Ted Simons: Good evening and welcome to "Horizon," I'm Ted Simons. Yesterday Governor Jan Brewer met behind closed doors with legislative leaders to talk about the budget they narrowly passed with only one -- excuse me -- with only Republican votes. Today the governor held an open meeting to voice her concerns. And hear what universities, health care officials, state agencies, and other stakeholders think about the legislature's plan. One of the first thing the governor and her budget advisors pointed out is a difference in deficits. The governor's budget accounts for a $4 billion shortfall, while lawmakers place the deficit at about $3 billion. The governor’s budget director says that's partly because lawmakers count current year cuts as part of the solution for 2010. She says there's more to it than that.
Eileen Klein: The legislative budget does not account for some of the costs of -- increases in cost to government. Costs related to health care and K-12 education in particular to the tune of about $200 million are simply ignored in the legislative baseline. That brings them up to the $3.6 billion and $3.7 billion range. Likewise the legislature is not solved for the ongoing deficit that remains from fiscal year 2009, which is about $200 million projected. So those -- those items in total account for the difference between the legislative $3 billion budget and Governor Brewer's $4 billion budget deficit estimates.
Gov. Jan Brewer: As I've shared publicly with many of you, I think the legislative budget does not balance, as simple as that, and it is not functional. My concern is it's over a billion dollars short of being a balanced budget and we need to address that.
Ted Simons: Joining me now is Senate President Bob Burns, a Republican from Peoria in the West Valley. And from the East Valley, Mesa, Republican Speaker of the House Kirk Adams. Good to see you both, thanks for joining us.
Guests: Thank you.
Ted Simons: President Burns lets start with you. We just heard differing numbers here. Why the disconnect on these numbers? What's going on?
Sen. Bob Burns: I guess it's the way you display the numbers, for one thing. If you start with the revenue available, we have the same number basically. The difference between a $3 billion deficit and $4 billion deficit is basically the amount of spending that takes place in between the revenue that you have and the spending levels.
Ted Simons: Is that how you see it, as well, the same number, only looking at them differently?
Sen. Kirk Adams: There are many assumptions that are the same. If you look at the two budgets, there's much more in common than what is different. But one of the big differences in the two budgets is the legislative budget does not fund for inflationary expenses, just like households and businesses right now are not protected from the impacts of inflation, the legislative budget does not protect government from the impacts of inflation.
Ted Simons: Yet the governor in the past -- and this is a quote -- phony revenue projections. Again, why the disconnect here? Sounds like it's getting kind of testy. Why can't these numbers work out and the way of looking at the budget somehow coalesce?
Sen. Kirk Adams: The governor's revenue projections are identical to the legislature's revenue projections. Like I said, there is much more in common between the two plans than there is different. The cut level, $65 million apart, before you get to the stimulus dollars, that's not bad out of a billion-dollar budget. We both utilize in excess of $900 million in non-tax revenue enhancement. There are a lot of similarities. There are some sticking points but there is a whole lot more in common than is different.
Ted Simons: Is that a sticking point that, someone sees $3 billion and someone else sees $4 billion?
Sen. Bob Burns: That's a significant difference in numbers and we have to obviously work that out in order to get the votes into the legislature, and a signature by the governor. So yeah, that's a significant amount of money.
Sen. Kirk Adams: I think it's also important to point out that the Democrat proposal also show as $3 billion deficit, not a $4 billion deficit.
Ted Simons: I want to get to the concept of passing a budget and not sending it to the governor. Why?
Sen. Bob Burns: Well, part of the reason was that we were having difficulty negotiating with the governor, prior to the passage of the budget. My belief is, and I think it bears out, is that there is a certain point in the process where you have to move forward with your members and you have to, as we did in the Senate, start -- we started it before dinner and went all the way to 4:00 in the morning before we finally got the votes. I know the Speaker was working the same process the next day. There's just a point in the process where the votes become available. We felt we had to move forward. We were having problems with our negotiations prior to that passage. I did not transmit because the message that I got was there was going to be a veto of the bill. So why transmit it if we're going to get an automatic veto? I think that would have been counterproductive. The point was, let's talk. Let's do some negotiating with the executive, with the governor, and see if we can come to an agreement so that we can get a budget that gets signed. We spent a good three months of hard, hard work getting a budget put together this year under the circumstances. And to have that budget then just out of hand vetoed, and having to start over with only three weeks left in the session I think would have been a significant risk for us to go that route.
