Horizon, Host: Ted Simons

January 12, 2007


Host: Michael Grant

Journalists Roundtable


  • Don't miss HORIZONís weekly roundtable where local reporters get a chance to review the week's top stories.
Guests:
  • Matthew Benson - Arizona Republic
Category: Journalists Roundtable

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Michael Grant:
It's Friday, January 12, 2007. In the headlines this week, Governor Janet Napolitano delivered her annual state of the state address to the legislature on Monday. TE language learners in our state. And US Airways this week upped the ante in its bid to acquire delta airlines. That's next on "horizon."

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Michael Grant:
Good evening. This is the "journalist roundtable." joining me are Matthew Benson from the "Arizona republic," Howie Fischer of "Capital Media Services," and Mike Sunnucks of "The Business Journal."

Michael Grant:
Governor Napolitano unveiled her proposed budget for the new fiscal year which starts July 1. The $10.4 billion budget includes funding for her top priorities late out in Monday's state of the state address. Matt, take about 45 seconds on this. I'd like a line-by-line comparison between this year's budget and last year's budget.

Matthew Benson:
I'll see what I can do. This budget is about maintaining strong investment and infrastructure in the face of revenue that's not coming in like it has in recent years. Basically that means financing. Specifically, the governor's talking about $400 million in financing for new roads and another 400 million or so for new schools. Basically she's saying, "We can't afford to wait on these things. We need to start building now."

Michael Grant:
Now, I get the impression that the 400 million for the roads basically going from 20 year -- we already bogged that, going from 20 years to 30 years. Probably got a pretty good chance.

Matthew Benson:
Sure.

Michael Grant:
I think the debt on the new school construction is going to face a much tougher road. Would you agree?

Matthew Benson:
Well, some republicans are calling that a nonstarter. They're basically saying, "we pay for schools right now on a pay-as-you-go basis, basically with cash." and republicans are arguing, "we need new schools every year." the 400 million she's proposing would build 35 schools in the coming year, and they're saying, "we're going to need that every year. We should pay with cash as we go as opposed to building up more debt."

Mike Sunnucks:
If you do feed that, it's going to cost 700 million if you pay all the debt. So if the republicans keep ponying up the cash, I think this is a winning issue for her -- against her, because they can keep saying, "look. We're making it a priority but won't have all this debt service. We're just going to keep paying for it."

Howard Fischer:
This goes back to 1998 when the state absorbed the responsibility for building schools. Bonding the schools is not unusual. School districts did that all the time. They built one school every four years, one school every five years. Even Gilbert, maybe even a school a year. What happened is, when the state took over the obligation and reduced local property taxes, they never raised state taxes to make up for that. It was 250 million at the time. So we constantly are going to find ourselves in the position of having -- whether you want to call it a structural deficit, if you absorb 250 million and now we're up to 400 million in costs every year, it's got to come from somewhere.

Mike Sunnucks:
If they'd make it a priority, if they're willing to keep spending it, then why not keep going that way instead of having this constant revolving debt?

Matthew Benson:
But this becomes a "pay me now or pay me later" kind of issue. The governor would argue that while -- if you bond out over a period of years while the costs are going to go up with interest, if you build it now, you'll have fewer costs as labor increases in cost and materials.

Howard Fischer:
Oh come on. Now here's the problem with all that. When people set a bond interest rate, they know what inflation is going to eat up. If I'm willing to lend you money at 4\%, I am assuming that will exceed -- I am assuming that 4 will exceed inflation. Labor costs are going to go up. They're all going to go up. You can only lock so much into financing trying to stay ahead of it. If you add in 30, 45 schools every year, that debt service has to exceed the cash on the pay-as-you-go basis, and then you know what hits the fan.


Michael Grant:
Numbers on television are always dangerous, but we've got about a 400 million-dollar carry-over from -- in other words, we're going to have $400 million more in revenue than we had for this year's budget. We've already talked about $400 million while changing bond timing on transportation.

Howard Fischer:
Sure.

Michael Grant:
Then 400 million for this. Are we something like a billion 2 in the hole on a $10.4 billion budget?

Howard Fischer:
The issue becomes that the highway budget really shouldn't be factored into this for the simple reason it's always been in another budget, whether we bond for 20 years or 30. There is one other factor that has to be considered. Right now, as much as we say we need highway construction money, the governor wants to take somewhere close to $90 million from the highway user revenue fund. This is gas taxes. These are vehicle license fees.

