see that as an important bargaining chip as the legislative session goes on or perhaps at the end of the legislative session, one that it would not be wise from a governor's standpoint to surrender 7 days into the session?

Janet Napolitano:
Well, they said I agreed to it last year. And I did on a particular form which is not the form they sent it to me. So I vetoed it. They've made the change.

Michael Grant:
They corrected it.

Janet Napolitano: They'll say they corrected the problem. But they didn't address the more important underlying issue which is this was all part of a negotiation. The negotiation included not just the tuition tax credit but funding for English language instruction, Flores among other things. Those things have not been resolved. Unfortunately that ended the last session. They said take it or leave it and I left it. These four bills were kind of take it or leave it and I made the same response. You know, they're going to be angry. They're going to say things in the press. I predict a repeat of what happened in the last session. And then more reason why we're going to have to prevail and say, look, we need to move on. The 2007 budget has plenty of capacity to include relooking at some of those issues.

Michael Grant: Given the pressing nature of the Flores suit as we've already covered, could you repackage a deal involving two or three of the same elements you had at the end of the last session including but not limited to corporate tax credits?

Janet Napolitano:
I made that same proposal this summer. I sent them the Flores bill and corporate tax credit and said, we can do this in special session. And we'll get it done and move on. They chose not to do that. That was their choice, their election. But now they have to have the consequences of that, which is they're not going to get their corporate tuition tax credit right now.

Michael Grant:
But no reason why you couldn't float that same deal in January, illustratively?

Janet Napolitano:
Perhaps. Like I said, it's a process. And they have to kind of get their venting out of the system. It usually takes the legislature a few weeks to settle down and realize, we've got to get the work of the people down. I'm going to have to give on some things and so are they, ultimately we're going to have to produce a budget so thing go home and get ready for the neck election.

Michael Grant:
Speaking of the budget I want to talk about a few details of it but take a worldview look at it. It's a $10.1 billion budget. I think on page 12, 13 of the analysis materials your offers is projecting revenues for 200067 of 9.2 billion leaving a $900 million gap. That gets funded because we expect this surplus at the end of this year carrying over to next year.

Janet Napolitano:
Oh, yes.

Michael Grant:
But there are a number of proposals in here, as you know, that are permanent funding. 142 million for the state employee pay raise, 115 million to implement all day k.

Janet Napolitano:
Right.

Michael Grant: Is it a good idea to do permanent funding programs? Because you obviously don't want to cut your teachers salaries if you move them up to 30,000 a year. Is it a good idea to make permanent spending decisions when you have what I think, governor and legislature agree, is a more or less one time windfall in these additional revenues?

Janet Napolitano:
Well, and that's why if you look at the budget you'll see that of the billion dollars that is unanticipated and not simply accountable for by normal revenue growth but just kind of flooded in an abnormally good year, 919 million of that we used to pay off debt, to put in the rainy day fund, to fund one time expenditures like paying off some of the lawsuits that we have liabilities for, to pay for one time capital construction. So we don't treat 90% of that billion dollars as anything that is ongoing. I think it is conservative and reasonable to say some part of that is ongoing because our economy continues to perk right along.

Michael Grant:
Legislative view, though, is you are committing to a series of programs that will require ongoing funding when the current revenue projections don't indicate ongoing revenue sources to fund those programs.

Janet Napolitano:
Yeah and they're just wrong about that. We have been very careful to distinguish between things that we can take care of, pay off the debt, balance the books, pay our legal liabilities, set some aside fort rainy day fund versus what we legitimately predict will match the growth of our state. And realize most of the growth in state spending is driven by population, case enrollment and so forth. We have no discretion over that. It's what happens when you're in a rapidly growing state. We're fortunate now we have balanced the books. Every year I've been governor we have balanced the books. You may recall when I became governor we had a billion dollar deficit and we had to work our way through that. Now we have a billion dollar surplus and I have proposed a plan for that. I would also say that we need to take the same view with respect to tax cuts. Whether permanent, large scale tax cuts in perpetuity really make sense as well. Everything has to wall balance and everything has to take into account the investments we need to make for Arizona, the need to have some set aside for a rainier day fund. We will have a rainy day again as much as I'd like to say we won't. Some of the fiscal bridges we used to help us climb out of that billion-dollar hole we can now take care of as well.

Michael Grant:
What's an appropriate level for rainy day? I forget what you have proposed to fund it at, around 300 million?

