April 5, 2011
Host: Ted Simons
FY 2012 State Budget
- Proponents say is big on cuts and short on gimmicks. Speaker of the House Kirk Adams and House Minority Leader Chad Campbell discuss the $8.3 billion budget that’s now awaiting Governor Brewer’s signature.
- Kirk Adams - Speaker of the House
- Chad Campbell - House Minority Leader
Ted Simons: Good evening and welcome to Horizon, I’m Ted Simons. State lawmakers last week passed an $8.3 billion budget that cuts state spending by a billion dollars in fiscal year 2012. It cuts K-12 education by about $180 million. Trims university budgets by nearly $200 million. And makes changes to Arizona's Medicaid program that could save the state about $500 million. Tonight I'll talk with economists about the impact of the budget on jobs and the economy. But first, we hear from legislative leaders. Speaker of the house Kirk Adams, a Republican from Mesa. And house minority leader Chad Campbell, a democrat from Phoenix. Thanks for joining us.
Kirk Adams: Good to be here.
Chad Campbell: Thank you.
Ted Simons: Speaker, you mentioned these were difficult decision. If this budget is good for Arizona, why were they difficult decisions?
Kirk Adams: Because every decision we make impacts somebody. But the reason why it's good for Arizona, is because we're bringing financial stability to state finances and that is one the keys to moving forward with economic growth. We have to demonstrate we can bring stability to state finances. This does it -- and it does with a mind toward fiscal year '13 and '14 where we have a cliff with the temporary sales tax coming off the books and additional costs associated with Obama care. And that was part of the effort, to make sure we were not only doing the right thing this we're but for out years.
Ted Simons: A structurally sound budget. This has been described as, do you agree?
Chad Campbell: No, I don't. I think the move with the AHCCCS cuts will be proven to be unconstitutional. We'll be back a few months from now revisiting the budget, once it's decided by the courts that we violated the rights and I think that the most important thing to keep in mind here is that fiscal stability doesn’t really mean much if you're not investing in the things that business and families are looking for when looking at places to move to, places to do business in and live and when you’re gutting education, closing state parks, not funding public safety, you're not going to entice anybody to come to Arizona.
Ted Simons: But is not the idea of some sense of certainty, some sense of stability a good thing for Arizona in these current times?
Chad Campbell: But this doesn't provide stability to those looking for those long term investments that they want to see being made namely education and infrastructure and healthcare to some degree and in terms of the impact on the economy the cuts to the healthcare sector are going to be devastating. We’re talking about the loss of tens of thousands of jobs over the next few years in the state.
Kirk Adams: I think it's important to put this into context. We have to remember that we've been experiencing the worst economy since the great depression. Arizona’s lost over 300,000 jobs during this economic recession as a result we had the worst deficit in state history. So Chad's comments in a vacuum absent the environment in which we are in and could possibly have some merit to them, but fundamentally when state revenues do not match with expenditures there's a problem. So what we've done here is we’ve rebalanced those and it hasn't been done all at once. This has been a three year process, we've sort of weaned state government of the first two years and in the third year, we’ve reached true structural balance according to the joint legislative budget committee. That is incredibly important, it puts us on a stable footing going forward and will give a level of certainty both to affected budget units and the business community as we go to the out years of the –- these next few years.
Ted Simons: The idea that so many of these cuts will wind up in some jobs being lost. We can argue about that, we'll hear about that with our economist later on, but jobs will be lost because of these budget cuts. Some would argue that is instability as opposed to stability. How do you respond?
Kirk Adans: We have two choices. We really have three choices. The first choice was to continue to increase debt and borrowing and nobody wanted do that. We're reaching a point in state government where that has become dangerous. The second thing you could do is to raise taxes. Clearly raising taxes would have a negative impact as well. And the third thing you could do is reduce spending. We have decided very specifically to reduce government spending protecting the taxpayers so that we can bring stability to state finances and no longer hurt the private sector.
Chad Campbell: But there's a fourth thing we could do that the Speaker is not talking about and that is to fix our broken tax system. We've been talking about this for the past three years we’ve heard people or institutions such as the Morrison institute, as to the Goldwater Institute, from both sides of the spectrum saying we've got to fix our broken tax system. It is outdated and it is archaic and what we need to be doing is closing all of these tax loopholes, making sure we’re not continuing to not give out handouts to special interests so that we can make the system more stable and bring in the revenue we need to pay for a quality education for our kids and pay for DPS officers to patrol the highways. That’s what we need to be doing and the majority party and the governor have been unwilling and have refused to actually look at doing this and if we don't do that, we're continue down this pathway that I have to strongly suggest to everyone is the wrong path. We have no vision for the state and no vision for long-term economic growth and job creation here in Arizona.