Mike Sunnucks:
Something they've raided before year after year.

Howard Fischer:
And use that to pay for the department of public safety, which is legal. But what it really does is take that extra 90 million now. The governor says, "Look. I can afford all my pet programs." all of this comes down to we have cut taxes over the years. Rightly or wrongly, we've done that.

Michael Grant:
Revenues, though, have increased.

Howard Fischer:
Revenues have increased up to a point, but we're in the middle of a 10\% cut in individual income taxes. Revenues next year are only going to go up 4\%. The budget is going up far more than that. Revenues next year are scheduled to go up $315 million. I got news for you. The governor, in just the new programs, has $350 million.

Mike Sunnucks:
But if they hadn't cut those taxes, I think the governor and probably a lot of people in the legislature would have found plenty to money to spend. It's not like they were going to carry this over. And the other thing about transportation is she didn't take any money out of the rainy day fund, which is what bob burns and some republicans want to do and do some more one-time spending. She didn't have any of that in her budget.

Howard Fischer:
That's an interesting philosophical question about the rainy day fund. 600 million in a rainy day fund and a 600 million-dollar budget is not a lot. If you've got the money just sitting there and you do have the road needs, does it make sense to do that?

Michael Grant:
I personally think its raining people in cars, but we'll cover that.

Howard Fischer:
Bob burns stuck his hand out the window and says, "It feels wet."

Mike Sunnucks:
It's a big priority in Atlanta.

Matthew Benson:
The other issue hanging out there is the economy in recent years has consistently outperformed projections. So who's to say that this is the year it doesn't?

Michael Grant:
And matt I was just going to ask you about that, because Howie mentioned the slightly south of 5\% growth numbers. Some people think, no, that revenue growth number is probably going to be more like 8\%.

Matthew Benson:
And that's absolutely possible. Now, a big piece of that revenue -- 'cause someone might say, "hey 5\%, 6\%, that's not bad." that might be more than the average income has increased for Arizonans. However, caseload and interest is eating up a large percentage of that. It doesn't leave much left over for these sorts of other projects.

Howard Fischer:
And that's the key to the whole thing. State aid education, which is almost 50\% of the budget, is constitutionally protected. We have to fund the children we have, the new children, and we have to add an inflation rate. On top of that, the access program, the health care program for the poor, is also legally protected. You cannot reduce that. Everybody below the federal poverty level gets free health care. Only top of that, you have some things that will politically protect you, you're not going to cut the department of corrections, the universities. What are you left with? The department of commerce?

Mike Sunnucks:
Which she offers more money toward, towards biotech, science foundation, towards attracting more money.

Howard Fischer:
But there's not much to play with. The budget's on autopilot, and there's not much you can cut.

Michael Grant:
Let me go back to the health care issue, Howie, probably one of the most aggressive proposals in the governor's state of the state, was the proposal to cover all kids up to age 19, families with $60,000 a year annual income. Does it identify at all what the cost of that -- I mean, that's -- a large portion of that would come from federal funding but do we have any idea what that costs?

Howard Fischer:
On a full-year basis, the closest we can come up with is about $12 million under the assumption that the children who already are under somebody else's health insurance won't go there. Now, I'm not sure I'm buying that. Access covers people up to 100\% of the federal poverty level, that's $20,000 for a family of four. We have this program called kids' care, part of the federal childhood program, which covers up to 200\% of the poverty level on a three to one federal state basis. She wants to take it up to $60,000. Interesting questions there. At what point are we going past the children of the working poor and really getting into the middle class? And what is the role of the state in that?

Mike Sunnucks:
It's a family of four making $60,000 a year. I think it's a valid question whether that qualifies as needy. The feds are going to pick up the tab for a lot of this, but every other time we've had a big expansion of access of availability, it's ballooned and been a huge, huge increase.

Howard Fischer:
The other piece of the question, even with the democrats in charge in the congress at the moment, federal money goes away. Once you have a state program, it doesn't go away. If we cover every child up to $60,000 a year in a family for four and a lot of people say, "Hey, it's cheaper for me to do this even with co-pays" than to do it with capital media services or Guinnett or the business journals, they put their kids on there, this is a potential for --

Mike Sunnucks:
What they did before is cover the kids' parents. Then the families making under $60,000 a year, next year it will be the parents. It's kind of creeping towards universal health care.

