State Legislative Leaders

March 23, 2010

Transcript:

Ted Simons:
Tonight on "Horizon," state lawmakers thought they had a budget plan in place, but federal health care reform is now changing things. I'll talk to legislative leaders about that and more. Next on "Horizon." Good evening, and welcome to "Horizon." I'm Ted Simons. There's a new twist in the case of Phoenix city councilman Michael Johnson's allegations of abuse of power by Phoenix police. Johnson says that he may be the subject after police investigation. A Phoenix P.D. spokesman confirms that Johnson is under investigation. Johnson, who is African-American, says that he was handcuffed and thrown to the ground by a white police officer while trying to check on a neighbor whose house was on fire. The officer, Brian Authement, says he was assaulted by Johnson, and that's why force was used. The case is under investigation internally and by the FBI. State lawmakers thought he were finished with budget work at the end of the latest special session, but federal health care reform may change all that, as everyone now tries to figure out how the new law will impact the state's health care plan for the poor. Here to talk about all that and more is Senate President Bob Burns, and house speaker Kirk Adams. Thank you both for joining us again on "Horizon."

Bob Burns:
Thank you.

Ted Simons:
Speaker, we'll start with you. This health care reform bill, and law, how does it impact Arizona?

Kirk Adams:
Well, it may have a very significant impact, and actually punish Arizona for being quite generous in our eligibility standards for the Medicaid program. As you know, we passed Prop 204 here in Arizona several years ago, which expanded the number of people that were eligible. We were only one of about six states that that had that high of a level of eligibility. If this interpretation of the law holds true, we could potentially be punished for being so generous previously. But now we don't have the money to pay for this program, and we've rolled back the expenses of the program and the budget that was passed two weeks ago.

Ted Simons:
Rolled back the expenses to a certain date. Correct? The rollback hit as certain date. Does that impact what they are calling maintenance of effort requirements and concerns?

Kirk Adams:
JLBC is studying this issue and trying to figure out exactly what the impact is. But the short answer is yes, it may impact the budget, and it may impact our structural deficit resulting in a ballooning of the deficit that we had just gotten to a manageable level.

Ted Simons:
The idea of health care reform, senator, the impact is so confusing, so many folks are looking that the going, I'm not quite sure what's happening. That's going on at the capitol as well?

Bob Burns:
Yes, yes, and we've like I say before, there's staff has been tracking, trying to keep up with what changes have been made, and so forth. So they've had some up front analysis of what's there. But they're trying to do their final analysis now, and advise us as to what we have to do to stay within the federal law, what kind of timing is involved, there's questions of timing usually in these kinds of things, and so that's all being worked out as we speak.

Ted Simons:
So basically, again, correct me if I'm wrong, but if the law says when the president signs this bill into law, and you are doing X, Y, and Z, you can't cut back on the X, Y, and Z, you must maintain that effort to get the benefits of the federal government.

Bob Burns:
That's true, but the X, Y, and Z sometimes is hard to pinpoint and so that's part of the process. Figuring out what X, Y, Z means and says.

Ted Simons:
Did I get that --

Kirk Adams:
I don't think we could be so definitive right now. That may indeed be the case, and we're studying to figure out what the impacts are. If that is the case, our structural deficit according to JLBC, went from 330 million to 1.3 billion. I mean, this was the point we were making last week to our congressional delegation. This will impact Arizona negatively, and we may be at that spot now where a pressure will be on other areas of the budget, education, public safety, so forth, to make up for this new mandate from the federal government.

Ted Simons:
Let's talk about the idea of Kidscare and what popped up in the last couple days, if the state nixes Kidscare, then all Medicaid money, Medicare money, all federal health care money could be at risk. Is that accurate?

Kirk Adams:
Again, it may be accurate. It's something that JLBC is studying along with the Prop 204 issue. If that is the case, then we have to consider all of our options. And one of those options could be going back in and refunding Kidscare. Is that the best option? I don't know yet. But it may be where we're at.

Ted Simons:
Is that an option -- where does the money come from?

Bob Burns:
That's the big question. Where do we get the funds? As the speaker said, if we have to possibly go back into other budgets, and the big money is in the education budget, a number of our other agencies we have cut significantly, 25% and more, some of the smaller agencies. At some point they become dysfunctional. They're not going to be able to function at such a reduced rate. So we have to analyze this carefully and our budget staff will be looking at that and giving us recommendations as to where we can go.

Ted Simons:
Democrats have a recommendation, they're saying that if you get rid of the sales tax exemption on retail warranties, that alone pays for Kidscare and keeps that other penalty at bay. Is that an option?

