Horizon, Host: Ted Simons

July 7, 2009


Host: Ted Simons

Education Funding

  |   Video
  • Chuck Essigs of the Arizona Association of School Business Officials talks about the budget challenges that continue for public education even after lawmakers restored K-12 funding.
Guests:
  • Chuck Essigs - Arizona Association of School Business Officials
Category: Education

View Transcript
Ted Simons:
Before lawmakers restored $3.2 billion in k-12 cuts, there were lots of questions about how the governor's veto would impact public education.

Richard Stavneak:
The k-12 line item veto as I mentioned eliminates 3.2 billion of funding to school districts. Now, school districts still retain $604 million of a rollover payment for '09 obligations that was due to them at the beginning of July. So that was funded by separate legislation and a year ago at this time and so that remains in place. However, the next payment to school districts is due on July 15th and then September 15th and then October 15th and charters are paid on those same days, except they are also paid on August 15th, with the veto, there is no money to make those payments. So again schools are covered to the extent that they are getting $600 million of a rollover payment, but any money beyond that for the payments on the 15th of the month, there is not money at this point to support those payments. And then as I previously noted the federal stimulus legislation requires states to maintain the '06 maintenance of effort level, meaning to qualify for the billion dollars in federal stabilization funds you've got to maintain at least what you spent in fiscal '06.

Ted Simons:
Now, many of those concerns were avoided with the budget fixes approved by lawmakers yesterday. Here to talk about restored education funding is Chuck Essigs of the Arizona association of school business officials. Good to see you again, thanks for joining us.

Chuck Essigs:
Thanks for having me.

Ted Simons:
Your thoughts on the legislature's actions yesterday?

Chuck Essigs:
It was surprising to everyone, I think, who studies legislative process, that they could move that quickly and have that kind of agreement. It was amazing that there was not one no vote on some controversial issues.

Ted Simons:
With those results do you think the governor did the right thing by vetoing k through 12 education?

Chuck Essigs:
I think it proves she did the right thing, got them back together, got the republicans and Democrats working together in a unified manner, so I think it was a gutsy move on her part, but it certainly paid off.

Ted Simons:
It was a gutsy move when you first heard about it though, were you confident that something would come out of it?

Chuck Essigs:
Well, I think there's two things, one is she stuck with her word. She said she would not allow a budget to be approved by her office if it made significant cuts to k-12 education and she felt those cuts were too significant, so I don't think it was a surprising action on her part because she did what she said she was going to do.

Ted Simons:
Now, we have k through 12 at '09 levels correct plus 2% increase.

Chuck Essigs:
Plus 2%.

Ted Simons:
Ok. Additional funding on the table as well?

Chuck Essigs:
If the legislature doesn't take some, I've never seen this done before, but it's a unique way of doing it. If the legislature does not take some action by October 1st, then some additional funding automatically kicks in, $175 million in additional capital funding kicks in, $80 million in funding for utility kicks in. Additional money for career ladder. So the legislature has some time to try and put a budget together, but if they don't, there's automatic funding increases that will take place.

Ted Simons:
In the grand scheme of things you're looking at $100 million more in spending than before.

Chuck Essigs:
The day after that action, the school budgets basically increased in their operational areas by $100 million.

Ted Simons:
Does this fulfill k through 12 needs?

Chuck Essigs:
We're still below where we were when we started the 2008-2009 school year, so it's even with the 2% and with that money restored we're still below where we were last year, but I think when you look at the tough economic times, certainly a good faith effort by the legislature and the governor to try and get adequate funding for schools.

Ted Simons:
I know there was a lot of concern regarding charter schools as well. Are they now safe?

Chuck Essigs:
Charter schools didn't get some of the cuts that k-12 education got. But their issue was they weren't going to get their July 15th payment from the state and they would have had a hard job meet something of their obligations at that point in time.

Ted Simons:
So they're in the clear.

Chuck Essigs:
They're in the clear.

Ted Simons:
As far as formulas are concerned, I don't want to get too deeply into this, gets heads rolling and eyes spin, but as the formulas are concerned, are thicks better now than they had been in the past or does the formula have to be changed for how school districts and such are funded?