Matthew Benson:
When it becomes an entitlement sort of issue, obviously we're talking 6 million for half of 2008, 12 million for the full year. If you start broadening the coverage of the program, it really can balloon, as you mentioned, and become a much bigger problem.

Howard Fischer:
The fun political part of this -- and you were good enough to remember this before we went on the air -- is I seem to remember the wife of a certain presidential candidate Hillary proposing sort of very broad health care, and you saw what that did when the Democrats were in control and then lost control of congress.

Mike Sunnucks:
Of course you've seen republicans, Arnold Schwarzenegger, Mitt Romney offer some versions of universal health care in their states, and so Janet may be able to creep towards that, but any kind of comparison to Hillary probably wouldn't do very well for her senate bid.

Michael Grant:
Matt, out at the capitol today after the budget dropped, what was drawing the most fire and what maybe was drawing the most support?

Matthew Benson:
Well, it's a little hard to measure. Obviously it dropped today. Republicans, for at least today, weren't saying a whole lot. They weren't being terribly critical. This isn't a budget like last year where the governor dropped a 20\% budget increase with her proposal. This year she's talking much more modest. But the talk is regarding school funding. Republicans are not going to go for this school financing, at least not as she's proposing it, at least not right now.

Mike Sunnucks:
I think they're willing to play ball on transportation. I think you'll see a combination of longer bonds and some money from the rainy day fund, maybe 200 million instead of 450. But matt's right they're really going to dig their heels in on school construction.

Michael Grant:
Yea mike Senator Byrnes had suggested, I think, 400 million from rainy day. If you get the platform of moving from 20 to 30 years, that 10 frees up 400 million, and maybe toss in another 100 million from rainy day.

Mike Sunnucks:
Folks are talking about major, major long-term multibillion dollar shortfalls in the type of transportation needs we have. All the money we can get towards that, I think they'll go for that.

Howard Fischer:
There was an alternate proposal. Jorge Garcia suggested, when the rainy day fund raid was being considered, "ok. We'll borrow the money out of that. I know how we'll pay it back. A development fee. Any new house within 10 miles of a freeway that's being widened or built, we charge a fee. We can replenish the fund." and of course the republicans said, "oh, no. We can't possibly make development pay for itself."

Mike Sunnucks:
The key with that Local governments have that power now. The state doesn't. Local government, if you charge an impact fee for Howie's new house, it has to be spent on infrastructure or services related to that house. So are we going to charge a statewide impact fee in Surprise and then use that money to pay for stuff in Apache Junction?

Howard Fischer:
That's exactly why his was crafted that it would have to be development within the corridors there. And you're right you'd have to account for it properly. But we have to look at the question. This is a state that's growing at -- faster than any other state in the nation. We cannot keep up with it. Growth doesn't pay for itself. The property tax structure in the state doesn't pay for itself. You've got to find some way of doing this.

Michael Grant:
Mike, we've already touched on a lot of the key points in the state of the state address, but going back to Monday, you were making the point -- I mean, nothing very controversial in that speech. Pretty safe speech stressing unity. Certainly coming out with a few proposals here and there but nothing off the wall.

Mike Sunnucks:
Yeah. I mean, the governor had a huge victory, a mandate. It's a good year for democrats. And nothing really bold. I mean, I don't think how we pay for school construction is going to get people in the streets on either side of the issue. You see Arnold in California calling for universal health care. Janet is a very careful, smart, pragmatic politician. This budget shows that she's very careful, kind of milquetoast, I think.

Michael Grant:
There may finally be an end soon to Arizona's long-running dispute over English learners. Proposed settlement has been offered by Tim Hogan, the attorney representing school districts. Howie what are the key details of the proposed settlement?

Howard Fischer:
Well, as you know, we've been in court -- let's see -- since 1992 when I still had hair on this whole issue here. Maybe not that long ago.
[laughter]

Howard Fischer:
Back in 2000, a federal judge said the state's not complying with federal law that requires students to learn English. We've been through another 12 federal judge's orders.

Michael Grant:
Up to the 9th circuit.