Bob Burns:
That could be an option. There will be a number of options, I believe, before we're finished.

Ted Simons:
Is that the kind of option you would be looking at as well?

Kirk Adams:
Could you certainly look at revenue options, you can look at additional cuts; you could dip into the contingency balance in the budget. But looking at this from the broad perspective, what's really happened here is Washington has placed a mandate on us and provided no funding for it until at least 2014. And that particularly hits hard a state like Arizona because we were very generous in our Medicaid eligibility, and the second reason is that we are one of the states that had the worst fiscal crisis in the country. And so this so-called health care reform really is hurting Arizona right now.

Ted Simons:
The idea of reviving Kidscare, by one way or another, let me ask it in a different way. Should it be revived? If you could revive Kidscare, would you do it? Is it the kind of program you want to see return?

Kirk Adams:
I think the program has very laudable goals, but none of this happens in a vacuum F we take money and backfill Kidscare, provide the funding for that, where does that money come from? So it's not an easy question to answer. The Proper question is what are we affecting all around? In the Kidscare case you're probably talking a relatively few dollars relative to the entire budget. But still, it's got to come from somewhere. It just doesn't materialize out of thin air.

Ted Simons:
There's also talk of putting a tax on the November ballot, just as far as covering cost for access cuts, hospital associations may be looking at something like this. Is this the kind of thing lawmakers would have to refer, could they do it themselves? How do you see this?

Bob Burns:
If the hospital association is doing something they would be doing petition drives, or they could come to the legislature and ask to have us refer it for them. I suspect that's not a very likely case, because with all the trouble we had referring the one cent sales tax increase, I don't see much hope for doing another referral on tax increase at the legislative level.

Ted Simons:
As far as the access eligibility requirements and that particular aspect of health care reform, and how it plays with the federal bill, explain that for those trying to figure out what does that mean, does that mean we have to lock where we are? How does that work in this new dynamic?

Bob Burns:
I'm not sure we know the answer yet. The reductions we made relative to the Prop 204 issue, where it was our understanding that this was advertised as being covered by a tobacco settlement money, that money came up short and the wording in the initiative was something to the effect that if there were available funds to continue or expand. We believe there isn't available funds at this point. But now we've got the federal government coming in and saying that we have to maintain this effort level and so that's all got to be flushed out and see what we really have to do.

Ted Simons:
Are there contingency plans, were there obviously this came up late in the game here, but there was always a thought that access, these access eligibility requirements, the cuts and the changes, would bring some kind of court action. Are there contingency plans, let's say if the court does look at it and say, I don't like it?

Kirk Adams:
We have to look at additional reductions in spending. Here's the point. So long as we continue to protect areas of the budget, you're going to push off that pressure on to more areas have you more flexibility with. And so we're increasingly having less and less flexibility to manage our own affairs and this really gets to the crux of the situation. Is it really the intent of the federal government to run all the states' budgets? If this initial interpretation holds true, they are dictating to the citizens of Arizona where their general fund will be spent. And I think that's should be a cause of concern for all of us. The issues isn't so much fiscal year 11. There is likely there will be an extension for the remainder of fiscal year '11. The real question comes in fiscal years '12 and '13. This change in the federal health care legislation potentially could cost the state of Arizona $2.5 billion that we don't have between now and 252014 before any additional federal aid kicks in.

Ted Simons:
There's talk obviously the one cent sales tax, but that has been used as a bridge to get past the bad times and get to the future. Is there another bridge, revenue source, revenue generating source that can get us past this particular -- a couple of rivers now that are flowing pretty hard, do we need another bridge in terms of health care?

Kirk Adams:
Well, the initiative that it's my understanding the hospital association is working should the voters approve it, could provide a bridge. How long that will be, how successful they'll be, I don't know. They haven't shared with me the details of their specific Proposal. But we will have to address the remaining shortfall. The way this budget was set up, the sales tax referral was going to act like a bridge, and if it failed, there was a triggered amount of cuts. But now with the new federal mandate that may be in place, we may have to rethink and look at additional reductions and possible other revenue sources.

Ted Simons:
the idea, and democrats will say over and over that all they get from Republicans cut, cut, cut, when there are other options, it's mostly the tax incentives and exemptions and these things, is that something that needs to be looked at and looked at hard now? Again, not so much as ideology or permanent fix, but something that can be done now?