Chuck Essigs:
I think there needs to be adjustments to the formula. But the formula in Arizona and most states has two major components, the numbers of students that you have that the state is going to fund schools for, and then how much they allow the funding level to be per student, so you can change the formulas, you can adjust them a lot, but those are the two main factors, the problem in Arizona as I see it is we're 49th in spending, so even if we picked some other formula somewhere in the world that somebody said was a perfect formula, if you don't put any more money into schools we would still be 49th in revenue resources.

Ted Simons:
With that in mind overall, last question, the state of education funding right now in Arizona, how do you see it?

Chuck Essigs:
We're going through some very difficult times as all levels of government are going, but I think school districts appreciate the governor and a number of legislators who are doing all they can to try and spare excessive cuts to k-12 education.

Ted Simons:
Gearing up for 2011?

Chuck Essigs:
That in most people's minds is going to be even more difficult, because the federal stimulus moneys will be used up by then, unless the economy starts to recover relatively quickly 2011 is going to be worse than 2010.

Ted Simons:
All right, Chuck, thanks for joining us.

Chuck Essigs:
Thank you for having me.

Increasing State Revenue

  |   Video
  • ASU Economist Tom Rex discusses Governor Jan Brewer’s idea for a temporary tax increase and other options to generate state revenues.
Guests:
  • Tom Rex - ASU Economist
Category: Government

View Transcript
Ted Simons:
Lawmakers have not addressed the remaining $2 billion budget shortfall. They're expected to get to that when they return to work on Monday. The governor believes part of the solution is a temporary sales tax increase. I'll talk with an A.S.U. economist about that and other revenue options. But first here's how to watch this and other "Horizon" programs online.

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Ted Simons:
Joining me now to talk about some of the revenue options lawmakers may soon consider is economist Tom Rex of the W.P. Carey School of Business at A.S.U. Good to see you again, thanks for joining us.

Tom Rex:
Sure.

Ted Simons:
The governor says a tax increase has to happen, the revenue's got to get in. Is she right?

Tom Rex:
Well, I mean, we heard on the tape just a few minutes ago that as the budget stands now $2.1 billion deficit, so either we cut spending by $2.1 billion or we raise revenue or some combination thereof. And what's happened is revenues have just plummeted. We're at record lows by far, so her thinking is, well, increase taxes to help mitigate that huge decrease.

Ted Simons:
And you talked about plunging revenues. We have a chart here that shows revenue and expenditures over the years. Doesn't look good over to the right. What the heck happened?

Tom Rex:
Well, it's a combination of two things really. One is you got 15 years of tax cuts. If you look at the line, you see it peaked back in the early '90s, it's been steadily down ever since except for cyclical blip there, and second, we're in a very deep recession now. So we have a huge deficit, total deficit's more like $4 billion, part of it's structural, long term, part of it's cyclical and will go away.

Ted Simons:
I was going to say, is there a paradigm shift that you see in the way people are now spending and saving?

Tom Rex:
Well, every time you go into a recession people's actions change dramatically. You do see a real cutback on spending. Sometimes it's not so much savings as it is just trying to pay off the debts that they have accumulated.

Ted Simons:
It's the kind of thing once you get out of the recession we should see a switchback to more normal situations?

Tom Rex:
Absolutely.

Ted Simons:
As far as how much is spent on health and education, do you think most folks in Arizona realize how much money is actually put into those two things?

Tom Rex:
Well, no. I mean, the problem is with the general fund. That's where the deficit is. The general fund more than half of it is education, almost a third of it is health and welfare, much of which has been mandated either by the federal government or by Arizona voters themselves. So there's nothing there to cut except those couple. If you look at the chart you can eliminate all the public safety. That's close down all the prisons, get rid of everything else in the general fund, you're not close to coming up with $2 billion.

Ted Simons:
That's -- those are amazing statistics there and numbers, with that in mind, do you think that ideas like turning back some of the initiatives and referenda that were passed, you know, approved by voters in the past, these sorts of things, is that something that needs to be looked senate is there too much that lawmakers are handcuffed with?

