Federal Share of State Budget

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A new report shows that nearly half of Arizona’s general revenue funds come from the federal government. Only Mississippi and Louisiana receive a higher percentage of their state funds from the federal government. The Tax Foundation of Washington, D.C. put out the report. Arizona State University Economist Dennis Hoffman and Byron Schlomach, Chief Economist at the Goldwater Institute, will discuss the report.

Ted Simons: Good evening, and welcome to "Arizona Horizon." I'm Ted Simons. DPS radio transmission logs released today to "The Arizona Republic" show that state forestry officials initially believed that there could have been survivors among the firefighters killed in the Yarnell hill fire. The records reveal a fire incident dispatcher asked DPS to put a MedEvac helicopter on stand by and that hospitals should be put on alert. A DPS paramedic was then dropped off by helicopter and hiked to the scene where he radioed back that he had confirmed fatalities. The translogs will be among many records examined by investigators looking into the deaths of the firefighters. The Goldwater institute says it will not challenge an arena management deal between the Phoenix coyotes and the city of Glendale. They believe it is not unconstitutional. The city council approved the deal with the team's new prospective owners, a move that will keep the coyotes at jobing.com Arena for the next five years-A new report shows nearly half of Arizona's general revenue comes from federal government funds. Only Mississippi and Louisiana receive a higher percentage of their state funds from Washington. The report was put together by the tax foundation of Washington, DC. Here now to talk about the finding and what they say about Arizona's economy, is ASU economist Dennis Hoffman and Byron Schlomach, chief economist at the Goldwater Institute. 46 some-odd % of Arizona revenue from federal funds. Is that a surprise to you?

Dennis Hoffman: Not really. We're a low tax state. We don't ask our own citizens on a relative basis compared to other states, saying per capita basis or as a share of income, we don't ask our own citizens to pay for the basic costs of government the way other states do. Federal dollars are parsed out more or less equally across the states. We get a little bit higher share in some sense for some reasons. But when you take that federal share that everybody gets, say on a per capita basis, and you add it to our low local tax burdens, the feds come out with a lot.

Ted Simons: 46%, is that a surprise to you?

Byron Schlomach: Well, no, not at all. Generally you expect nearly any state to have at least a third of its revenue come from the federal government. If you look at things a little bit more broadly and look at state and local governments, even then the rankings wouldn't change a whole lot.

Dennis Hoffman: That's right.

Byron Schlomach: What is difference, though, is what Dennis was referring to, and that's the amount of local spending, local sourced funds that you tax and spend, and Arizona has relatively lean government at the state level as well as at the local level. If you compare us to Massachusetts, this ranking makes us look like bums in a way, but if you look at per capita spending, federal money on a per capita basis, Massachusetts actually ranks 19th, Arizona ranks 21st, Texas which ranks 11th in the tax foundation study, ranks 39th. We did a little bit of math at the institute and looked at cost of living, adjusted some of this for cost of living. Now, because Massachusetts costs a lot to live, they go way down in the rankings. So you get into this, and it's a bit more subtle. I would say the tax foundation's little study is a little ham-fisted, but they do have an important point to make. And that is that when it comes to federal deficit spending, states are part of the problem.

Ted Simons: States are parts of the problem, but Arizona, again, let's get back to Arizona, regardless of the numbers, in terms of general revenue, that's pretty -- When only two other states have a higher percentage, ham-fisted or no, the numbers are there.

Dennis Hoffman: Right. It goes right back to the fact that today we don't ask individuals for much in the way of state revenue when you compare to other states. And you compare to -- Other states like Texas or whatever, we just don't ask much. We're 49th in terms of per capita ask on own source revenue for the state. And as a share personal income, we're 48th. And by the way, since 1992, we've slid dramatically. In fact, I looked at per capita revenues under known source basis, this is the dollars that we ask our own citizens to contribute, we grew the slowest of any state in the union. In fact we were the only state on a revenue per capita basis over the last years, that didn't even grow as fast as inflation. So we didn't -- Revenues didn't grow as fast as the old population and inflation metric that some of the folks they like to use.

Ted Simons: Back to these original numbers here, does it suggest that there is some sort of tilting out of balance here between a state that says -- And is often times at odds with the federal government, coming back and having practically half of its general revenue coming from the federal government?

Byron Schlomach: Well, to some extent we like other states have subjected our policies to federal mandate, because of federal largess. If you look, we are instituting the common core, which is still pretty controversial across the whole country in education, and part of the reason we're doing that is in pursuit of federal dollars. You look at the Phoenix light rail system. Part of the reason that exists is because we pursued federal dollars. ADOT continues to study high-speed rail between here and Tucson. Why? It's in pursuit of federal dollars more than anything else. And so over and over again, if you want to look at some of our poorer policy decisions, I would argue that includes the Medicaid expansion last session, this is always in pursuit of federal money.

Ted Simons: Is it in pursuit of federal money for its own self, or is it in pursuit of federal money because that's the only way these things could get done?

Byron Schlomach: Well, we're not going to finance all by ourselves as was argued, and I think is correct a Medicaid expansion. And I'm not -- I don't necessarily think we could afford it. But the -- But we are pursuing the federal dollars for their own sake, with the idea that somehow or another F. we don't get it, somebody else will get it, or if we don't get it we're silly not to get it. There's a certain amount of truth to that. What we have is because of the federal system, a divide and conquer strategy on the states, and so we're all mutually irresponsible, when we look at federal deficit spending and it's leading to the financial ruination of this country, ultimately, we're part of the problem.

Ted Simons: What do you make of the idea that if we don't spend it, someone else will, and we have already put into it?