Bob Burns:
Well, my concern is that the old saying about if you want something -- less be of something, tax it. We don't need less economic activity right now. Our economy is struggling, this has been one of the things the Speaker and I both took a position early on last session to oppose to the one cent sales tax. And realizing that we could not get support for enough reductions through the legislature changed our position on that. But there's a limit. How far can we go? And I've had people ask me about why don't you tax liquor more, why don't you tax tobacco more, why don't you tax candy? Well, I think we're probably on the edge of creating a black market in some of these areas, tobacco especially and I don't know how far you have to go before you start creating an incentive for people to get around the taxes on liquor. So there's got to be a balance somewhere. And we need economic activity. We need to be -- our economy needs to be fired up and come back to provide the resources that we need to run government. And not the other way around.

Ted Simons:
And yet we have had tax cuts, steady tax cuts for the past 10, 15, 20 years, some individual income tax certainly that long, and we're getting stories today that income tax revenue in Arizona, the drop is number one in the country as far as -- it's already at this level, and the revenue is still dropping. Where -- we get critics -- where is the economic boom from tax cuts when all we've had are tax cuts for a couple decades now, and we're sitting where we are?

Bob Burns:
Well, I don't necessarily agree with that statement. Tax cuts came in a period of economic growth, and the trade-off typically at the legislature was, $1 tax cut, $2 growth in spending. And if the tax cut hadn't been there, there would have been $3 growth and spending. And that would have been spending that carried on through the entire up and down cycle of the economy, and we would have had a higher spending level coming into this downturn. And so I don't necessarily follow that logic.

Ted Simons:
What about you? The idea that we've seen tax cuts, we've had tax cuts, they've been continuous in terms of individual incomes tax cuts, and yet here we are. Can you blame government spending for the economy being in the shape it's in?

Kirk Adams:
You could blame government spending in part for the shape of the state budget. When you look at the growth in the state spending over the last six to seven years, we grew by 65%. Well above population and inflation. And so that's where a large portion of our deficit comes from. You combine with a worldwide economic collapse, and for people to use tax cuts as not getting us through worldwide economic collapse on housing economy and in Arizona, that was built upon easy credit and irrational housing values, I don't think it makes any sense. But furthermore, what we haven't done is we haven't addressed the high business taxes in this state. You can make a case that we have very competitive personal income tax rates. Point taken. But what we haven't addressed is the high business taxes in the state. I want to go back to previous comment that you made relative to revenue sources. There has been no Proposal coming from the democrats that has been dropped in the hopper or that they've been willing to share in a public meeting relative to new revenue sources. As a matter of fact, the only Proposal that came forward was by a rank and file member of their caucus that was not supported by members of house Democratic leadership. And so I think it's important that we correct the record here. The democrats have not come forward with a specific Proposal that will increase revenues, and I think I know why. Because they're concerned about the impact it will have on the economy and on them politically as welt.

Ted Simons:
So what you're saying, they're not putting this into bill form because they're pretty sure it's not going to succeed?

Kirk Adams:
Well, I don't know why they're not putting it into bill form. We've asked them on numerous occasions when they decide they'd wouldn't -- didn't want to put 90 bill form, we said, just come to the apPropriations committee and explain it to us in the broad brush strokes. And they wouldn't even provide that type of information. And so I think it's critically important that we correct the record on that. If they have a specific revenue Proposal, they're welcome to use legislative council, all the resource available to every legislature to make those revenue Proposals. They have the tools available.

Ted Simons:
Does have it to be a democrat making the Proposal that the warranty sales tax exemptions, they could save -- does have it to be a democrat, can it just be someone who says from a distance this looks like a good idea, let's investigate it?

Bob Burns:
Well, we'll be willing to look at what the Proposal S. but there will be other options that we will examine as well. I don't know that it matters what member. Any member of the legislature can come forward with a suggestion, and has the authority as a member of the legislature to introduce legislation. So it wouldn't be restricted to any one party or individual that I -- as far as ideas go.

Ted Simons:
And as far as ideas go, we're talking about taxes and tax revenue and tax cuts and such. I know what you're job recovery act, you're pushing for much more of this. Especially for corporation and for businesses. But also more individual income tax cuts as well. How do you convince people that now is the best time for that, when revenue is so bad?

Kirk Adams:
Because you made the point earlier, we've lost nearly 300,000 jobs. That's what you're seeing reflected in the decline of personal income tax receipts. 10% of our work force has disappeared from the state. But it's even more difficult in outside Maricopa County, do you down to Yuma, the latest report is at 27% unemployment. Navajo county, 15%. You can just tick off the counties one after one that have double-digit unemployment. How do we get economic activity moving again? You get it by attracting capital to the state, and jobs follow capitol and when the jobs are here the tax revenues begin to return. It's really not radical, it's not rocket science, it's quite simple. Get competitive on your business tax policies, have some focus economic incentives, and you can have a better economy for the long term. But we have to be really sensitive to the short-term revenue needs. The bill attempts to do that with feedback that we're receiving from the senate. It probably should go even further in that regard. And we're very open to that. But if we don't do anything to fix the economy, we will be in this trouble for some time to come.

