Republican state lawmakers released their budget last week, and Governor Jan Brewer was not amused with legislative spending priorities. So much so, she suspended budget negotiations. Here to discuss the legislative budget is John Kavanagh, chairman of the House Appropriations Committee, and Democratic Representative Chad Campbell, who serves as House Minority Leader. Welcome to both of you. Why is this proposal good for Arizona?
John Kavanagh: First of all, let me make one thing clear. The budget we passed out of the appropriations committee is still a work in progress. This was not meant to be the final budget. We're looking for input from the public, from our Democrat colleagues, and most importantly from the governor. So what eventually passes will be different from what we passed out, but hopefully not too different. We think this is a very responsible start.
Ted Simons: Why?
John Kavanagh: Because two years ago we had a $3 billion budget deficit. It was very painful to get out of that deficit. We still have $3 billion in debt we have to pay off that we took on to avoid even deeper cuts than we made. We have a big revenue cliff coming down the road. In '14 we lose the temporary sales tax. In '15 we will be hit with about $450-$500 million dollars worth of Obama care mandates. We can’t spend too much because we have to put money aside so when those cliffs come they will just be curbs that we step over, as opposed to having a repeat of what happened two years ago.
Ted Simons: Why is this work in progress not good for Arizona?
Chad Campbell: Well, for many reasons. I agree with John that we’re going to have a revenue cliff in the next couple of years, there's no doubt about that. But the GOP budget doesn't spend any money at all on the important things that we've cut in recent years, most notably our schools. The governor’s budget does put some money back into the schools. The GOP budget actually reduces money into our schools, which is just unconscionable to me at this point, based on cuts over the past couple of years. The Governor's budget spends too much money in some areas that we shouldn't be spending money. I think the GOP budget doesn't spend enough money. I think we need to find a more common sense based solution that looks at long-term solutions and also short-term needs. And that’s what you’ll see from some of the house democrats later this week.
John Kavanagh: We've committed to fully funding any increases in population in AHCCCHS and corrections and schools. From there we've made few increases. Chad is right, for the most part we're staying away from increases because we don't think they are warranted with the extreme problem we have with the big cliffs in the next year or two.
Ted Simons: What about this idea that we've got the federal health care on the way, the one-cent sales tax at least in its present form will go away. And we’ve got all sorts of tax cuts and tax breaks taking effect in FY 15, I believe. We even got some lawmakers, including the, I believe the senate appropriations chair, talking about a double dip recession he's trying to prepare for, as well. Is it not wise to prepare to this?
Chad Campbell: It is. We released earlier this week that we're setting aside money, well in our budget, probably somewhere between what the Republicans and the Governor have offered. But I think the most bothersome part of this and the greater conversation we're not talking about is a long-term plan for the State. We can talk about the fact that the sales tax is going to expire soon, which is one of the reasons many of us voted it was a horrible move. We can talk about the fact that we're going to face a revenue cliff, but we're not doing anything about that. We need to fix our taxes and economic outlook so we can fund our schools and maintain our roads and bridges and keep cops on the street. We're not doing that right now and not having that conversation either from the governor or the GOP leadership.
John Kavanagh: I've waited for five years to see a Democratic budget so I’m very excited.
Chad Campbell: No, that's not true, we offered a budget two years ago.
John Kavanagh: Are you going to give us the usual talking points or will you have a line item budget that shows a balance at the end?
Chad Campbell: We will have a budget for you. We’re taking probably what you guys did take the GLDC baseline and add what we say is the surplus right now, and how it should be spent and in a lot of cases how it should be saved. I do agree with John, we have to make sure we're saving for the long-term outlook in the state but we also have to be investing in the things that matter. We have to invest in educating our kids and money for health care and all the other things we need to do.
Ed Simons: The Governor saw your plan and basically called it reckless and short-sighted. And then we saw a suspension as far as budget negotiations are concerned.You've got your disconnects and you’ve got your disconnects. This sounds like a disconnect here.
John Kavanagh: Number one, this was never meant to be the final budget, it was a starting point for negotiations with the governor and other inputs. It's unfair for her to characterize this as the budget that we want to pass. We don't want to pass this. We want to work with her and get public input and work with the Democrats to get a reasonable budget.
Ted Simons: We've got school construction zeroed out, we’ve got soft capped school spending zeroed out, third grade remedial reading education zeroed out, community colleges zippo, for university zippo; everything I just mentioned, the Governor has some money set aside for those educational goals. Zero out on all of those?
John Kavanagh: Again, a starting point. But there's not much room for us to move because, again, a $650 million deficit we're facing using our reasonable revenue projections, and with our limited spending. We get over it by putting aside $450 million for the '14-'15 cliffs. If you don't have that money in the bank and, God forbid, you do get a second recession, which I’m hoping isn’t going to happen but look at Greece, look at Europe, $6 gasoline. A lot of things could trigger a repeat of the 2008 meltdown in this state.
Chad Campbell: I just want to say something though. That $650 million dollar projected deficit and some of the other projected deficits are a direct result of bad fiscal policies by this governor and by this GOP lead majority party. We looked at the sales tax increase, the temporary extension, we said that was bad fiscal policy. The republicans passed a massive corporate tax bill last year. It's going to cost the state $540 million and not do anything to create jobs. That is the problem we have in the state, not just a one-year budget problem. It's a lack of a long-term fiscal plan and a long-term plan of what we want the state to become. We have not seen leadership from the Governor or from the Republicans in the legislature.
John Kavanagh: Those tax cuts were phased in ’15, ’16, ’17. They phased in small, not a problem. We got by the sales tax going away easily with our budget. Obama care is a bigger problem, but we can solve all of those things if we stay fiscally responsible and don't open up the spending spigots again.
Ted Simons: Ok, but my question would be, if it is okay for the tax cuts to go ahead? If you see the openings for these in '15, '16, '17, doesn't sound like you're preparing for a double dip recession or a health care reform fallout?
John Kavanagh: The big problem is in 2015. The tax cuts are minimal, minimal compared to the $465 million Obama care mandate we have to face that’s the killer.
Chad Campbell: The corporate taxes will cost the state over $500 million. That's a lot of money taken away from schools and health care for kids. Kids care, we're the only state in the country not to reinstate kids care. That would only cost us $30 million dollars. Yet we're going to give $540 million in large mainly out-of-state tax cuts. That's not proper fiscal management in the state, and not what we need to be doing to get the state back on track.
John Kavanagh: That's the end of the decade. Let's talk the '13-'14 budget. We're facing the cliffs in '14-'15. If we spend much more than what we've proposed, and don't put money away, this state will be back in the 2008 budget meltdown.
Chad Campbell: This is the problem; we have to look past just next year and the year after that. We have to start thinking about 10 years down the road. That's why we're where we're at in Arizona right now.
Ted Simons: Gentlemen, good discussion. Thanks for joining us.