Ted Simons: Do you agree that it's a better route to go ahead and pass it and not transmit it, as opposed to keep working until you've got something that can pass and be approved by the governor?
Sen. Kirk Adams: It's a bit unusual but not unprecedented. Transmission of bills has been held off before. But this is a session of firsts. If you look at what we've been through so far this session, we've balanced a $2.4 billion hole in the current fiscal year. That's enough for two or three sessions in many cases. We had a stimulus package passed in February by the federal government. We didn't receive final instructions until the first week of April. We didn't have an idea of how the governor was going to spend those dollars until the last week of May. We did not receive an executive budget until the 140th day. This has been a very unusual session and this certainly adds to that. We felt it was important that we have an opportunity to sit down with the governor and discuss how we can close out this session with the balanced budget.
Ted Simons: Could you not have done that, though, after she vetoed what was sent to her? In other words, I still don't quite understand why it was passed. If she's going to veto it, why not let her veto it and move from there?
Sen. Kirk Adams: Perhaps there are some adjustments that can be made that will allow her not veto it. Perhaps we could do some things in the form of a package that would resolve some of her concerns. If she were to veto the budget today, we would have to start new negotiations. And I agree with Bob. Vetoing that budget with three weeks left in the session raises the specter of a shutdown of government to a larger degree. Something that none of us want to do
Ted Simons: The governor said the concept of passing it but not transmitting was in her words absurd. We had minority leadership last night on "Horizon," and I asked why folks thought this tactic was going to be used.
Sen. Rebecca Rios: The concern that I have is that there is no mandate that this bill be transmitted within a certain amount of days. So again, I hate to be pessimistic, but my concern is with 22 days left I would not put it past these folks to use this as leverage over the governor, if they don't get what they want in the budget. Then to send it to her June 29th, June 30th and force her hand to either veto this bill or play the blame game of who's shutting down state government. Is it the governor or the Republicans?
Ted Simons: Critics say president, that is what's afoot here. The idea is, let's wait until the last second and basically play a game of chicken. Your response?
Sen. Bob Burns: That's worst case. I'm looking for best case. The best case is that we can work this out between ourselves and the governor, which is what we're doing. That's exactly what's happening. So we'll continue to meet with the governor, our staffs, the governor's staff and our staff are meeting as we speak to work their way through a portion of the proposal that the governor is in support of. And so, you know, the negotiations have gotten very serious and are going forward. And I think that's beneficial.
Ted Simons: Is that what you see as well, that doing this has helped the negotiations? If not, how do you see it helping the negotiations in the future?
Sen. Kirk Adams: I do think it has helped our ability to negotiate with the executive in a greater way. And I don't see this as a game of chicken. Nor would I support that kind of game, because I think that's a risky proposition for the state. I think there is an opportunity here this week for us to resolve remaining differences. To the extent that we can do that, we ought to. And that's what we're trying to do.
Ted Simons: I know you met yesterday with the governor and again today. Compare and contrast the two meetings. What's going on here?
Sen. Kirk Adams: I don't want to convey any confidences, but I will just say that progress is being made and the next couple of days will be very critical to whether or not we can come together on a budget this week.
Ted Simons: Are you seeing progress? Again, today, after the presentation by the governor, she uses the word absurd in terms of tactics being used. Are we getting some progress here?
Sen. Bob Burns: Well, I believe so. Words get used, but they are just words. We have to move on beyond those.
Ted Simons: I want to get now to the governor's plan which she had said -- her quote was her five-point plan was not discussed in any way, shape or form. Comment on that. Is she correct on that?
Sen. Kirk Adams: I think she's incorrect on that. I think it's important to note that the governor has taken a very difficult situation and she's addressed it head on. She deserves all kinds of kudos for that and addressing us honestly. But we don't agree on all five points of the plan. We haven't agreed, but it's certainly been broadly discussed within the House caucus and I assume the same in the Senate.
Ted Simons: Do you see that, as well, that the five-point plan has been at least discussed?
