Spending reductions best way to deal with AZ budget crisis

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Two years ago, few could have imagined the profound reversal of fortune that we have seen in our economy and in government finances. The consequences of assuming good times would last forever are manifesting themselves in large deficits at all levels of government. Nowhere is this truer than in Arizona.

Forty-one states face budget deficits for the 2009 fiscal year. As a percentage of a states general fund, however, Arizonas is among the worst in the nation. Only profligate California comes in a close second, according to one accounting. Another tally shows Arizona a close second to California. Either way, its not the best company to keep.

Just since 2001, general fund spending has increased almost 60 percent. Thats understated, though, since the states current budget was originally balanced through gimmicks that hide or delay some spending obligations. In fact, if policymakers had exercised a little restraint, and simply spent what was required to maintain state services, todays deficit would be less than $100 million, an amount that could easily be covered by the rainy day fund.
   
Now, the state is halfway into a fiscal year everyone knew was in deficit the day the budget was passed in June. That leaves only painful options for addressing the problem. The state cannot print money like the federal government does, and borrowing is technically not possible because of a limit on debt in the state Constitution. That leaves two options: reduce spending or raise taxes. Raising taxes is the nuclear option. Higher income, property, sales, or gas taxes will make it even harder for Arizona families to make ends meet during these tough times. Increasing taxes on businesses will discourage entrepreneurs and new employment at the very moment we need to encourage them.
   
That leaves spending reductions. To start the hard conversation, the Goldwater Institute recently issued a report called A Fresh Start for Arizona: Proposals for Closing a Billion-Dollar Budget Gap. It contains suggestions for more than $1 billion in budget cuts. Some of the suggested cuts may prove easier than others. But one thing is abundantly clear when looking in detail at state spending: budget writers have no choice but to go where the money is.
   
During this decade, spending has grown most in health- and welfare-related agencies, especially AHCCCS. Caseloads have expanded faster than the overall population, even in good economic times. Less profound but large spending increases have also occurred in public K-12 and higher education. As regrettable as it may be, budget writers will have to look here to cut spending.
   
There are other places to look, too. The Department of Corrections has seen a great deal of growth and it might be time to rethink the sentencing of non-violent offenders. The Commission on the Arts and the Arizona and Prescott Historical Societies are unaffordable luxuries duplicating what can and should be done in the private sector. The departments of Commerce, Agriculture, and Tourism should face deep cuts or elimination since these agencies largely exist to either subsidize or compete with the private sector. There are a host of pet programs that have been added in recent years, like tens of millions in biotech funding that, beyond being simply unaffordable now, take the government far beyond its intended scope.
   
The hurly burly of a legislative session can often make legislators forget about their most important task writing the states budget. This time around, that means spending reductions. Hopefully, a fresh tart will be a helpful aid for carrying out this fundamental task.

Byron Schlomach is with the Goldwater Institute.