Tom Rex:
The people voted for a reason, it's my perspective, and they voted I think they took the initiative because the lawmakers wouldn't do what they'd said. So I don't see that as being the problem. It's true they're handcuffed, but the people have already stated through the vote that they don't want education to be cut. So why would you want to take the protection away that the people voted on?

Ted Simons:
The as far as Arizona where it ranks in terms of spending for health and for education, we have another graphic on that as well. Where are we here?

Tom Rex:
Yeah, that's the other issue. This graph is back at the absolute peak, 2006 is when we had a little spike in our spending in the state because of the economic cycle. Even at that time we were very low nationally in our spending in those two areas. So and we've heard an education per student we're second to lowest in the nation. So I mean all this is factoring into what the governor is thinking, I'm sure, is we're already next to last in education, k to 12 spending per student. Are we going to cut it even more? Well, actually even if we passed as a public, the $1 billion that she wants in a sales tax increase, that's only half of the deficit we're faced with. We're still going to see huge additional expenditure reductions.

Ted Simons:
Was Arizona ever, I don't know how far back you can go on this, but did Arizona ever wind up 30 something or 20 something in terms of education spending?

Tom Rex:
Oh, it was much different if you go back as far as the 1960s, yes. We as a state very much more supported education. We supported all types of infrastructure, much more than what we are now. It's since the early '90s been -- really started in the late '70s but the big push started after the early '90s, it's dramatically different now than what it used to be.

Ted Simons:
We see where more revenue is needed. How do you get the most revenue without affecting business, the economy, and other aspects doing the least damage there? The republicans will say tax increases are job killers. Is that a viable argument?

Tom Rex:
It is, sure. Spending cuts are job killers too, and all the models show that it's more of a job killer. So we've put ourselves into a horrible situation. There isn't a good option. Whatever action's taken is going to be negative for the economy in the short term. That's just the way it is. Unfortunately. But it's going to be more negative if we decide to cut $2 billion out for the economy than if we raised taxes.

Ted Simons:
The idea that a recession is the worst time to raise taxes again is that argument viable.

Tom Rex:
Well, again, yeah. You don't want to really do it now, of course not. People are having a hard enough time now, although I think some perspective is needed here. $1 billion tax increase spread over 6.5 million Arizonans is only $150 per person. We're not talking that big of money here that we're -- it's 150 on average. The poor people, those with less income, their figure's going to be less than 150. So it's not like we're talking huge impacts on individuals.

Ted Simons:
Democrats will say a sales tax is regressive, they'd rather see a more broad based tax structure. Talk about that.

Tom Rex:
Well, they're correct. But circumstances, there's two circumstances that we have to deal with here. One is the governor's proposal to only be a temporary increase, so it makes it a special condition. But then second and the big point is if we as a public decide to increase our taxes or somehow increase our revenue, the sooner the better. And we have a couple dates to really come into play if they're going to refer it to the ballot in November, they've got to do that real soon or it's going to be too late to do that. So they've got a real short time frame. Increasing the sales tax rate is an easy thing to do, may not be popular, but it's an easy thing to do. They could pass that in a snap. Whereas should some of the other options you don't want them passing it in a snap. We saw what happened with the flat tax idea. It's not necessarily a bad idea, but you've got to give it adequate thought and research before you pass it.

Ted Simons:
What kind of knot needs to go into the flat tax? A lot of us were like whoa, where did this come from, out of the blue, and got some consideration and may still get consideration. Pros and cons of a flat tax.

Tom Rex:
It's worth considering from the sake of simplicity. There are several states that have some version of the flat tax. It's a real challenge though to implement a flat tax and not have certain classes of the taxpayers get hit with a huge tax increase. And that's pretty much the lower to middle income people, and by definition it's the higher income people. You can find ways around it so that you don't have this big hit, but you've got to be very careful how you do it. You need to do your research and it's not something that you can just pass here in a snap.

Ted Simons:
Is Arizona, we know in terms of ratio, Arizona was one of the worst if not the worst in terms of budget deficits for this last fiscal year. But in terms of how it is affecting life in Arizona, the overall economy in Arizona, are we about as bad as it gets or are there those with us in the back end of the parade?