Sen. Bob Burns: Oh, yeah. The four points, other than the point that is the point of controversy is the tax increase. And that's a real sticking point with our caucus. So when I'm working a bill or a budget through the caucus, I have to take into consideration where the members stand on these different issues. And there was strong opposition to a tax increase. I'm opposed to a tax increase. I think that's the wrong way to go in an economic situation like we're in. I mean, there are statistics out there that those a tax increase during a recession like this could cost us a number of jobs. So I think we have to advance very carefully with this whole issue. Now, the tax proposal we're talking about now, in all probability will end up being a referral to the voters, to see where the voters want to go with a tax increase. It would not do an awful lot for the fiscal 10 budget. If we get something on the ballot in November and it passes, there is a possibility that we would get a portion of the year of tax revenue for that. However, based on what happened in California, if the voters turn it down and we are relying on that tax increase to get us through the year, I think we set ourselves up to be in worse trouble than we are already. I think we've got to advance very cautiously on this tax issue.
Ted Simons: There seems to be a perception out there that the concept of any tax increase at all is such an anathema that everything else is secondary to not raising taxes. Even all sorts of services across the board. Comment on that, if you will. Especially the relatively conservative governor saying that a one-cent sales tax is necessary. Yet we keep hearing no, no, no. Talk to us about that.
Sen. Kirk Adams: I think the legislative approach is one of balance. We have to worry not just about state government but what we are doing to the private economy. If the private economy that produces the revenues for the revenues that are needed – We can’t act in a vacuum on behalf of state government only. We have to keep in mind the producers, the taxpayers, the entrepreneurs, the job creators. If we kill that golden goose then the state programs we provide don't mean anything. So that's the balanced approach we think we are taking. When it comes to revenue increases, I think what you see from the legislature is not no, no, no, but rather, let's talk about tax reform. That has fundamental effects on the economy to grow our way out of this. Ultimately Arizona will have to grow its way out of this recession. What can we do to speed up that growth and make it impactful for state government, as well? That's what we've been focused on.
Ted Simons: Does tax reform, as you see it, would it be possible to have a tax increase of some kind in that reform?
Sen. Kirk Adams: I It would be possible, depending upon how you package that tax reform. The question I think that's more appropriate is, Can there be opportunities for enhanced revenue within a tax reform package? The answer would be yes, I think there could be enhanced revenue in a pro-growth tax reform proposal.
Ted Simons: Do you think that as well? Even your response says no to a tax increase. The governor is looking at the equalization rate saying let's not just chop it off now, let's get rid of it in phases. The perception is if the word tax is involved, the legislature wants absolutely no part of it regardless of the outcome.
Sen. Bob Burns: First of all, I'm not sure the legislature will be the player, other than referring. In order for the legislature to raise taxes, it takes a two thirds vote and I don't believe that's there. The only possibility is to refer to the voters. And that's not a slam dunk. They may reject it. So we have to be, again, very careful about how we rely on revenue that we may not get. I agree that if we can redesign our tax structure, we can get increased revenue without an increase necessarily in the tax. Because we've broadened the base, we attract new investment here in Arizona, and new businesses moving in here, and that's how we increase the base. Then we end up with more revenue without really putting a heavier load, if you will, on the taxpayer.
Ted Simons: Equalization rate, the concept of phasing that out as opposed to just saying, no, it's over, it's done.
Sen. Bob Burns: That's a tax increase of $250 million on homeowners who are struggling right now, and businesses. Businesses, you know, I guess we're down to 22% now on the tax rate for businesses. But again, in a struggling economy, I don't believe we should be adding that additional load to an economy that we need to come back. We need our economy to recover and come back and provide the resources that we use for state government.
Sen. Kirk Adams: I Ted, there are clear contrasts here. Look at the legislative proposal. You compare it to the Democrat proposal. They raise taxes by over $2 billion. That would be several times larger than any other tax increase in state history. In fact, several times larger than many of those tax increases combined. So yeah, there is a clear distinction, a difference in approach.
Ted Simons: One last thing, another quote from the governor, and then I want to move on. She said she's not going to sign a budget that in the interest of political expediency dims Arizona's future. Does your budget enhance government, make it more effective, make it more efficient? Does it, as the governor suggests, dim Arizona's future?
Sen. Kirk Adams: No, it does not. It does make government more efficient. But it what does, just as important, and we have to keep hammering this home, it allows for the Arizona economy to grow our way out of this. We are not going to solve this recession by spending state money. We're going to solve this recession by the ingenuity, entrepreneurship and hard work of the workers of Arizona. That's how this is going to happen.
Ted Simons: Is that going to happen with businesses who hear a governor say the budget on the table near here dims Arizona's future?
