Passing slim budget was right step

The Arizona Legislature did the right thing in enacting the so-called skinny budget for next year.

The adopted budget gives state government quite a cushion as the inducedrecession to combat the spread of coronavirus takes its toll on tax revenues. Whether enough of a cushion is impossible to even hazard a guess about.

Last January, Gov. Doug Ducey proposed a somewhat risky budget path for state government. He recommended spending nearly half-a-billion dollars next fiscal year, which begins in July, more than he projected that the state would collect in tax revenue that year. The gap would be covered by a huge carryforward surplus projected for this year, of roughly $670 million.

At the time, that seemed a relatively safe bet. State revenue collections were running ahead of projections. It looked like the surplus coming out of this year would be even bigger than the governor was counting on.

Coronavirus soured that bet. Revenue collections for the remainder of this fiscal year will undoubtedly go down, if not tumble into a free fall.

The skinny budget doesn’t make major adjustments to anticipated revenues, which would be a fruitless exercise at this point. But it spends $550 million less than the governor initially proposed for next year. And, rather than spending more than projected tax collections, the skinny budget spends $150 million less — adding to, rather than depleting, budgeted carryforward.

The adopted budget has a projected surplus in the neighborhood of $730 million. Combined with the billion or so in the rainy day fund, the state has a total cushion in excess of $1.7 billion to protect state programs from coronavirus-related cuts. That’s nearly 15% of total general fund spending. And it may not be enough.

The skinny budget includes a projection of revenue growth of around 4%, which, pre-coronavirus, would have been regarded as conservative. State government could suffer a shortfall in projected revenue of around 6% and cover skinny-budget expenses without tapping the rainy day fund. And a shortfall of around 15% before exhausting the rainy day fund.

That would get the state through most past recessions, which saw small dips in state tax collections. But not the most recent housing-bubble recession, in which state revenues dropped by about a third.

Unless public health protocols are quickly shifted from a total economic shutdown to focusing on protecting vulnerable populations, the induced-recession is likely to be deep and prolonged, irrespective of how much money Washington throws at it.

If so, the loss of state revenue would likely exceed the reserves squirreled away in the skinny budget. And expenses would be higher. For example, the skinny budget doesn’t include funding for a sharp rise in Medicaid expenses. The federal government is increasing its share of Medicaid costs. But in a prolonged recession, that would be unlikely to spare the state from also having to kick in considerably more.

The bailout bill making its way through Congress includes $150 billion for state and local governments. How much, if any, of Arizona’s share of that could be used to shore up state general fund programs is unclear as of this writing.

So, there are a lot of moving parts and monumental uncertainty. The skinny budget basically provided legal authorization for state programs to continue after the current fiscal year ends in June.

There were modest additions, mostly promises previously made for increases in teachers salaries and K-12 operating expenses.

Given the number of moving parts and monumental uncertainty, including whether the Legislature would be able to reconvene before the end of the fiscal year, a stand-pat budget that ensured that existing state programs had authorization to continue past June was the prudent course of action.

Despite its austerity, the skinny budget received an unusual degree of bipartisan support. The only big ask Democrats made was for a $50 million coronavirus response kitty.

That’s not enough to make a meaningful difference in the course of events. But it also didn’t much reduce the cushion the skinny budget created to help protect the continuation of existing state programs, given the economic turbulence ahead.

Credit Republican legislative leadership for recognizing the need to first provide for the continuation of state government and its programs.

And credit legislative Democrats, particularly Senate Minority Leader David Bradley, for recognizing the gravity of the moment and not trying to play politics with the crisis and leverage it for tangentially related political objectives. The contrast with Washingtonian Democrats is rather stark.