Ted Simons: Good evening, and welcome to "Horizon," I'm Ted Simons. State lawmakers recently approved measures closing about half of the current year's $1.5 billion deficit. They sent to the ballot a temporary one-cent sales tax increase. But there's still work to be done. Here to talk about budget concerns and other legislative issues are Senate President Bob Burns and House Speaker Kirk Adams.
Ted Simons: Okay, how much of fiscal year 2010 still needs to be closed?
Kirk Adams: About half. The total deficit was $1.4 billion. With the measures that were passed out to the House last week we have about six, $700 million more to go.
Ted Simons: And fiscal year 11 you're looking at what?
Bob Burns: Right at 2.6, a little over.
Ted Simons: Can the -- can you work on both budgets at the same time?
Bob Burns: That's what we're doing right now. What we've -- the process that we've set up is we basically took the Governor's proposal, we had our Chairs and staff and both House staff and Senate staff and Joint Legislative Budget Committee staff get together and massage that, and we've made some changes there that we think will be more acceptable to our membership. And we've been basically doing preliminary briefings of our caucus members, of our majority caucus members in the Senate. I believe the same thing is going on over in the House. Our plan is to, once we've gone through the entire caucus with the briefing, we want to make contact with the Governor's office and see if we're close. We want to be communicating with the Governor's office and see if we're in phase.
Ted Simons: Same kind of thing happening in the House?
Kirk Adams: Absolutely. We're on our third round of small group meetings that we've been discussing the budget really since the first week of session with the membership. We're at that point where we believe we can not only do 10 and 11 budget, but if we get all on the same page -- we're just about there -- we can do it in relatively short order.
Ted Simons: We've heard some members say within a couple of weeks.
Kirk Adams: I think that is a possibility, yes.
Ted Simons: What is making things move along so much better now than perhaps in the past?
Kirk Adams: Well, we're not starting from scratch. We've been at this budget crisis really since two or three months before last session. So we're looking at 14, maybe even 15 months of work on this budget. The work we're doing now is really a continuation of the December special session, the November special session and the special sessions during summer. That's been an advantage to us, because we're not starting from ground zero.
Ted Simons: Is that what you're seeing, as well? Because I think a lot of people watching are saying, gee, two weeks? How come not last summer or last fall? What happened here?
Bob Burns: I agree, we have been working on this so long there's not a lot of unanswered questions when you start to talk about certain provisions of the budget. The other part is we're running out of options. There's not a lot more things we can put on the table to discuss. And so there's not a lot of choices and so now we've just got to get this thing into a package that we can take a look at and see where the heartburn is. And again, without any new options, it's going to be hold your nose and vote for this thing because it's not going to be pretty. It's not going to be pretty. It's really a tough decision for everybody to get this thing done.
Ted Simons: With that in mind, how closely is the House and Senate working together? Anything different now than in the past?
Bob Burns: Well, I think we're working well together. We haven't basically sat down at the same table more than three or four times here in the last couple, three weeks. But our staff has been constantly working. As I said, we've had the staff working and we're now, at least from our point of view, waiting for input to come back from the Governor's office. It was my understanding she was going get a briefing today on a proposal that we had worked up to this point.
Ted Simons: I was going to ask about the governor’s input. Has communication improved between the legislature and the governor? Are you getting what you need? Are you still waiting for some information?
Kirk Adams: If you compare where we are at today versus last year at the same time, there's been a dramatic improvement. The budget the Governor proposed, I think you'll see largely reflected, 80, 85, maybe even 90% reflected in the proposal you'll see jointly from the House and Senate. There is dramatic improvement in communication with all bodies as compared to this time last year.
Ted Simons: Let's talk about the rollover to K-12 and universities. That was a bit of a sticking point in the special session. What gives with that? What kind of numbers and what kind of deadline?
Kirk Adams: That's a good question. We’re looking at about a total of $450 million, $100 million university rollover, $350 million K-12 rollover. That legislation needs to be passed and signed to law sometime before April 1st, if not a little bit sooner so that that school payment due in April is not made, so we have the cash flow necessary to meet our obligations in the current fiscal year. There is time to get that done and I anticipate that will get done well before the deadline.
Ted Simons: We hear debate even in the special session. Some folks says this is way too much debt, just more and more and more pushing off further and further. How do you respond?
