Legislative Leaders

March 24, 2009

Transcript:

Ted Simons:
Hello, and welcome to "Horizon," I'm Ted Simons. State lawmakers hope to have a partial draft budget for the next fiscal year by the end of this week. Right now lawmakers are trying to figure out how to close a $500 million gap as the final step in eliminating a $3 billion deficit for next year. Here to talk about that and more are Senate President Bob Burns and House Speaker Kirk Adams. Good to have you both back on "Horizon."

Kirk Adams:
Good to be here.

Bob Burns:
Good to be here. Yes.

Ted Simons:
Let's start with the '09 fix which apparently still needs to be fixed, correct?

Kirk Adams:
Back in January we fixed a $1.6 billion deficit in the current year which ends June 30th. Three weeks later we received additional revenue numbers already off of the already pessimistic forecast. We have an additional hole in the current fiscal year to fill, in addition to balancing the $3 billion fiscal year 10 budget.

Ted Simons:
Reason for the shortfall, just not enough money coming in.

Kirk Adams:
The revenue continues to decline.

Ted Simons:
Critics say it was rushed. Does it look like that may be more viable now than it was at the time?

Bob Burns:
Well, I don't have any bad feeling about that. I think we needed to rush it. We were in a position where we had to get some money into the treasurer's office. A situation which we're getting back to again now already. But we understood, as we went in, there would be some things that would have to be changed. And we were able to do that. We came back and made some changes. There were some funds that were swept that should not have been. When we did the analysis of that, the reanalysis of that, we agreed that was a problem and we restored those funds. The child care issue was addressed, as well as the dis-pro share issue and the G.M.E. Some things needed to be done to clean up what we did in our rush. But the problem now before us is not something that we did. It's the fact that the revenues have dropped way off.

Ted Simons:
You mentioned being in that situation again. Is this the April 15th deadline we keep hearing about, regarding payments to schools?

Bob Burns:
Well, yes. That's what I understand coming out of the Treasurer's office, we're back into a cash flow problem again.

Ted Simons:
That is how you see it, as well, as that April 15th deadline is one that looms?

Kirk Adams:
The cash flow situation and the April 15th deadline are two different issues. But to the earlier question, it's interesting that now we're criticized for taking too long, not getting the budget done soon enough. Before we were criticized for acting too quickly. It seems the critics will always find something to complain about. We did have to act quickly because of the pending loss of additional dollars on the February 1st date. We are now undergoing a fairly methodical process knowing that we are going to have to resolve the remainder of the fiscal year '09 problem, and most likely we will do that all at the same time.

Ted Simons:
Those who say that the rush to get '09 fixed, done, resulted in angst and things being cut and brought back, these sorts of things. You would say --

Kirk Adams:
Obviously there were things that happened in the '09 fix that we needed to go back and are doing. We have addressed the most serious of those issues. We have balanced the budget based upon the numbers that we had at the time. Revenues continued to decline. There was no way for us to know that was happening. This leaves an additional hole that we have to fix, and we'll get it fixed.

Ted Simons:
Let's go to fiscal year 2010. Where do we stand, as far as the deficit there?

Bob Burns:
Well, based on what the appropriations committees have been able to do to date -- and they have worked through all the budget units and have taken what I would put in the category of sort of the traditional budget adjustments that have to be made year to year. The difference this year is because of this deficit that we're in, there has to be a much larger reduction in agency budgets than we've ever had in the past. So they've completed that work. At the completion at that time, we still have about a $500 million deficit still remaining that has not been filled. So we're in the process of trying to identify items that can be used to resolve that problem, items that are not typical. For example, if we were to sell a prison location, for example, those kinds of items take additional research, additional study, and have a number of stakeholders that have to be worked with in order to make those kinds of fixes work, if you will.

Ted Simons:
I want to get back to how you got to the $500 million deficit, as far as fiscal year 2010 is concerned. Speaker, the governor is saying that the tax increase, a tax increase is necessary. Is she wrong?

Kirk Adams:
We believe that you can balance this budget without increasing taxes. This is an important point. We also understand that you can't cut your way to a balanced budget in the current fiscal year. It took us six years to get to this situation we are now in. It's going to take a few years to work our way out of it. There's no dispute about that. One of the things we have to keep in mind, since we can't cut our way out of the balanced budget, we have to grow our way out of this recession, which will increase state revenues. Imposing a nebulous billion-dollar tax increase on the economy at this time does nothing to help that growth. In fact, it hurts economic growth.