Janet Napolitano:
We have 156 million in there now. And again, I need to remind people of history. When I took over at governor there was zero in the rainier day fund. Under my plan by the end of the next fiscal year we would have over 300 million in the rainy day fund and will deposit next year and ultimately get to a fund I think should probably be in the range of 3, 3.5% of the overall general fund budget.

Michael Grant:
I knew you'd do that to me. Now I'm trying to do fast math on -- you'd be at around 350 million.

Janet Napolitano:
Going to be very close to that. And then again, what we need to do is have a very balanced approach, which my budget proposal is, and take care of some of the pressing needs of the state.

Michael Grant:
Targeted $100 million tax cuts. Healthcare tax breaks. That would be a one year program, would it not, the support for small employers?

Janet Napolitano:
Oh, no, it would be something I would anticipate would go on in perpetuity. What trying to do is address the issue of the working uninsured of whom we have roughly a million in Arizona. And so we will take it in bites. The first bite we're taking are those who work for small business. 25 employees or less. And what I propose is we give those small employers a tax credit to encourage them to participate in a health insurance plan, and then for all of their employees who are at 200% of federal poverty line or lower, which are going to be many of your clerical personnel, cashiers, your maintenance, secretarial, all of those would get a actual subsidy for health insurance program.

Michael Grant:
Those would be ongoing.

Janet Napolitano:
I would hope so, yes.

Michael Grant:
Would the sales tax holiday be ongoing?

Janet Napolitano:
I would hope so, yes.

Michael Grant:
All right. So we have built into the tax structure those tax roll backs for those particular groups. How's that different than for example, I don't know, what canning the state income tax rate by two tenths of a percent?

Janet Napolitano:
I think because it's more directed and targeted you can actually get a bigger bang for the tax break cut. Because putting it in areas that will really effect people in their pocketbooks, in areas we know we have demonstrably shortages. Usually with an across the board cut, because of the way the income tax works is those with the higher incomes get the biggest cut. That's what seeing in Washington D.C. in those tax cuts. Nice, but it doesn't really help folks in the lower, lower middle income who are working who need some help with getting all their kids back to school, getting health insurance and so forth. So my approach was, you know, let's take a reasonable amount. And I chose 100 million. Because again everything has to balance in the end and it does. But let's -- as opposed to everybody getting a couple of bucks in that wallet at the end of the year, let's really target it to where it will have some impact.

Michael Grant:
You don't think there's any lesson at all in the income tax cuts we had in the 1990s which -- and I'm not necessarily asserting a cause and effect relationship here, but we did have some roaring times quite promptly after those tax cuts went into effect.

Janet Napolitano:
We're seeing half empty, laugh full glasses. Because in my view those tax cuts did not leave us stable enough to withstand the rainy day that did come. And when the rainier day came in 2001, after 9/11 and the economy went south, we had no buffer, no protection, and the end result was the state ended up in a huge deficit. I think you've got to manage your affairs so you don't have huge peaks and valleys but it's more even. And you're really investing for the long-term.

Michael Grant:
The only thing I would offer in defense of what the state did in the 1990s, though, and what led to that result is as you know the rainy day fund was massively depleted by the alternative fuels debacle will which really had nothing to do I think with the basic concept of a rainy day fund.

Janet Napolitano:
Right. But you know, those things happen. And realize, you know, when you're constructing a state budget, the overwhelming majority of it is really know things that have to be paid for. Unless you're willing to tell me which schools are going to have very large class sizes, because we're going to reduce the number of teachers we have or which people are going to get thrown off of the access program or which prison inmates we're going to let out of prison, that's 70 plus percent of your budget just among those three things. So again, when you're looking at state finances you have to realize there are fixed costs to running a state. And those fixed costs grow when the population gross and when the costs of taking care of that population grow. That's really the basic part of the growth in Arizona spending.

Michael Grant:
Do those spending formulas, though, take into account certainly economies of scale? For example, for every student that you add, it tends to go in lumps. You can accommodate a few more students but maybe when you hit 10, all right, we need the next classroom, whatever the case may be.

Janet Napolitano:
Well, and they do. And a good example of that is university enrollment. University enrollment is designed so that -- the formula accommodates for the addition. It's a 22 to 1 formula. Add 22 students; you need to add a faculty member, simplistically put. The problem was, when the 90s tax cuts went into effect, everybody enjoyed them for awhile but then the economy went south, the revenues weren't there, and so the end result was that we didn't fund the 22 to1. And the universities kept growing. We didn't fund public education for inflation even though inflation kept going. And the result of that was not only were we a billion dollars in the hole but we hadn't even kept up with the base level funding to accommodate the growth we knew we had. So what we've been doing the last three years is not only climbing out of the deficit but really paying back or putting back in those very, very important things, education, higher education, the moneys that should have been there earlier.

