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Achieving a new era of fiscal responsibility in Arizona

Hugh Hallman, Commentary

May 9, 2009 - 2:45PM

Arizona’s fiscal situation is in an unprecedented state of crisis. Budget deficits are skyrocketing as tax revenues plummet. Drastic cuts to budget are not just being considered, they are necessary.

Our Republican governor has even gone so far as to anger her own constituent base by proposing a tax increase.

And most recently, the Republican-controlled Legislature came out of a long series of backroom meetings with a plan that would balance the state budget on the backs of school districts, cities and towns — effectively taking money out of our neighborhoods to pay for state shortfalls. All the options on the table are bad, but raiding neighborhoods to balance the state budget is particularly onerous, as is a tax increase.

There is a dearth of ideas on how to address the problems the state faces. Balancing a budget is about a lot more than raising taxes and cutting expenditures — it requires a comprehensive approach to fiscal responsibility, one that looks at a variety of approaches and recognizes ways to leverage resources in a way that meets both short-term and long-term needs.

As the mayor of one of Arizona’s most dynamic cities — one that, while also feeling the effects of the economy, is faring far better than most municipalities — I have some thoughts on these topics. I also have a background in both economics and law, so I understand the challenges our state’s leadership is facing.

First, when it comes to our state’s capital projects, we have failed to identify, except in a few special cases, those things we are buying as a state and be sure we spread the payment for those things over the time they will be useful to us. We often pay “cash” for such things and, as a result, use a great deal of a current year’s “recurring” funds for a long-term asset.

There are some who simply don’t like the notion of borrowing. But it’s time to move beyond that sort of ideology and look at the practicality of using bonding and sale-lease back options as financial tools in difficult economic times. Almost every city and school district finance capital projects through some sort of bonding — why shouldn’t the state, especially when it can help solve a crisis where the solutions either involve draconian budget cuts or an increase in taxes?

Second, instead of putting enough aside for the bad times, former Gov. Janet Napolitano and willing legislators kept spending ever-increasing amounts of money as if massive economic growth were a sure thing.

Sure, several legislative leaders insisted some funds be put away for a “rainy” day, but the amount set aside was less than a month of a typical year’s operating budget. Not much to count on in bad times.

What we did in Tempe was look back to the last recession and calculate the amount of money that we originally projected the city would have and compare it to the actual results during the recession. The difference, $28 million, was my target for the amount of extra money we needed to save to protect the city, its residents and the employees who deliver the city services, from the next recession — the one we’re now in. The state should do the same thing.

At this point, it looks as though for a severe downturn like this one, this state needs something like $2 billion to $3 billion dollars over a two-year period. That’s a 20 to 30 percent reserve. It may sound daunting, but if revenues return to near where they were in 2007, and expenditures are locked around the levels we can expect in the 2010 budget, an economic recovery would quickly generate budget surpluses in Arizona that can be used to prepare us for the next recession.

Of course, reserve money only can be saved up during the “good times.” That means when good times return, the Legislature and governor must restrain themselves from their great desire to satisfy every constituent demand for spending and instead impose fiscal discipline to reserve funds until an appropriate reserve is established. And, no more using “one-time” fund sweeps or “delayed” payment schemes and pretending such options can be done more than once.

The gimmicks need to be gone, whether proposed by a “popular” Democratic governor or supported by “bold” Republican legislators.

Solving Arizona’s fiscal crisis is not something that’s going to be accomplished with a year-to-year approach. Instead of focusing on accounting slight-of-hand and tunnel-vision measures, we must look at the problem with a broader frame of mind.

We have an opportunity in front of us right now to reverse a decade of bad fiscal habits and plan for our future responsibly. It may be the case that all we are feeling right now is the pain, but once we get past this, we’ll find that our children and our future are better off for our discipline.

Hugh Hallman is in his second term as mayor of Tempe. A more detailed version of this column is available at www.hughhallman.com.