Dennis Hoffman: I understand that. And I think there's a particular logic to that. But I think this discussion kind of misses the basic point. The point in Arizona is that we are -- We have a taste for very low taxes. We have I think if you just follow the political debate and discussion, we have a distaste as I think Byron is articulating, many folks have a distaste from a number of the policies the federal government advances, but at the end of the day that would suggest to me that it's our responsibility as citizens of Arizona to pay a greater share of the bill for things that we want. Like roads, like basic education. You know, we have a state that unfortunately is exposed to as we know, devastating fires. But yet when we look for help there, it's always a federal government ask. And I think these are federal -- These are federal forests, the federal government has an obligation there.

Byron Schlomach: And they're not managing it very well either.

Dennis Hoffman: I understand, but those federal forests are not equally distributed across the states, either. So those states, those citizens that choose to build homes in close proximity to those forests, don't you believe there's some individual responsibility here?

Byron Schlomach: Sure. If we --

Dennis Hoffman: the state has --

Byron Schlomach: If we could manage the forests, and I think there are a lot of people including very conservative people like me who are willing to take that on, if the federal government would just get out of the way -- Look, we're using -- I think we were improving, we were pulling ahead of everyone else, and we were.

Dennis Hoffman: Of everyone in what regard?

Byron Schlomach: In terms of keeping our government small, and the economic benefits that produces. It's much less of a burden.

Dennis Hoffman: Do you think we bought permanent prosperity by being, you know, the low tax guy Otto item pole here?

Byron Schlomach: Your next thing is going to be the housing debacle. I just got through reading a book called "The American Nightmare" that makes it very clear that the states with centralized growth planning, that's the problem. And we have that in this state.

Dennis Hoffman: I'd like the Texas model a little more. You're a fan of Texas, they've got residential property taxes, they've got banking laws that help fend it off, all of that speculation. And I that I --

Byron Schlomach: And overall even smaller government than we have on a --

Ted Simons: You mentioned specifically in terms of forests, that's obviously a sore point, a tender spot, the state could do more if the feds would I think your quote was just get out of the way. Will the state do more if the feds get -- Will --

Byron Schlomach: I have no doubt --

Dennis Hoffman: You think they would tax themselves to provide the revenue to support doing more?

Byron Schlomach: What we're going to -- We would find, and to some extent I think Arizonans resent this, we in the past have treated federal lands as a free resource and the federal government really hasn't acted like an owner. They're starting to now, but they're not a very good owner. They're not really running it very well. And what you would see is the state would finance itself through fees for the people who want to access and be close to that land. And that's a very efficient and effective way to do things, and justified.

Ted Simons: Efficient and effective.

Dennis Hoffman: I completely agree if we could implement it. What my fear is, we have such a distaste for taxes in this state, it is, you know, the evil upon all evils, that it's just kind of hard for me to conceive of that model.

Byron Schlomach: I'd oppose taxes. I'd support fees. People who don't use the forests I wouldn't charge them a dime.

Dennis Hoffman: OK, fine. But I think a lot of folks just lump taxes and fees together.

Byron Schlomach: Maybe so.

Dennis Hoffman: Some people call the Medicare fee a tax.

Ted Simons: Let's real quickly, as far as the equation for Arizona, the 46%, keep trying to get back to that original -- Is that a healthy equation for Arizona?

Dennis Hoffman: Well, in a way it's what we're stuck with, Ted. Given the fact we've chosen not to ask our citizens to pay a greater amount for public services.

Ted Simons: Are we stuck with something healthy or unhealthy?

Dennis Hoffman: Well, I don't think -- I think there this is what we'll find over the next five years. I think folks are going to find that there's not enough dollars in the state's general fund under the current tax system, after we've slashed the income tax rates over the last years by 40%, I can't find any other state that's done that by the way -- I think that folks are going to find that there is a taste for a higher quality public sector, be it in quality of education, quality of roads, or quality of public infrastructure in some way, shape, or form. But that will just have to play its way out. We're going see how it works.

Ted Simons: All things considered, is this a healthy equation for Arizona?

Byron Schlomach: I don't think it's a healthy equation for any state. Even the least funded from the federal government state, there's too much of the federal government involved in policy making, because they can, they can dictate because they finance so much. We have looked at federal deficit spending, we're ultimately all headed in the same direction, because the federal deficit spending we have advocated a policy where the states would -- We would advocate changing the federal constitution so that states have to give permission to Congress to deficit spend any further. I think that would cause our legislatures to look more long-term at all of these issues. And weigh out the benefits of federal largess when we recognize that we have to take responsibility for how much of the spending we're doing.

Ted Simons: Real quickly --

Dennis Hoffman: 65 billion we get from the feds. If we get this passed we have to figure out what we can live without. A lot of that is private sector procurement. By the way, surplus in June, record federal surplus in June.

Ted Simons: Do you believe that people would be willing to live without as opposed to paying more?

Byron Schlomach: I think to a great degree we've already demonstrated we're willing to live without. And look, the bottom line is it's not really living without. Remember, we're minimizing the take that the government possesses of our earnings, and by doing that, we improve our economic growth and our economic prospects.

Dennis Hoffman: Quality roads, quality --

Byron Schlomach: And we're doing a pretty good job with what we have.

Dennis Hoffman: We'll see.

Ted Simons: And we will stop it there. Good discussion, gentlemen. Thank you so much for joining us. We appreciate it.

Dennis Hoffman: Thanks, Ted. Thanks, Byron.

Dennis Hoffman:Economist, ASU;Byron Schlomach:Chief Economist, Goldwater Institute;

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