Bob Burns: Well, I agree, way too much debt. But there wasn't the will of the body to make the reductions where the reductions were available to be made, which is K-12 and health care. We get criticized frequently about underfunding education. We have done everything we, the legislature, as a whole, has done everything they can to maintain spending levels and especially in the K-12 area. That's why we are in the position we are in, because we had to borrow money, we had to sweep funds, we had to use everything we could find in order to maintain the level of spending in the K-12 budget.
Kirk Adams: If I could.
Ted Simons: Please.
Kirk Adams: To add to that, nobody wanted to do that debt. It is not good long-term fiscal policy. But there's literally not a single alternative plan on the table to resolve the fiscal year 10 crisis. There's nobody that's come forward with a plan that says, okay, we have the votes, and we're going to cut a billion more in spending this year. To do so would mean literally letting thousands of prisoners go now and laying off thousands of teachers now and that is not something the body, like Bob says, is willing to do. Nor has anybody come forward with a proposal out of this short-term borrowing.
Ted Simons: I think the key phrase you used there, we have the votes. It sounds to me from a distance that folks have ideas. But if they don't have the votes, are you as eager to listen to those ideas?
Kirk Adams: We've gone through an incredible vetting process on the stuff that Bob talked about starting last year, where there have been ideas brought forward. Some of those just totally didn't work in practice. Others of those ideas just don't have the support in the body. Ultimately we live by the rule of 31-16. Whatever it takes to get 31-16 members and one signature of the governor, that has a realistic chance. We do not have time to chase things down rabbit holes at this point. We have an impending crisis and we need to act and solve the problem. We're not interested in pursuing any type of grand illusions.
Ted Simons: The rollover bill which did not quite make it in the special session, you did not act on that particular bill. Why?
Bob Burns: Bill was amended in the house. And it included a conditional enactment that would have tied it to the jobs bill. When the special session started I realized that I could not get 16 votes for a referral out of the republican caucus so I went to the Democratic leadership and talked to them about, can we get votes from your caucus? Can we get this done? They said, on one condition, that there be no referral of any kind to any kind of tax cut or anything else in the special session. I said, you have my commitment, that will not happen. And so that's why I had to take the position that I had. I had made a commitment to the Democratic caucus that that would not appear in the special session.
Ted Simons: Were you surprised that the amendment was added in the House and sent over?
Bob Burns: Well, I don't know. We're two different houses. We don't always agree and we do things differently. And so I don't know if surprise is the right word or not. I mean, I would have preferred that it didn't happen. It could have -- could have avoided the conflict but that's the way the process works.
Ted Simons: Were you surprised that amendment was added?
Kirk Adams: No, I wasn't surprised because there was an attempt to add that amendment on the sales tax referral the week before. Had that amendment successfully been brought to the floor and added it certainly would have killed the sales tax referral. When this came up on Thursday of last week, it was not -- or Wednesday of last week, it was not the first time we had heard this concept from the leadership level. I think what it spoke to was the concern within the Republican caucus and the House that we focus on the jobs deficit at the same time as we work on the state’s budget deficit. Ultimately, the fact that it got on there I don't think it harms our long-term plans at all. There's plenty of time yet to resolve the rollover issue. I think what you saw in the House also is a much more difficult time in getting the votes for all of the debt items than perhaps the Senate had. And probably part of the reason for that is in the Senate you had at least two members of Democratic leadership go on and support all the bills. In the house not a single member of the Democratic leadership supported all the bills, particularly the sales tax referral. So that was a little bit different situation in the House as compared to the Senate.
Ted Simons: But I think that also raised eyebrows, knowing as President Burns just mentioned, the deals that were cut and knowing that was in play, to send something over there that would question it or test it or jeopardize it in any way, shape or form, a lot of folks were wondering about that.
Kirk Adams: Well, the process is the process. Every member has the right to propose an amendment on the floor. The amendment was offered, the conditional enactment amendment, and it was passed overwhelmingly in the House. And it had the votes. And it wasn’t clear that it would have the votes so we put it up on the board. In fact It had the bare minimum to pass once it was up on the board. The jobs bill and the jobs deficit is a very important part of what we have to deal with this session. I think you saw from the expression of those supporting this amendment, ultimately we believe the jobs Will work through the Senate. We know there's going to be amendments and changes to it and that's part of the legislative process. Any bill that comes over from the senate can be amended and vice versa.
