Amid competing needs, many priorities suffer
A “hodge podge” of fire alarms that endanger students and staff at a state school for deaf and blind children.
Hundreds of miles of county roads downgraded to primitive status and marked with signs that warn drivers to “Use at own risk.”
Radios so old that they’re no longer serviceable, adding another element of risk to wildland firefighting.
These are among the state’s most pressing needs identified through requests for funding in the annual budget process.
Some of the requests have been repeated for years.
Urgent as the needs might sound, Gov. Jan Brewer’s proposed budget does not address them.
Amid the competing demands for limited taxpayer dollars, Brewer has focused her fiscal 2015 spending plan on revamping the state’s childwelfare system, as well as an incentive program to give K-12 schools more money if they meet certain standards. Brewer’s budget isn’t unusual, say former state officials: Demands always outstrip available money.
That increasingly has been the case over recent decades. Taxpayers contribute a smaller portion of their income to running state government than they did 35 years ago, even though the state has taken on more responsibility for health care for low-income residents, increased education standards and expanded its scope of services.
While that expansion happened, other needs piled up.
As state lawmakers began work on a new budget early this year, The Arizona Republic reviewed state-agency directors’ annual petitions for funding submitted to the Governor’s Office, along with other funding requests. The documents, totaling hundreds of pages, are crammed with appeals for more staffing, proposals for buildingmaintenance projects and pitches to replace antiquated computer systems or other equipment. They paint a picture of a state struggling to carry out its fundamental missions.
Lawmakers, who debate and vote on the governor’s spending plan, rarely review the detailed budget requests. The voluminous documents are available upon request. But not even the governor’s budget director reads every one of them.
“That’s why you have staff,” said John Arnold, director of the Governor’s Office of Strategic Planning and Budgeting.
Some of the proposals have gone unanswered for decades.
A “to-do” list for building maintenance, for example, has been adequately funded only twice in 28 years, according to the Department of Administration. The result is a $435 million “legacy of persistent infra- structure failures and costly crisis-mode expenses and liabilities.”
“We’ll never ‘catch up,’ ” officials said of the backlog two years ago, when the cost of the repairs stood at $375 million.
The Highway Patrol Division asked for money to replace some of its 160 vehicles that have clocked more than 140,000 miles each. It’s a challenge to keep officers on the road in “serviceable” vehicles, agency officials wrote.
As some of the funding requests go unmet, they create additional burdens on taxpayers or community groups.
School funding declined 19 percent since the recession, according to the legislative budget office. The results showed up in multiple ways: more students per teacher, less money for equipment and an increasing reliance on parents to contribute money for everything from supplemental textbooks to basic supplies.
Since lawmakers cut dental services for some of the state’s poorest and most vulnerable residents, emergency-room visits driven by oral-health concerns have jumped. In 2011, state health data show dentalrelated ER costs were $20.7 million, a nearly 40 percent increase from 2009. Private charities have contributed thousands of dollars to dental care for people with developmental disabilities, but the donations only cover a portion of the needs.
Lawmakers often learn about problems when the situation becomes a crisis.
That was the case last year at the state’s child-welfare agency, where caseloads had for years surpassed the agency’s ability to keep up. The discovery of thousands of uninvestigated reports of child abuse and neglect set off a frenzy of activity to correct the problem.
The fix will prove costly: Untold overtime pay as staff reviews the neglected reports, $27.2 million for more staff to prevent a similar situation, and Brewer’s one-time request for $25 million to create a separate child-welfare agency.
The result is what some admiringly call a lean government, where spending has been brought in line with revenue. Needs are addressed in a deliberate, incremental way as revenue is available.
Although the Department of Administration has significant unfunded requests, spokesman Jeff Grant said he doesn’t consider the situation dire.
“You never get everything you want, especially in these economic times we’re still living in,” he said. “But I don’t think we’re concerned a building is going to collapse or the (vehicle) fleet is just going to start dying.”
But others see an outdated state kept afloat with quick fixes, reflecting a penny-wise/ pound-foolish approach. Arizona, they say, needs more revenue — not to expand government but to adequately fund the government it has.
Sure, state operations haven’t crumbled, acknowledged George Cunningham, who ran the state budget for Democratic Gov. Janet Napolitano and, earlier, served in the Legislature. But failing to fund state government so it functions optimally costs more in the long run.
“The government is operating, but it’s operating at a lower level,” Cunningham said. That translates into lower academic performance in schools and fes- tering problems that can explode, he said. That can mean harm to the people that government serves and higher costs for taxpayers.