Ted Simons:
Same question: The governor says it's necessary. Is she wrong?

Bob Burns:
Well, we hope to prove her wrong, yes. I look at this as a challenge for the legislature. The governor has taken a position that includes what would be a tax increase. I hope we can prove her wrong. It's going to take some tough decisions in order to do that. We're probably going to have to do some things we may not really like that much. I'm hopeful that, if we are able solve this problem with placeholders, as we have done in the past that we will be able to trigger some kind of change into those placeholders, so that we can come back at a later point in time. We are bumping up against the clock when it comes to having budgets prepared for agencies so that they can plan their fiscal year. The longer we go, the more difficult it becomes for them to do their planning. We need to get a budget out. Part of the problem has been we've been continually being held back by the federal government and the lack of information with the stimulus package. So if we would have had good information early on in the stimulus package, we could be two or three weeks ahead of this current schedule that we're in, I believe.

Ted Simons:
The governor also was quoted as saying that lawmakers who don't see the necessity for a tax increase are in denial. Your response to that?

Kirk Adams:
I guess, welcome to the state of denial, right? I do disagree with that. If you look at the legislators serving now, the staff both in the house or senate, they have literally hundreds of years of experience in working with and balancing state budgets. We believe we can balance the budget without imposing new taxes on Arizona taxpayers. We think it's important that we are able to do that, so that we can grow our economy and not hurt our economy. One of the inconsistencies, I believe, in the governor's approach is she wants us to fix this as a long-term solution. I think -- and I congratulate her on that. I mean, she recognizes the importance of a structural balance. We haven't had a governor in at least six years who even acknowledged a structural deficit. So there's much that we agree with her on. Most of what she's proposing we agree with her on. But I fail to see how a temporary tax increase solves our long-term budget problems.

Ted Simons:
I know reports are -- and you just mentioned things like selling off certain assets -- these are being discussed as far as the legislature's plans. Stimulus money, selling off buildings, these sorts of things, why are these not considered "gimmicks," when they can be one-time-only revenue? Is this not funny money, as the governor would call it?

Kirk Adams:
No, it's not funny money. They are one-time moneys, depending on how you structure asset sales, for example. It depends on the deals that you make with the parties that are interested in purchasing these assets. It's not funny money; they are legitimate tactics that have been used before. We don't want to use them; it wouldn't be our preference to use them. We are in a historical period of time with a huge deficit. How do we resolve the state of Arizona's problems without pushing further problems onto the people that are hiring the employees, we want them to expand their businesses, the consumer that we want to start spending money again: How do we solve our problems without pushing them onto the taxpayers? That's really the question here. We think we can do this by utilizing some of these techniques.

Ted Simons:
Borrowing, delaying payments, along with selling off of assets, Why are these not one-time solutions, as opposed to changing structural problems?

Bob Burns:
Those techniques used by businesses that are struggling in many cases, especially the selling of assets, it's an accepted business practice that, if you are in a situation where you cannot raise revenue, and businesses don't have the taxing authority, so they have to make those decisions where they have to come back and sell assets in some cases -- borrowing is one of those other items that's far down on the list, as far as I'm concerned. I would take borrowing before a tax increase, but it's another issue I think we need to hold off on as long as we can. We need to find other solutions if at all possible to resolve this problem. If we borrow, I think that we need to be sure that we set it up in such a way that those are the things we draw back on as soon as our economy starts to recover.

Ted Simons:
How much stimulus money do you think is needed, Speaker?

Kirk Adams:
We're going to be using all of the money that's available to us, as long as the information we get from the federal government, when the final information is received -- a very frustrating part of this process -- so long as that does not require us to spend new dollars we don't have, I suspect that we will use it. I want to go back to this earlier point. Again a temporary tax increase does nothing for the long-term structural deficit. It is true that those other techniques that we may utilize are one-time moneys, perhaps two-time moneys, much like the federal stimulus package itself. In our opinion, it would be far preferable than placing the additional burden on the economy by raising taxes. That's the approach we are taking in the House and the Senate, as well.