Ted Simons: We heard some House members were upset with the Senate for the actions it took. How upset were they?
Kirk Adams: They were upset enough to put forward a rogue amendment that successfully got on the bill.
Ted Simons: And we heard some folks in the Senate were none too pleased with the House for sending the thing over there in the first place. How upset were they?
Bob Burns: I guess you have to ask them how upset they were.
Ted Simons: How upset were you?
Bob Burns: I'm not that upset, I've been around this process for a while. I'm not going to let that get to me too much.
Ted Simons: I understand the deal regarding the Democrats' referral. But in dealing with the Jobs Recovery Act bill, whatever you want to call it, why hold that off? It could still work its way through. Why are you taking this action?
Bob Burns: I think the budget is the critical issue, it needs to be priority number one, and I'm still concerned, very concerned about how we get that done. I know that there's some optimism around that we might be able to pull that off in a couple of weeks. I'm not ready to go there yet, I think it's going to be tough. So we have -- I have asked some of the outside folks, the business community, to take a look at the proposal, the jobs package, and give us some feedback. We have been getting some feedback. So we are working the bill. It's not being worked through committee as we speak, but at least we're working the proposals and trying to make sure we know what's going on there. The legislative arena is famous for unintended consequences. We want to be very careful. This is very -- this is a big deal. This is a major policy issue that needs to be, I believe, well scrubbed before we move it forward. We're going to take a look at it. I'm in favor of doing something to get this economy back on its feet.
Ted Simons: And this particular bill is something that you have taken a great interest in. It's basically your job recovery act. But the JLBC is coming out and saying this thing's going to cost the state perhaps as much as $900 and some million a year because of the tax cuts. We've had economists on to talk about these particular bills and ideas. They say they understand the corporate tax cuts, that makes sense as far as attracting jobs and keeping those folks here from moving away. Personal income tax cuts, they are not sure about that. Why is that included in this bill?
Kirk Adams: Let me address your first statement first. The JLBC memo came out with the fiscal impact and full implementation, which isn't until 2017. And that $900 million is 2017 dollars, not 2010 dollars. If you were to discount it into today's terms, it's more than 560, $600 million. The most important part is the JLBC analysis is static only. It doesn't address the impact the bill has on the economy, nor does it address the job creation programs that are half of the bill. Now to your question regarding personal income tax. The reason why reductions are in the bill is because 80% of employers in this state are not corporations or C corporations. They are either filed as limited liability companies or sub-S corporations, partnerships, sole proprietors, 80%. They pay the personal income tax rate. If you want to impact that segment of the business community, the way you do it is through the personal income tax rates.
Ted Simons: But it sounds as if the entire bill were based on the concept of base industries, the big boys, getting folks to come out and make a big footprint, as opposed to -- obviously small business is a primary engine in the economy. But it seems liked economists were looking at the kind of folks that would come here and change the landscape in a big way. That’s where I think people – the critics are seeing corporate but they’re not seeing--
Kirk Adams: That's -- certainly base industries are a major component of the bill. But you always have to know that small businesses are the largest net new job creator in the state of Arizona, across the entire country, and always have been. So while the bill in large part is focused on the very type of companies that you're talking about that bring those large multiplier effects and invest hundreds of millions of dollars into Arizona and the jobs that follow, the bill has plenty of focus on that. You also have to focus on the small employer who, again, creates most of those jobs.
Ted Simons: Should a job recovery action include something a little more targeted in tax breaks, as opposed to across the board cuts? Would that make more sense, do you think?
Bob Burns: I guess I'm not really prepared to answer that. I don't know for sure. I think that my gut feeling is the broader the relief, if you will, the more activity that you would see created. And that's part of what you want to get going, you want to get the economy active again. And so, you know, people that have their own money to spend, they are the ones that drive the economy.
Kirk Adams: If I might put a finer point on that. If you look, we have lost nearly 300,000 jobs, the jobs deficit that I referred to. That's a lot of jobs to make up. That's a lot of job creation that needs to occur. If you only rifle shot a few select industries, you're not going to get the job creation you need to get ourselves out of this problem that we're in. The bill does have rifle shots in it but it also has the shotgun approach, a broader approach affecting all business activity in the state and that's an important balance.