Needs outstrip revenue
During the economic downturn, Brewer and lawmakers trimmed nearly $3 billion from the state budget over four years. But even before the economic downturn and Brewer’s administration, state agencies were competing for dwindling resources.
Beginning with former Gov. Fife Symington’s push in the 1990s to reduce the state income tax, every governor since has signed off on a tax cut of some sort.
Another round of tax cuts, including corporate-income-tax reductions, capital-gains cuts and new tax credits, take effect July 1. They add up to an estimated $129 million.
This low-tax climate limits spending. Unlike the federal government, the state cannot legally run a budget deficit.
Given that spending must match the money available, maintenance and construction projects get short shrift, several former state budget directors said. State services — schools, health care, public safety — are priorities and constitutional obligations. They get the first slices of the pie, and if the pie is small, there may be little to nothing left for new vehicles or more staffing to shoulder a growing workload.
“How many years have state employees gotten goose-egged on pay raises?” asked Peter Burns, budget director for Govs. Rose Mofford and Symington and, briefly, Jane Hull. “Again, it’s a function of what resources you have.”
Arizona has plenty of company. Most states struggled during the recession by putting off projects even as the needs grew. For example, officials overseeing states’ information-technology systems have deemed modernizing aging computer systems a top priority for the last five years, said Eric Sweden, program director with the National Association of State Chief Information Officers.
“It gets back to priorities. You’ve got education, you’ve got health care. Where ... (are computers) going to stack up?”
Yet projects that never inch up the priority list eventually must be dealt with.
“You can only postpone these things for so long before the risk becomes intolerable,” said Tom Manos, Brewer’s first budget director. Now Maricopa County manager, Manos faces the same dilemma of needs outstripping money.
‘Disequilibrium’
Tax increases are a tough sell in any climate, but if it’s for something as bland — but vital — as an upgraded computer system or building repairs, it’s virtually a non-starter.
“Howwould you like to be the governor who says we need to raise taxes to pay for a new accounting system?” Burns asked.
Brewer has phased in money over the last few years to replace the state’s 22-year-old accounting system. With the Legislature’s OK, the project should be fully funded in the coming budget year, addressing a series of budget requests that started seven years ago.
Brewer, a Republican, did
push for a tax increase as the recession was hitting its deepest point, sparking a contentious 13-month battle with her own party to send a temporary 1-cent-per-dollar sales-tax increase to voters. Unlike the bruising battle at the Statehouse, voters embraced the tax hike, which was sold as a way to sustain education, public safety and health programs through the recession.
The temporary tax expired last May, and, along with it, the nearly $1 billion a year it raised.
There is little chance of new revenue increases, said Dennis Hoffman, an economics professor at the W. P. Carey School of Business at Arizona State University.
There is a widespread misconception among voters, fueled by political rhetoric, that state taxes are rising, Hoffman said. But the facts show otherwise: Income-tax rates have dropped about 35 percent in the last two decades. The state sales tax is back to 5.6 cents on the dollar, from 6.6 cents.
At $8.8 billion, the state’s current budget is 15 percent smaller than it was in 2008.
“We’ve neglected our infrastructure for decades,” said House Minority Leader Chad Campbell, D-Phoenix. “We were behind even before the recession, and now we’re even more behind.”
For more than a decade, money in a highway-user fund the state shares with local governments to cover maintenance and repair has been diverted to the Highway Patrol and the Motor Vehicle Division. County governments have tallied up the toll of this practice: Four rural counties now classify 770 miles of roads as “primitive” due to deteriorating conditions.
Highway officials cut $350 million in projects and maintenance from their fiveyear plan, also due to their dwindling share of dollars from the fund.
And the formula for school maintenance and repair, created under a court order, has gone unfunded since the recession.
Campbell blames Brewer for deteriorating infrastructure.
“She talks about the ‘Arizona comeback’ while at the same time admitting we have holes in the ceilings of our data centers,” he said. “Stop the mythical statements about Arizona being positioned better than anyone else in the country. We are falling behind other states.”
But Brewer maintains the state must increase spending only as the economy improves. Her emphasis has been on services, although the state’s mounting information-technology needs have been getting some attention in recent years. For fiscal 2015, she is asking the Legislature to approve $89 million for such projects.
Others say officials are quick to declare education and children as priorities but don’t back up it with dollars.