Ted Simons:
I think many would agree, President, along the lines that we just heard. Yet, can you realistically balance this budget without raising taxes?

Bob Burns:
I believe we can. I think if you're going to call a temporary tax increase a really temporary tax increase, that's one-time money. I think we can really -- really can do this. It depends on the will of the body, obviously. We need 31 and 16, and then one with the governor's signature. But it's definitely possible in my mind.

Ted Simons:
The agency heads came out with the options at 5, 10, 15, 20% cuts. Some were pretty scary scenarios. Your reaction to what you heard from agency heads?

Bob Burns:
I think scary scenarios is one of the things that might be put a little higher up on the list than they need to be sometimes in this situation. We ran into this problem with our 2009 fix when we did the 1.6. We gave more flexibility to the agencies through lump sum budgeting, and some of the decisions that the agency made didn't necessarily match with what we would have done if we would have gone in and been a little bit more into the management of the agency and how they did their cuts. There's some gaming that can go on in this type of situation. You know the old saying about doing away with the football team and the band is the first reduction to get people's attention. It works in state government, as well.

Ted Simons:
You see any gaming going on here, as far as people crying wolf a little bit, to mix my metaphors a little bit?

Kirk Adams:
It appears that could be the case in some instances. The way I view this, this is the governor's version of the chairman's options list. You throw all your possibilities out there, knowing it's a menu of options and you're not going to use them all. You don't go into a restaurant and order everything in the menu. It's the same thing when you look at a chairman's options list or the governor's list of potential agency cuts. It is a way for legislators and the public to begin to frame the issue, but all of these reductions are not going to happen together.

Ted Simons:
There are some concerns regarding stimulus money, one of which is that because the state income tax is symbiotic with the federal tax withholding, that the Obama plan would return money to the taxpayer, as far as Arizona taxes are concern, thus less revenue. Is this something you are going to address?

Kirk Adams:
Certainly it's something we're going to have to address, and in the annual tax conformity bill. The Department of Revenue and the JLBC is still in the process of trying to figure out what the impact of that is. It's the only state that has not decoupled from the federal withholding. Our withholding from the state of Arizona is a percentage of whatever the federal government's withholding is. We're the only state that still does that. Part of the discussion we're having is, is this the time to decouple from the federal withholding rate so we don't have this problem in the future.

Ted Simons:
Another problem seems to deal with AHCCCS and withholding requirements. That is something the legislature will have to address?

Bob Burns:
Yes, I'm sure we will. And I'm forgetting the term that we use. It's the eligibility time frame, whether you - re-determination. I think over the years we have dropped from 12 months down to six, and back to six more than once, okay? So we don't see this as elimination or a reduction in eligibility. It's just a timing issue that determines your eligibility. The governor's office has been in contact with the C.M.E. on this, and that's an on going debate that I suspect may go on for a while yet. But we don't believe we're in violation through that system.

Ted Simons:
House majority leader has been quoted as saying, Thank God for the stimulus money. Do you feel the same way?

Kirk Adams:
Certainly it would make balancing our budget a lot more difficult if we did not have the dollars from the federal government. I think the jury is going to be out in terms of the long-term impact of the federal dollars. The federal dollars are here for two years. What happens after that period of time? Does it -- if we treat this the proper way and view it as a period of time to transition state spending to a point that the revenues and expenditures match up, then I think that would be -- we'd look back and say that's a good use of federal dollars. If, however, we get two years down the road, the federal money is gone and then we have a bigger cliff than what we have now, in terms of cuts and reductions, then we may rue the day that we didn't make deeper cuts a few years earlier. So the federal stimulus money is certainly a two-edged sword.

Ted Simons:
I know the last time we had you both on, President Burns, you were very skeptical of the stimulus money. You didn't seem that happy about it and weren't quite sure we would take all of it. Has that changed now?

Bob Burns:
We are in the position now where we're going to end up taking it all. It wasn't God that put us in this position. We unfortunately overspent, the legislature and the executive over the last six years helped set this up. We set ourselves up for a fall, and then the economy went bad on it and really sort of kicked us over the edge.

Ted Simons:
Democrats released some ideas last month. Is this viable? Something you're looking at, considering, ignoring, dismissing? How does it stand?