Ted Simons: Indeed. And I'm also hearing the criticism that this is depending upon the fact that this will work, that the jobs will come in, the base industries will be here, the small businesses will get that kind of benefit. Even with that happening it is taking revenue away from a state that right now pretty much has nothing to deal with, as you are so well aware of. How do you respond?
Kirk Adams: There is no fiscal impact on this bill for fiscal year 10 or fiscal year 11 the very first year we start to begin to see a small fiscal impact is fiscal year 12. So for the immediate crisis that we are a facing there is not the impact some of these people are concerned about. The numbers you're seeing from JLBC are 2017 dollars when you adjust for inflation and much, much more. They are a much higher general fund amount than what we have right now. We have to be very, very sensitive, particularly what we do in the short-term, where it has a fiscal impact. At the same time, we need good policies in place right now to create jobs right now. It doesn't make any sense for us to wait. We could always look to other states with similar economic models and how they are doing. One such state is the state of Texas and they have fared far better than we have in large part because they have some of these policies in place right now.
Ted Simons: But they also, I think you would agree, have base industries in place that we're nowhere near with the oil industries and these kinds of industries.
Kirk Adams: They have some of these in place, setting aside oil. The Texas economy is much more diversified than oil. They are absolutely focused on job retention and job growth in that state. They have a significant presence of base industries outside of the oil industry because they have policies similar to the ones that we are proposing. As a matter of fact, much of the policy in this bill is replicating what Texas has done.
Ted Simons: The idea that the Speaker mentioned regarding careful in the short term, but don't lose sight of the long term, obviously the sales tax, temporary sales tax is a bridge of some kind.
Bob Burns: Right.
Ted Simons: How do you balance that? How do you make sure what can be looked at in the future, A, is necessary, the Job Recovery Act says we're going to get there and this is how we're going do it. How do you make sure conditions will be okay for that kind of action?
Bob Burns: Well, I don't know that you can be sure. I think you have to take your best judgment call and work with it. You know, state government lives off of the private sector, surpluses of the private sector. I look at it like, who do you put in first position? First position has to be the employer community to provide those jobs, to generate the revenue that the state then lives off. They are the first priority in my mind, to make sure that we have a healthy private sector economy to generate the resources that we need to run state government.
Ted Simons: We were talking earlier about the concept of being a lawmaker, of being in the legislature and how difficult it is for all concerned. I would imagine most concerned. I'm not sure, there are some here and there. But talk to me about this. The idea that these are difficult decisions and it's not a heck of a lot of fun down there right now.
Bob Burns: I tell people that most people who run for the legislature, they campaign on making commitments to people, that they want to do things for them in some way or another. Typically education is at the top of the list. Those things cost money. Now that the money is not there you've got to reverse that. It's like a reversal in the culture, the culture being there to help people and provide resources for programs and all that other stuff. It's not available now. Now you have to do a complete reversal and start to take that away. It's very difficult. People just don't want to be having to do it. And so it's a sort of a shift in the mindset, if you will, which I think they will do. They will come around and they will make it because they also are there because they are responsible people that want to get a job done, so it'll happen. But it's difficult. It's very difficult.
Ted Simons: Again, over in the House you've seen that same -- is there a sense of denial among members? Just waiting until the last second because they just can’t believe how bad it is?
Kirk Adams: I don't get a sense that there's a sense of denial. I do get a sense that there's a resignation that people have about these difficult choices. No one wants to vote for these kinds of cuts. No one wants to vote for this kind of debt. Even the 32 people who voted for the sales tax referral didn't really want to vote for it. But there comes a point where you've got to put aside your previous commitments or political concerns and govern. We are in a state of crisis economically, in the private sector and the state government. We've got to make those tough choices. You're beginning to see a sense of resignation; this is our lot in history to make these kinds of choices. It's not fun and certainly not easy.
Ted Simons: Is it going to be any easier at all? It sounds like it's not.
Kirk Adams: I don't expect it to get any easier. Everything we are doing has a high degree of difficulty. We are asking people to make votes that will stay with them for the rest of their political career. It's not just easy.
Ted Simons: Same thing in the Senate?
Bob Burns: Yeah. The other point I would make, we need to shift from this position of advocate. People run to be an advocate for certain areas of the state government. And so that's gone. Now we need to shift into the management. We need to manage the problem we've got. And so that's a lot tougher to do.
Ted Simons: All right, good conversation. Thank you both for joining us, we appreciate it.
Bob Burns: Hey, thank you.