Kirk Adams: Well, I would obviously respectfully disagree with my friend, Mr. Campbell over here. Clearly, the legislature acted in a very historic way. Earlier this session for long-term economic growth with the passage of the job spill but I think it's important to point out the facts in terms of so-called “tax loopholes”. By any other name that’s simply a tax increase and you can talk about what things should be taxed more. For example we talk often about taxing four-inch pipes, those are pipes that carry natural gas for example, that would fundamentally raise utility rates for all Arizonans if we increase the tax on that. But the Democrats brought forward during this budget debate on the floor of the house, something like 40 amendments and some of those amendments were raising taxes in specific areas. The total was $104 million. That is a far cry from the solution of a $1.2 billion deficit. It's not a plan, if the plan’s not complete.
Chad Campbell: There is plenty of money, plenty of money if we close loopholes to fund the programs that we all feel are important. And I want to point out that the so-called jobs bill that the Speaker referred to this last session was actually nothing more than a $541 million tax give-away to special interests across the state of Arizona. Less than a year after the governor and the majority party asked the voters of the state to tax themselves to fund education. That $541 million on top of the loss of the sales tax revenue in a year is going to be -- we're going to be realized in cuts to education once again we betrayed the voters. Actually not we, the governor and the majority party betrayed the voters by passing the sales—or this corporate tax cut and giving away all of that money that was to be realized and supported by the voters of this state.
Kirk Adams: Every small business, every large business, every medium-sized business in the state of Arizona is not a special interest. That is what the jobs bill did. It reduced the tax burden for all businesses. So that they have -- can keep more of what they earn to hire new employees. Fundamentally when our economy begins to turn around it will be because people are hiring again, businesses are investing again and so we see these two things, the budget bringing fiscal stability to state finances and a jobs bill passed in February as working together to bring Arizona usher us out of this period of crisis that we've been managing our way through.
Ted Simons: Real quickly.
Chad Campbell: Yeah if may? I want to lower corporate taxes, I had a bill that would have lowered taxes and it wouldn't of cost the state of Arizona a single dime. The bill that the Republicans passed cost the state half a billion, we could have lowered corporate taxes the way I wanted to do it, not cost the state a dime, and paid for education and even Bob Rob, the conservative Republican said my plan was better than the Republicans plan.
Ted Simons: I want to go back to your idea of de facto taxes, whether it’s you know broadening the tax base -- an increase is a tax increase, is a tax increase. Some would argue that this particular budget is shoving an awful lot onto counties and onto cities and they will have to wind up paying for it somehow. Isn't that not a de facto tax increase?
Kirk Adams: It is not. There's been a great exaggeration of the impact on local towns and cities and counties by some of the rhetoric that we’ve heard. Less than 1% of this spending plan has any impact at all on cities and counties and towns. As a matter of fact, within that 1%, you see some long-term reform items. Let me give you a quick example. We're asking cities and counties to pay a portion of the motor vehicle department costs. Now why is that? The reason why, because they share in the vehicle license tax that's collected through the MVD offices. What we’re now saying is since you're sharing in the collection of that revenue, we're going to ask you to share in the cost of collecting that revenue through the motor vehicle department. That is a long-term reform. It will pay dividends for the state down the road and we have reforms in the corrections system that we think are important as well.
Chad Campbell: This is a tax increase. And I’m proud to say, in my fifth year in the legislature that I've not voted for one single tax increase in the state. The only party in fact voting for tax increases are the republicans. They voted for the second year in the row with this budget to increase property taxes and shifted tens of millions of dollars, if not more on to counties and cities as you were talking about Ted. And also, they just did a $40 million tax increase on teachers and other state workers with a pension reform that is not a reform, it's actually nothing more than stealing people's money to balance the budget. This was a massive tax increase.
Kirk Adams: I got to stop that. To claim that people should pay a little bit more toward their own retirement is stealing their money or a tax increase, is an abuse of the English language. It's simply absolutely not true. Let's examine that one portion that he just talked about. State workers pay 50% of their own retirement costs. If you're in the private sector and you have your own retirement plan with your own employer, you're lucky if your employer kicks in 3% of your retirement costs. All we did was increase the amount by 3% for the employee. That's not stealing and that's not a tax increase because that is money that is going to those teachers.
Chad Campbell: And I tried to do the same thing with the elected official’s retirement plans and the majority party voted it down on a party line vote. It was singling out state workers.
Kirk Adams: And the reason why is because we have a separate bill that doubles the amount that elected officials will pay for their own retirement plan.
Chad Campbell: That has not passed yet, it hasn't even been to the floor.
Kirk Adams: You'll get a chance to vote and I hope you vote yet.
Chad Campbell: We’ll see.