Sen. Bob Burns: Well, I guess you'd have to ask the governor what she means by that statement. I don't believe it does, no. And obviously that's not our goal when we spend three months developing a budget. We're not out there to try and dim Arizona's future. We're doing everything we can to hopefully make a bad situation better, if you will, for Arizona all the way around.
Ted Simons: We asked a similar question last night to minority leadership, regarding the concept of taxes and tax cuts. Here's David Lujan with his perception.
Rep. David Lujan: We've had four decades of Republican leadership in the legislature, four decades of their model of tax cut after tax cut. And I don't think it's done anything to stimulate bringing businesses to Arizona. I think what brings business to Arizona is a quality education system, a quality infrastructure to support business. If we keep cutting state government the way we're doing, we are jeopardizing the long-term future of our state.
Ted Simons: Balancing point: Is there a balancing point that we have crossed in either direction? I'm guessing you're going to say too much spending. But can you go too far in the other direction?
Sen. Kirk Adams: I suppose you could in anything, extremes in any area of life aren't always productive. But that statement has the disadvantage of being historically inaccurate and failing to recognize that if those tax cuts that were done -- I think he's referring to tax reductions done in the late '90s and some of the reductions a few years ago under governor Janet Napolitano, I might add. But the assumption is if we hadn't cut those taxes would we have spent those dollars? State spending would have been increased to commiserate with the amount of taxes that we didn’t cut. We did -- I mean, you know, yeah, I disagree with the statement because it's inaccurate. Arizona went through a period of time in the 1980s and early 90s where we increased taxes dramatically. To say for the last four decades all we've done is cut taxes is simply wrong.
Ted Simons: There is concern regarding federal stimulus money. Cuts to universities that may threaten federal stimulus money, cuts to access that may threaten federal stimulus moneys. Let's start with universities. What are you seeing with regard to too much cuts on the books, way past maintenance efforts and other aspects of this?
Sen. Bob Burns: Well, that's a difference of opinion. Obviously any of these things that come out of Washington, D.C., sometimes are a little hard to understand. But we've had our staff review the rules and regs, if you will, of the stimulus package and we feel quite comfortable that what we're doing will not jeopardize that money.
Sen. Kirk Adams: There's two issues here. One is a rollover for universities instituted at the governor's request in fixing the 2009 budget. When the application was submitted to the government, it was on an accrual basis, as opposed to a cash basis. We do the same thing in our budget. It does not jeopardize federal stimulus dollars for universities on that basis alone. The other issue the universities have used is the fund sweeps of some of their auxiliary funds. They were previously arguing to us that these are not state moneys, therefore we could not sweep them. Now that we've swept them, they are apparently state moneys or state support, and therefore jeopardize stimulus dollars. They reject both of those contentions. We would challenge universities to identify in the stimulus law itself where it says what they are saying.
Ted Simons: Could it be looked at as not necessarily state moneys, but getting money out of the university system, that bottom dollar?
Sen. Kirk Adams: Federal law is very clear. When it talks about maintenance of effort, it speaks about state support. The money in the auxiliary funds did not come from the state general fund. They didn't come from there. In the governor's application, when she applied for the stimulus dollars, she specifically did not include tuitions and fees as part of the definition of state support. Those auxiliary funds are not state support, therefore they do not imperil the stimulus funding. Here's an important part. Are we trying to not accept stimulus dollars? Absolutely not. In fact, our budget maximizes the stimulus dollars in accordance with the governor's own application.
Ted Simons: I hear what you're saying. I don't think you're trying to put these in jeopardy. But if some folks, the governor, Democrats, think they are in jeopardy, is it worth threatening this kind of money for these kind of actions?
Sen. Bob Burns: Well, I think you're going to get these differences of opinion and maybe challenges even. We've been challenged on some of our other budget proposals in the past. But when you're in a situation where you're $3 billion in the hole, you have to push the envelope. We have to take advantage of the use of those moneys, and we followed the application and we feel we're safe there.
Sen. Kirk Adams: If there are technical changes that are necessary to preserve the stimulus funding, by all means we would do that. But there's a bit of a mountain being created out of a very small molehill here, with the primary target of undercutting the budget that was passed, in my opinion, not necessarily concerned about stimulus dollars.
Ted Simons: We'll stop it right there. Gentlemen, as always, thank you for joining us on Horizon.
Guests: Thank you.