Michael Grant:
All day k., speaking of education. You want to -- I think the legislature at least intended it to be a five-year phase in program. You want to get the job done this year. Last week, senate president Bennett, house speaker Weiers were on the program. One of the issues they took with that is some of the information they say they have gotten from school districts is that there are some school districts who are not equipped yet to fully implement all day k., capital needs and those kinds of things.

Janet Napolitano:
Right. And the budget proposal accommodates that and provides for an adjustment under school facilities for the construction of those classrooms and so forth. You know, we are now funding state funded all day kindergarten for every school where more than majority qualify for the free lunch program. Either they charge the parents for that extra half a day, in other cases, or they take money from other things. For example in one school district I know of they have larger class size in 4th, 5th and 6th grade so they can have the all day k. Those districts are now all coming to me and saying, these schools have. It we're going to have it. Let's do it as quickly as possible. The all day k. Is such a worthwhile education. The business agreement agrees in terms of doing that earlier. This year it seemed to me we could put it in the budget in the out years, let's bite the bullet and get it done.

Michael Grant:
I understand the popularity of the program. But I think one of the legislative responses is that, well, isn't that what you want with local control in school district budgets? They have reallocated, redesigned their priorities based upon how they perceived their needs. We think all day k. Is very valuable and so we'll do some things at the 4th, 5th and 6th grade level to accommodate that. Isn't that the kind of thing that you want with local school district control?

Janet Napolitano:
I think we want local control, but what we want is -- we're basically adding another grade. Adding another grade to elementary education. We're adding it at the front end. Why? Because everything shows that children who have the experience of all day k., they read earlier, they have math, they're more likely to read at grade level at third grade level, and of course reading at grade level at third grade is the key indicator about whether a child is actually going to graduate from high school and go on. So if we want to put our education dollars, state dollar into something that we want uniformly available to every child in Arizona, the kindergarten is at the parent's option but uniformly available this is a wise place to put it.

Michael Grant:
Immigration. I will tell you one of the things I was most surprised by in your state of the state address last week was your call as a transitional device to place the national guard on the border. I'm fairly certain -- in fact I think on this program I think we've covered this previously. And you felt the use of the National Guard on the border was an inappropriate use of the National Guard.

Janet Napolitano:
And as substitute border patrol agents that's not a good use of the National Guard. But every year I've been governor we've had national guard providing support, helping staff the surveillance cameras so thing make a call to a border patrol agent to go out and pick up folks who are coming across the border illegally, providing support at the checkpoints, helping process the paperwork that needs to be done so that the border patrol agents who have the job of policing the border have more time in which to do that. Looking at our needs in Arizona, looking at the pace of the federal resources coming to Arizona which is too slow although they are coming, looking at the other demands being made on our guard, primarily deployment into Iraq and some to Afghanistan, none the left we have some additional troops that we could put down there in a support role. And I've spelled that out very carefully. But in my view, this is a federal border and there are provisions in law for the federal government to pay when the National Guard is helping with ultimately what ultimately is a federal responsibility. So I've asked the secretary of defense for that funding.

Michael Grant:
Clarification on one point because we're almost out of time. I want to say there was about a $15 million number attached to local law enforcement efforts along the border. Does that tie somewhat to the 1,000,005 you feed up it? Is that the thrust of that tick?

Janet Napolitano:
In that part. But it's a $100 million package of which 173 million ultimately would go to local law enforcement, local prosecutors for help in increasing the law enforcement presence at the border. The rest would go to increased department of public safety. And we have a lot of environmental damage that has occurred because of just the amount of illegal immigration. And so I've asked for some funding so we can put some prison inmate crews down there to clean it up.

Michael Grant:
Governor Janet Napolitano, we have spent about 27 minutes or so. We very much appreciate the time. Good luck in the legislative session, good look on the Flores case.

Janet Napolitano:
Thank you very much.

Michael Grant:
You can check what's going to be on future horizons or take a look at a transcript on our website, at www.pbs.org. When you get to the home page scroll down and click on the word "Horizon."

Producer:
Problems have cropped up with the new Medicare prescription drug plan. Some seniors are going without drugs because of snafus but solutions are being devised. Also you may not know this but your credit card minimum payment could double this month. Find out why Thursday at 7 on horizon.

Michael Grant:
Thank you very much for joining us this evening on horizon. I hope you have a great one. I'm Michael Grant. Good night.