Ted Simons: I got to get to transplants here. We had -- the director of AHCCCS on last night, he says transplants have been reinstated. Federal action notwithstanding. Lawsuits notwithstanding. He says that it is there. I got that. My question to you is why wasn't this -- why are we still talking about this? Why is the language so round about? Why was this not more of a priority?
Kirk Adams: This is sort of a bizarre ol’ world conversation to me. Everybody is saying that transplants will be funded except the democratic party. It is fully the intent of the legislature, fully the intent of Governor Brewer to fund transplants and that's exactly what we did in the bill. So I share your feeling of being perplexed as to why there's confusion on this issue
Chad Campbell: All we put in the bill was an intent clause. There's no funding for the program. Not a single patient received a letter saying they're going to get their transplant. Until I see it or until I actually see a letter from the governor or hear from a patient that’s getting authorized to get a transplant, I'm not just going to take the governor's word. No offense to the governor. There are 10 if not more ways to simplify this solution to this. We offered them five amendments that night alone it would –- close the loopholes that exist, we’re not getting the funding for this, it would have provided funding, I’m sorry, for the program and made it very simplistic. Instead the majority party took a very round about way to this and it has not solved the problem there is no funding to this.
Kirk Adams: You had the director of AHCCCS here last night who told you that transplants were going to be funded. That's the same Tom Betlach who work – in the Napolitano administration who now works in the Brewer administration. He’s telling you they’re funded, I’m telling you we believe they’re funded The governor is saying we believe they're funded. So I don’t understand why the argument continues.
Chad Campbell: Where is the funding? There was no appropriation. Where is the funding?
Ted Simons: If they're saying they have the wherewithal to do it, is that not – the wherewithal to do it?
Chad Campbell: We've been told for the past six months by the governor of Arizona that she could not afford to fund transplants and now after massively cutting AHCCCS in this budget, she's all of the sudden saying oh now I have the money. That means she's been disingenuous to the voters of the state for the past six months.
Ted Simons: Why was this not just clear as a bell that the folks are getting their money?
Kirk Adams: Because it's done in the context of the entire AHCCCS program. And that is consistent with what Governor Brewer has said all along. That you cannot deal with these various service issues with AHCCCS on a onesie and twosie's basis. It has to be part of a comprehensive reform to AHCCCS so that we can actually save the program and sop that we can reform this system and afford it. Fundamentally, we can't afford AHCCCS unless we change it drastically and that's what we intend to do in the budget and you see that with the governors’ application, with her letter to CMS of last week.
Ted Simons: Last word.
Chad Campbell: This has nothing do with CMS or the federal government I can’t stress that enough. It was a decision by the governor and the majority party last year to take away the transplant program. All they had to do was reinstate the language that was there last year. They did not do that. I'm hoping and I’m praying that transplants get funded but I don’t know anymore.
Ted Simons: We got to stop it right there. Great discussion gentlemen, thanks for joining us we appreciate it.
Kirk Adams: Thank you.
State Budget and the Economy
- Economists discuss the potential impact of the state budget on Arizona’s economy. Guests include ASU economist Dennis Hoffman and Alan Maguire, president and principal economist for The Maguire Company.
- Dennis Hoffman - ASU economist
- Alan Maguire - President and Principal Economist, The Maguire Company
Ted Simons: How do budget cuts to K-12 education, universities and Medicaid impact Arizona's economy? Here to share their views are Alan Maguire, president and principal economist for the Maguire company. And ASU economist Dennis Hoffman, who directs the seedman research institute for the W.P. Carey School of Business. Good to see you back here again.
Alan Maguire: Good to see you.
Dennis Hoffman: Good to be here Ted.
Ted Simons: Al, we’ll start with you, overall impact of the budget with its cuts on the economy?
Alan Maguire: Well, budget cutting is always hard but I think what we have to weigh in balance here, what were the alternatives? We either have this increase taxes or cut spending. And I think with the temporary tax having been passed a couple of years ago, we really had to look for spending cuts. Yes, they will hurt the economy but they probably won’t hurt the economy as much as substantial tax increases would have hurt the economy.
Ted Simons: What do you make of it, Dennis?
Dennis Hoffman: well it’s job losses. You have to decide what the priority is right now, Ted. If the problem is jobs in Arizona and that's what many think. We rank 49th in '09 and rocketed up to 48th in 2010. This budget will give us a jobs haircut of about 50,000 jobs with the 30,000 in the private sector.
Ted Simons: Let's get specific here. Healthcare cut, the impact there. I've seen everything from 10,000 to 14,000 job cut if the $510 million Medicaid is erased. Make sense to you? Sounds like a lot of jobs.
Dennis Hoffman: That would make sense to me and the rippled effects through the private sector gets me up to the 30,000 number.
