Since 2000, the Arizona state budget has grown 94 percent. Over the same time, the state's population has increased just 24 percent. At the current annual growth rate of 9.9 percent, Arizona state government will be spending an estimated $50.5 billion dollars a year by 2014. This study examines the causes of Arizona's budget growth and the potential impact on the state economy.
The breakneck speed of spending growth means that the state government is consuming an increasing share of Arizonans' personal incomes. In 2007, the state will take 13.1 percent of personal income. If current trends continue, by 2014 the state government will take more than 16 percent of personal income, matching California levels. Such growth imperils Arizona's economic health. Academic literature indicates that, in general, a 10 percentage point increase in government spending is associated with a one percentage point decrease in the economy's growth rate.
Several components contribute to the recent budget increases. Inflation-adjusted K-12 education spending has risen 64 percent since 2000. Spending on Arizona's Medicaid system is 132 percent higher, and the states increasing dependence on debt financing has led to soaring annual interest payments, up 213 percent. Formula funding is driving annual spending increases of over $600 million. Meanwhile, old-fashioned government waste is costing taxpayers tens of millions of dollars every year.
Policymakers should implement structural measures to ensure that state government is fiscally responsible. Suggested measures include:
1. Keeping spending increases proportionate to population and inflation growth
2. Enforcing the constitutional debt limit
3. Adjusting the constitutional appropriations limit
4. Revisiting funding formulas.
Over the next seven years, such measures could save taxpayers $42.7 billion, or nearly $15,000 per household by 2014, and help to drive new private investment and economic growth.