Tom Rex:
Well, in terms of the general economy, we're also about as hard hit as anyone in the country, us and Michigan because of the auto problems. So no, it's a severe recession that we have. And that's making the government revenue situation all the worse because it is so severe. We will come out of it. We'll have a period in two, three, four years where we'll have probably a budget surplus again temporarily, very temporarily. But right now we are in the depths.

Ted Simons:
Last question, very quickly, if you could just give advice to the governor, to lawmakers, what would you tell them? Which way to go?

Tom Rex:
Really it's -- I'd like to think of it as more up to the people. Do you want to see our spending fall even more? It's already one of the lowest in history. Do you want to see it more knowing that it's going to fall on education in particular? Or are you happy with that? That's really a simple decision. And if the people aren't going to vote on it, then the legislators representing the people are. That's really their decision.

Ted Simons:
All right. Tom, thank you so much for joining us, we appreciate it.

Tom Rex:
Ok, thank you.

Special Session Update

  |   Video
  • Arizona Capitol Times reporter Jim Small talks about a productive first day of the special session that culminated in a bipartisan effort to restore $3.2 billion in funding to K-12 education.
Guests:
  • Jim Small - Arizona Capitol Times
Category: Legislature   |   Keywords: education,

View Transcript
Ted Simons:
Good evening, and welcome to "Horizon." I'm Ted Simons. State lawmakers from both parties yesterday voted overwhelmingly to restore $3.2 billion in education funding. They also made sure Arizona doesn't lose out on federal stimulus dollars. As David Majure reports this all took place during a special session governor Jan brewer called when she vetoed parts of the legislature's $8.4 billion budget.

Person 1:
Proclamation by the governor of the state of Arizona calling a third special session of the 49th legislators to the state of Arizona.

David Majure:
The special session started with a plea for cooperation from republican and democratic senators.

Jay Tibshraeny:
We don't need to get down the mud on this. We don't need to do name callings. We've been called back here to conduct some business and I hope -- I think the public out there to at least what I've heard in my district, they want that business taken care of and they're not looking for people to point fingers, either side of this equation, to point fingers and blame each other. They want us to come in here and do a job and get it fixed.

Paula Aboud:
We can see what lies ahead of us as a negative or we can look at what we have ahead of us as a positive. We could work together, just think about it. Think about it. What that might look like.

David Majure:
Then something unusual happened. Lawmakers did work together to restore some funding to the $8.4 billion budget that was partially vetoed by the governor.

Richard Stavneak:
Senate bill 1008.

David Majure:
They passed four bills with bipartisan support, restoring $3.2 billion to k-12 education and ensuring Arizona doesn't lose more than $2 billion in federal stimulus money.

Richard Stavneak:
The landscape one called budget veto impact.

David Majure:
However, that does not fix all of the current year budget problems, as pointed out by joint legislative budget committee director Richard Stavneak.

Richard Stavneak:
If everything else remains in place the way it is with the enacted budget and vetoes, the state has a $2.1 billion shortfall in fiscal '10.

Ted Simons:
Here now to give us an update on yesterday's special session is Arizona Capitol Times reporter Jim Small. Jim, good to have you here, thanks for joining us.

Jim Small:
Thanks for having me.

Ted Simons:
What the heck happened yesterday? All of a sudden everyone's happy and peppy and bursting with love.

Jim Small:
Yeah, I think what a lot of people were hoping was going to happen three or four months ago, people working together and getting at least some budget bills through the process with very little fuss and really no objection one way or the other, and part of that's because what these bills did wasn't anything necessarily ideological. They were passing an education budget that had been vetoed and they were pass something reforms needed to make sure that we get our stimulus money. You think we have more than a billion dollars of stimulus money on the hook here and we were temporarily not qualified for.

Ted Simons:
Indeed all these billions of dollars in stimulus money, Medicaid money as well, 1.3 in Medicaid matching money. Risky move by the governor vetoing all of k-12 and come back and fix it the way I'd like to see it fixed?