Howard Fischer:
Up to the 9th circuit. Back down for reconsideration in a hearing this past week in Tucson. Right now the state is paying an extra $360 per student for students classified as English language learners, about 135,000 of them in the state. The legislature has offered to go as high as $432 but with certain restrictions. Like you'd have to use your federal money first, two years of the kids in there. That's why we're back in court. What Tim Hogan said, who is the attorney for the plaintiff, said to the legislature and to state school superintendent Tom Horne is, "look. We can gamble this. We can roll the dice. I could win big, and you could end up paying $1000 or you could win big and I get nothing, so why don't we settle something." he'd like to pretty much double the amount of additional funding that's going to schools, get rid of the requirement to use the federal money and get rid of the two-year limit. He says, "We've got the basis for a deal here." now, republicans only heard about it from their lawyer who, as I mentioned, has been down in Tucson this week. I think they'd like to sit down. They've got to do what any good defendant in a lawsuit has to do, consider "What are my chances of winning and losing?" if lawmakers believe they can win, they'll tell Tim to go take a walk. But the fact is, at least with this judge and his predecessor; they've lost over and over again.

Matthew Benson:
One of the things we're hearing seems to be there's a lot of desire on all sides to get something figured out, to reach a compromise. As you mentioned, it's been going on for 15 years, and one of the things that may be driving this is there is less money in the budget. It's not growing as quickly -- the state coffers aren't overflowing, and there may be a feeling out there of we need to get this figured out because there's only so much money to go around.

Michael Grant:
Consistent with your point, I mean, the reaction when the proposal rolled out the first couple of days of the week, 'cause it started leaking, really pretty tame.


Michael Grant:
In contrast to certainly the heavy decibel levels that we were hearing this time last year.

Matthew Benson:
Sure and it seems to be one of these issues where some of the water has kind of boiled out of the pan here, and we may finally reach a settlement.

Michael Grant:
They wrapped the evidentiary hearing down in Tucson. Correct?

Howard Fischer:
They just wrapped the hearing today, and I would expect the judge to rule by -- within four weeks as to whether in fact the state is yet in compliance with the law. I'd be willing to bet at least a small lunch that the judge will say the state is not in compliance with the law, still not meeting the requirements. Of course, if he rules that way, Tim is more in the cat bird seat. There's a certain amount of pressure to settle it now, because everybody can say, "look. Everyone can declare victory. We won't have a court ruling, and we can say we've resolved the case." And I think everyone does want to solve the case. And everyone would like it done without a federal judge imposing it.

Mike Sunnucks:
We'll see if the governor does anything on this. When the legislature passed her plan, she wasn't that happy with it. She didn't like it, but she signed it off, kind of punting it to the judge to let him decide. We'll see if she steps in to do something, which she really hasn't done.

Michael Grant:
Sticking with the court them, Arizona's Supreme Court on the school voucher program.

Howard Fischer:
Arizona has a constitutional provision that prohibits the use of public funds in aid of private and sectarian schools. Legislature last year tried to crack open that door a little bit there -- two programs: one for children who have been in foster care, one for children with severe disabilities -- to essentially allow the parents to take a check from the state, decide whether they want to send their children to school, and give that there --

Mike Sunnucks:
About $2.5 million.

Howard Fischer:
2.5 on each of those. That then becomes a direct use of state dollars. Several groups, the American civil liberties union and people from the American way, challenged it. 15

Mike Sunnucks:
One of your favorite groups.
[laughter]

Howard Fischer:
Challenged it and said, "You've still got that constitutional problem." the defendants argued that, "Well, it isn't really the use of the state aiding these things 'cause the parents direct where the money goes."

Michael Grant:
We're aiding the parents, and the check then goes from them to the

Howard Fischer:
Yes. But it is a state check. It's a question of who directs it. What happened is the challengers filed original jurisdiction in Supreme Court. They asked the Supreme Court to say, "Look. Just as a matter of law, we don't need a trial on it." supreme court said, "I don't think so." now it goes back to the trial court and, in perhaps another 18 months, we'll sit around the table and it goes back to the Supreme Court.

Mike Sunnucks:
This is similar to a voucher program that Florida has that's gone through some legal challenges and has survived those.

Howard Fischer:
But the difference is the specific constitutional amendment here known as the Blaine amendment.