Dana Wolfe Naimark is a constant voice at the state Capitol for additional funding for the social-safety net and education. A former legislative budget analyst, Naimark is now president and CEO of the Children’s Action Alliance.
“We keep raising expectations for schools, teachers, students, but our infrastructure is actually disintegrating,” she said. Not just school buildings, which the state has not funded fully for years, she said, but also teacher pay, student-teacher ratios and classroom supplies.
“We have this disequilibrium where spending is never permanent, but tax cuts continue,” she said.
Keeping the status quo
The prevailing belief at the Statehouse is that an improving economy will save the day, providing the dollars to tackle shelved projects.
Legislative leaders plead for patience as they weigh competing budget demands. And, some note, the state, despite its backlog, continues to function.
“For the last five years, all people have talked about is how bad things are, and we’ve managed to get through,” said Senate President Andy Biggs, R-Gilbert. “We’ve maintained things minimally. But when people say we need $100 million for (child welfare), how do you say, ‘No, we need $70 million for IT needs?’ You have to weigh what’s most important.”
Lawmakers generally agree with Brewer on increasing funding for child welfare and schools. Big-ticket infrastructure needs can wait, said House Appropriations Chairman John Kavanagh, R-Fountain Hills.
“Surveys of Arizona roads show we’re not in dire straits yet,” he said. “We are not crum- bling yet, but we’re getting close. If the economy doesn’t pick up within the next few years, we are going to have to make some difficult choices between funding repairs or funding programs.”
Others believe there’s room to squeeze more efficiency out of state government.
Sen. Chester Crandell, RHeber, questioned why agencies are asking for money for maintenance and repairs instead of managing them out of their annual budgets.
“We give a budget to all these agencies and give them the responsibility to spend,” he said. “They have a fiduciary responsibility to maintain these things. They ought to be able to plan far enough ahead.”
Eileen Klein, as Brewer’s second budget director and, later, chief of staff, said the recession forced agencies to look for alternate ways to do their jobs, whether through efficiencies, partnerships or by tapping other sources of income, such as higher fees. In the case of universities, where she now oversees operations as head of the Arizona Board of Regents, tuition nearly doubled to compensate for the loss of about a halfbillion dollars of state support.
But there are limits to those alternatives, as the universities have discovered. They are now asking lawmakers to increase state support if the schools meet performance standards. They don’t believe there is tolerance for ever-higher tuition rates. And the schools want legislative approval to move on a $1 billion bond request for construction projects to bolster research, arguing the universities help drive the state economy.
It’s unclear where this request will fit with the other demands on the state budget.
“There’s a real reluctance to get back in the spending game,” Klein said of the mood at the Capitol. It’s probably premature to start talking about increasing revenue, she added.
There are alternatives to boosting tax receipts: Privatization, a favorite among conservatives, is a path the state prisons system is well down. Some lawmakers have talked about privatizing the child-welfare system.
Partnerships with business- es and non-profits also draw in outside dollars. State parks have formed numerous partnerships; arts agencies are also forging relationships with outside entities.
But some policy makers, like House Minority Leader Campbell, say the state simply needs more revenue to meet its needs.
Campbell, like other Democrats, has long talked about closing tax loopholes and eliminating tax credits that favor certain groups over the general taxpaying population.
For example, eliminating the tax credit for private-school tuition organizations would have saved the state Treasury $71.3 million in 2012, according to the state Department of Revenue. But calls to eliminate tax credits and exemptions have gone nowhere in the Republican-dominated Legislature.
Campbell is not alone in arguing for more revenue.
Education supporters joined forces with road and infrastructure contractors in 2012 to put a measure on the ballot to make the temporary 1-cent-per-dollar sales tax permanent. The campaign had a promising start, but voters ultimately thumped the proposal at the polls.
For now, more revenue through tax increases is unlikely, especially given this year’s elections, where Arizonans will select a new governor and decide all 90 legislative seats.
Instead, the focus at the Capitol is on restrained spending as the economic recovery continues at a plodding pace.
That means the needs lists will keep piling up until the economy brightens.
Until then, agencies will make do.
At the state Department of Economic Security, that means keeping an eye on the weather and a plastic-lined wastebasket close by.
“Our DES data warehouse is falling apart,” Arnold, Brewer’s budget director, said. “Every time it rains, we have to put buckets on our servers. There’s no fire suppression. Wehave old pipes that have failed, so we’ve flooded out that building a couple of times. We have had live wires under water.”