Jim Small:
A special session is a risky move without a deal in place, period. I think people who have been down at the capitol and have seen the way this has worked in the past will tell you the way you do this generally if you want success you meet with people, get a deal done, negotiate all the moving parts settled and you round up your votes then you call a special session and bring lawmakers down for one day. They come in, hear the bills, vote on them, and you're done. You don't really have to worry about having a protracted fight between, you know, between people on one side and people on the other. And so basically what happened is she called them into special sessions, said come in here and fix this. And the republican leadership said ok, we're going to fix it and they turned to the Democrats and said how about you work with us, so that seems to be the way they're going, and they're not talking to the ninth floor right now to governor brewer's office. I know that the president and the speaker met with her last week after she vetoed those bills, but they haven't met with her since and I didn't get any indication that there was any plan to necessarily meet with her in any kind of negotiating fashion anytime soon.

Ted Simons:
So is she using the drill sergeant technique of just get everyone to hate you and they'll bond together by hating you?

Jim Small:
I couldn't tell you if that was an intentional move or not, but certainly the way it's played out, you know, we saw comments over the weekend, fountain hills republican john Cavanaugh, chairman of the house appropriations committee said look, right now we think it would be easy to work with the Democrats than with the governor because we've been working with the governor and it didn't go very well.

Ted Simons:
Yesterday's actions mean bigger deficits though, and those have to be addressed. Does what happened yesterday bode well for any of the governor's ideas specifically that temporary sales tax?

Jim Small:
Well, I think the thing that doesn't bode well for that is the fact that republicans and Democrats have committed to meeting together, and they're going to start tomorrow. They're going to be holding negotiates between republican and Democrat leaders in the house and senate for party talks basically and they're going to get together and try to work out some compromise deal and we've heard it from both sides all year long, neither of those groups likes the governor's sales tax proposal, you know, the republicans obviously opposed it. That was where the big sticking point was last week, but Democrats have also said we're not a big fan of increasing sales tax, it's regressive, hurts low income and middle income families more, and we think that it's more fair to spread that burden out and, you know, to tax property. So if neither of those groups is really pushing for this thing, the governor's priorities really may not be at issue here.

Ted Simons:
I was going to say, it sounds as if, ok, the tax may not be favorable to either side in the legislature, but revenue is going to have to come in one way or the other, especially with what was just done.

Jim Small:
Yeah, without a doubt. And basically what I was told is that there's three main things that these parties want to talk about. They want to talk about cuts, you know, how much cuts, where are you going to put them. Want to talk about revenues because I think everyone is pretty close to acknowledging if they haven't already, that revenues are going to be needed to move forward, either in this year or in future years, and they also want to talk about policy decisions, figure out which policies are really needed as part of the budget and which ones are kind of extraneous things that were just tacked onto the budget because all the other bills were moving so slowly.

Ted Simons:
Was the threat of charter schools getting hit especially hard by the veto of k-12 education? Was that threat helping push maybe the more conservative members of the legislature?

Jim Small:
Well, I think just the idea that there was no education budget at all was really what did it. Some of the line item vetoes governor brewer did, she just took out the reductions, so she said ok, reduction of, you know, $500,000 to this department, we're going to line that out and we're going to move forward. Education she crossed out the entire thing, and most people kind of looked at that and said ok, this seems to be a ploy to get them to come in and do work quickly because there's a school payment that needs to be made, about $300 million on July 15th. So that kind of set the deadline for people. Give folks a week, week and a half to come in and work and get something done, so the entire, you know, really the entire situation I think was what prodded folks to move quickly.

Ted Simons:
What timetable are we looking at now?

Jim Small:
Right now they met yesterday, opened up the special session, and they adjourned for a week. They're not going to come back until Monday. And when they come back Monday I don't think there's going to be a whole lot that happens. My guess is they'll come in, do what they have to do to open the session up then close it back down, probably won't come in for another week after that. And I would think it will be later this month before we see any products of these negotiations between republicans and Democrats.

Ted Simons:
All right. Very good, Jim, thanks so much for joining us, we appreciate it.

Jim Small:
Great, thank you.

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