Ted Simons:
From what you see as far as this house effort is concerned, does it make sense again in these kinds of times for those kinds of tax cuts and incentives?

Bob Burns:
Well, I think the timing is critical. We are in this deficit, and so whatever we put into place, I think we have to be very sensitive to whether or not it affects the deficit. Does it increase the deficit? We need to have something that can come into place at the right time. How we decide that is I think an area for debate. I think there's some risk in doing this on a time certain basis, because there's a lot of unknowns relative to the economy and things going on in Washington. So my suggestion is that we ought to tie it to some kind of economic recovery indicator, whatever that might be. Once we can see that we finally have gotten out of the trough and we're starting to recover, that's when we ought to be ready to implement some of these things to attract economic development. We need employers. We need people here employing people to work. So we've got to do something to improve that situation. But I think the timing is critical as far as how we do that.

Ted Simons:
Does that make sense; wait for maybe some triggers as opposed to a firm date?

Kirk Adams:
Well, with all due respect to president Burns, the purpose is to generate economic activity now as well as into the future. It's very difficult for a business that's looking at the state of Arizona to plan on and if statement. If something happens, then we have X amount of taxes to pay. But businesses need when they're looking at status predictability, they want to know that over a five, seven, 10-year period of time the return of their capital investment is going to be X, they can pencil that out. These policies do work. If you look, for example, at the state of Texas, since 2003, they've create add million new jobs in Texas alone. More than all of our states combined. This package mimics much of what Texas has done. As a result, in part, Texas has not been as vulnerable to this recession as we have. Arizona simply must do something different with our economy. The status quo is not getting us where we need to get. And it's not providing state revenues for critical state Services.

Ted Simons:
The status quo as far as you're concerned, I know S. not cutting it as far as the debt is concerned. And I know that you want to do something, make changes to the state's debt limit. Talk to us about that.

Bob Burns:
I think we've gone actually above the limit as far as debt that we have taken on. In November after the election, the apPropriations chairs are selected, and typically they sit down with the joint legislative budget committee staff and start developing a budget Proposal to be presented to the legislature in January. They're going to have right off the top, $300 million in debt service that will just be gone. That's money that they cannot use for whatever purpose. We still have in place significant amounts of spending relative to education and health care that are statutorily driven by formula, some of it is driven by voter initiative, and so that is another big chunk of the money that will be gone. And my opinion, there's going to be very little flexibility as to what will be left. I think the budget is almost going to be done when they get done with their presentation from joint legislative budget committee staff. So I think it's time to put a cap. We need to stop now with our debt and not take on any more debt. We can't do that at the legislature, we could just with stat whatever we put in place today. So we need to go to the voters and we need a constitutional change to do that. Our current constitutional debt limit is $350,000. We're in debt up to about 4.3 I believe was the number that we're sitting at. 4.3 billion. So we have blown through that number long ago. Far exceeds what would have been there even based on inflation. So we need to put a cap on, and we're trying right now as we speak, I've been working with staff to come up with a workable cap limit. We've set it at about 3.8, which is a little below where we're at, but as the debt is bought down, then it would become -- come back and get inside of the capacity that we would set with the cap. With the cap, we would set a debt capacity limit. And so if you want to go -- if you get below the cap, the capacity limit, you have capacity to borrow, but then you have to have a two-thirds vote in order to do that. That's Prop 108 in the legislative process. Or do you to the voters and approve debt. But you still have to stay within the capacity. So I think that would go a long ways to getting us back on track. It's going to take time. We're going to -- it's going to take time to pay off a lot of that debt. The other thing is, there's always been this criticism of the $350,000 number because there was no growth element there. So as we have the bill designed at the moment, we would tie it to the statewide net assessed value of Property. And so the actual capacity to borrow would be able to move up and so in the future there might be the opportunity to borrow a little more.

Ted Simons:
We've got about 30 seconds left. That sounds like limit is a limit. And it eliminates an option. Is that a wise thing to do?

Kirk Adams:
I think it's moving in the right direction. I think we had to approach it carefully to make sure that the limit that we place is a correct limit, and then to make sure we have a mechanic millennium for early debt repayment. So that when the economy returns, state revenues returns, as we start filling up this rainy day fund we can also take care of this debt.

Ted Simons:
Gentlemen, thank you so much for joining us.

Bob Burns:
Thank you.