Michael Grant:
Now meanwhile up in San Francisco, the 9th circuit, Arizona's voter I.D. law up there, the allegation that it amounts to a poll tax.

Mike Sunnucks:
Opponents of the law make this kind of strange argument that you have to have some kind of I.D. when you show up at the polls, a driver's license, a birth certificate proving you're a U.S. citizen and an Arizona resident and a valid voter. Opponents say having to buy those things -- you have a fee to get a driver's license -- amounts to some kind of poll tax. The judges, I don't think, are going to buy that.

Howard Fischer:
Particularly since the rules were enacted After prop 200 required this, the rules include a very broad list: utility bills, bank statements, almost any piece of mail with your address on it even without a photo I.D. now, there will be some people who will not be able to do that. If they're living in a nursing home, they're not getting utility bills in their own name. You probably don't have a driver's license, something else. The court may conclude that, for those who do not fit the category, you need to have some sort of relief. But you're right I don't see them just bouncing the whole law.

Matthew Benson:
It seems to be one of these issues it would be nice to get some sort of resolution to. The state -- I would expect at some point the state to come back and say, "for those folks who can't meet these regulations, who can't meet the bare identification requirements, we'll provide I.D. we'll provide some way free of charge."

Michael Grant:
Provide it at no cost.

Howard Fischer:
But now you've got to check into the next situation. What do you need to provide to the secretary of state to get the new I.D. and what's acceptable there?

Michael Grant;
Final court note, Superior Court talking about Terry Goddard's efforts to seize the wire transfers down in Mexico

Howard Fischer:
Terry Goddard's been very creative. He decides to use some thing called damming wars that you dam up the money. The argument is that he believes he can show judges that money that goes from certain locations in Arizona to Mexico is really destined to pay for coyotes-for drug smuggling. He got one judge to sign orders that says, if money's coming from 25 other states going to 29 specific locations in Sonora, we get to dam up that money, too. Obviously the western union company, which has made a lot of money promoting its international wire transfers, went in and said, "You can't do that." And the superior court judge issued a preliminary injunction and said, "You're right." there is no nexus to the state. There's nothing to show that the people who sent the money violated any Arizona law and the people who received the money violated any Arizona law.

Michael Grant:
So that part of it's been cancelled.

Howard Fischer:
That's been cancelled. It is a preliminary injunction. I have a feeling, though, that getting the judge to resolve that is going to be difficult.

Mike Sunnucks:
There's already some bills at the legislature related to wire transfers and remittances. Russell Pearce and republicans have a bill where, if you want to send money to Mexico, you've got to prove that you paid taxes on that money here, because obviously a lot of illegal immigrants work here and then send that down there. So you'll see a lot more regulations on that.

Michael Grant:
US Airways has sweetened the deal on Delta to more than 18 $10 billion. I love doing this. Mike Sunnucks, deal or no deal?

Mike Sunnucks:
No deal still. They're still looking at it? Doug parker keeps putting more chips in the middle of the table there for delta. He told reporters recently they weren't going to increase their bid, and now they have? And so it's in the creditors' court again. They're really lobbying the creditors hard. Obviously Delta wants to emerge from bankruptcy and stand alone. The key is some of these major creditors whether they're going to go along with Parker's plan.

Howard Fischer:
Well the other piece of the equation is at what point are you offering more than it's worth and you really drive down America West stock or U.S. Air's stock, and the investigators say, "ok. Good deal for the Delta investors. Bad deal for you if you own U.S. air."

Mike Sunnucks:
They're trying to merge with US Airways. It's just going to distract from that.

Michael Grant:
Panelists, we are out of time. Thank you so much.

Larry Lemmons:
We begin a new series focusing on the 48th legislative session. "Legislature a-z" will examine the issues that will preoccupy lawmakers this year. We look at the new dynamics of the house and senate and how those changes might affect the legislature's dealings with the governor. Monday night at 7 on channel 8's "Horizon."

Michael Grant:
Tuesday we continue the legislative series talking about the governor's plan for health insurance for kids. Wednesday a look at transportation issues at the legislature. Thursday completing the series by telling you about immigration proposals. Thanks very much for joining us for this Friday edition. I'm Michael Grant. Have a great weekend. Good night.

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