Bob Burns:
The governor has made the statement that everything's on the table, and I agree with that. Those items will in my opinion end up on the table for consideration. Whether they will draw support or not, I'm not sure. Taking out a loan against the lottery money is again another loan, one-time money. I put that right back down there at the bottom, just one notch ahead of a tax increase.

Kirk Adams:
Here's the flaw, I believe, in the Democrats' plan. It does not put enough effort towards permanent solutions. We know we're not going to have a structural balance fiscal year 10. We'll get a balance for calendar year or fiscal year 10, but it won't be structurally balanced. The out-years won't be structurally balanced. Our challenge is to have as many permanent solutions as we possibly can, so we continue to make payments towards a structural balance. If we track the spending rate with the revenue rate, the lines get further and further apart. To the extent that we could have permanent solutions be able to come closer together. And that's where the Democrats' plan falls down. They pay very little attention to ongoing permanent solutions.

Ted Simons:
I can just hear the response. That would be: Selling the assets isn't necessarily a permanent solution, either, but you do what you've got to do to bridge the gap. Your response?

Kirk Adams:
Absolutely. Selling of assets, other one-time revenue enhancements, they are not long-term solutions. There's no doubt about that. But if you include those to balance your current year's fiscal deficit and make sure you push up permanent solutions as high as you possibly can, you're making progress. The Democrats want very few, almost no permanent solutions, which only makes the cliff at the end of the federal stimulus money even steeper. That's a dangerous situation to put Arizona in.

Ted Simons:
The state equalization rate property tax, the permanent repeal of that was of high priority. Still a high priority?

Bob Burns:
Yes. That is a tax increase, and so we're trying to do everything we can to prevent a tax increase.

Ted Simons:
Okay. Does it make sense for so much attention coming from the governor's office on a tax increase, when you've got $250,000-some-odd just waiting there?

Bob Burns:
The Speaker has made the point earlier that we do not want to sort of drop a rock on the economy that is struggling right now. We have an economy that is in pain, and we don't need to be putting another load on the back of that economy. We need to let that economy get up and take off again.

Ted Simons:
Critics will say, though, basically with that formula, making this repeal permanent, you are essentially lowering business taxes at the expense of education funding. How would you respond to that?

Kirk Adams:
It's simply untrue. If the property tax were to come back into place and produce money to the General Fund, those moneys could be spent in any fashion within the General Fund.

Ted Simons:
But legislation intent was education, was it not?

Kirk Adams:
That's fungible, as you well know. It's not a choice of business tax reductions or education spending. That's not the choice. As a matter of fact, in our assumptions we've never included the permanent repeal going away entirely. So the question we have to ask ourselves is, as the legislature, we're not only responsible for state government 16 spending. I mean, there are public sector employees and there are private sector employees. When we increase state spending, we're helping public sector employees. What are they going to do for the private sector, to make sure that economy can grow again and flourish again? I agree with Bob. It's like dropping another rock on an economy that's already struggling. I would add that this private sector pays the freight. They are the ones that produce the state revenues to take care of the state programs. We have to be very careful that in our effort to balance the budget we don't hurt the private sector.

Ted Simons:
Indeed. But that rock -- from what I'm hearing, that rock, if it does take out a few schools and affects education, then so be it.

Kirk Adams:
No. I think that's a false choice. You're also not factoring in the federal stimulus dollars which will be coming in to education in addition to the cuts that will be made, additional cuts to education. There is a significant amount of money that's going to be flowing into the education system as a result of the federal stimulus dollars. That's a good thing; it's going to cushion the blow. But there are many factors affecting education that have nothing to do with what the legislature is doing. You have Prop 301 moneys coming down, Prop 202 moneys that are sliding down. All of these things are creating a perfect storm in education. To that extent, the federal stimulus dollars are coming in at the right time to help bridge the gap.

Ted Simons:
We have about 30 seconds left. Are you going to stick to your guns about not hearing anything until the budget is finalized?

Bob Burns:
Yeah I'm going to stick to my guns.

Ted Simons:
Are you getting some flak over this?

Bob Burns:
There is a little flak flying around, but we have to get the budget situation solved first.

Ted Simons:
Gentlemen, always a pleasure. Thank you so much for joining us.

Bob Burns:
Appreciate it.

Kirk Adams:
Thank you.