Ted Simons: Are these jobs replaced by similar jobs and if so, when?
Alan Maguire: It depends on the job, quite frankly. In the case of the healthcare jobs they may get relocated. Some may not. But we're starting to see the economy recover a little bit and start to see job growth in different sectors and eventually recover from whatever job losses we have as a result the spending cuts but again you have to balance those against the impact of tax increases on job losses and one thing that's really important, I think, is that imperfect as the budget may be, it sends a positive signal to the world that Arizona is going to begin to deal with its fiscal problems. We have been in a total fiscal mess for three or four years now and we're actually trying to address it. Not perfectly but trying to address it.
Ted Simons: We hear the message of stability and certainty with Arizona, how do you see that?
Dennis Hoffman: I've been ranting, frankly, about the instabilities and the negative signal, because we've not gotten our fiscal house in order. The arithmetic suggests we're taking a step to getting our fiscal house in order. There's other ways one could have done this. I just want to make a quick comment with respect to Alan, he's exactly right. The economy is improving. There will be jobs created over the next year because of the improvement of the economy, so when I talk about 50,000, 30,000 jobs lost, that would be against the -- you know, the growth of jobs elsewhere.
Ted Simons: But we mentioned 10,000 to 14,000 healthcare jobs and I guess if child care subsidies go the way you talk about then another 1,000, 2,000 jobs there. If these jobs do come back because of the stable environment, because of the certainty, because you didn't raise taxes, are these the same kinds of jobs or different? Are different sectors affected? What's going on here?
Dennis Hoffman: I just don't find very much at all in terms of the jobs impact in terms of raising taxes. So for example, I said you could do this differently let's suppose you raised consumption taxes by the amount that they made cuts this time. You'd lose approximately one-five. 15,000 jobs by raising taxes. You'd lose 50,000 jobs by making the cuts.
Alan Maguire: Well that would not be what the international monetary fund says. The international monetary fund analysis which was based on regressions of actual fiscal changes in a number of countries around the world shows that the impact of spending reductions is one quarter of the negative impact of tax increases. That's not my data. That's the IMF and it’s based on a whole bunch of analysis from a bunch of economies and maybe it's wrong for a little bit. But there’s was four-to-one with the differential there. That’s pretty powerful there to me.
Dennis Hoffman: Depends clearly there and I would concur with IMF analysis. Really depends on the nature of the tax hike. Certain business tax hikes really strangle economies. I'm talking about a consumption tax increase on products that are largely made outside the state. So there are negative implications, a few less TVs purchased, ok? They're made in China.
Alan Maguire: I'm sorry --
Ted Simons: Please go ahead.
Alan Maguire: I don't disagree. If you’re going to have to raise taxes, the best way is to make it temporary because that doesn’t change behaviors badly and secondly, a consumption tax. And that’s why, personally, I like the sales tax because it's a consumption tax it’s the most economically neutral tax. The last thing you want to do is punish capital or workers.
David Hoffman: Completely agree.
Ted Simons: Let’s get specific again here regarding the cuts to education. Big cuts there. Impact on the economy with jobs lost and let's look at some other factors too, with the quality of the workforce.
Alan Maguire: Right, you know, I think -- I think the argument gets a little lost sometimes and we talk about jobs, but jobs is just shorthand for building an economy. Arizona needs to strengthen its base economy. We have to begin to build industries that bring money into the state. People that produce something here and sell it somewhere else. Intel is a good example. But we also do that for services. The university of Phoenix does online education across the country and generates income in the state of Arizona. That the kind of thing you want to focus on. How do you do that? You need to do two things: First, you have to have the right high-skilled labor force. So I worry about anything that reduces the quality of our labor force and that’s what made Arizona grow in the 50’s, 60’s, 70’s, and 80’s was a quality labor force. The second thing you have to do is make sure your tax and regulatory environment is hospitable to those kind of companies so we really have two pieces to do here and our budget may be struggling with how to do that the best way.
Dennis Hoffman: We've done the second thing well. I worry about the first thing. And I think Alan laid it out very, very clearly. We need to start competing not only on taxes and regulatory burdens but we need to be competing for the best programs to produce highly-educated, skilled workers. Look at what the state of Washington did to retain the Boeing jobs up there.
Ted Simons: I know it’s not a zero-sum game. When we talk about education cuts and you say that obviously raising taxes, not good for the economy, not good for business. And yet, not having the funds for a quality education and results in a quality workforce also affects -- I mean, how do you balance here? What's the formula, what’s the equation?
Alan Maguire: I think the third piece you have to throw into that is what else are we spending government funds on? And what's really happened over the last 20 years is we’ve set up I think a very foolish competition in Arizona, because of scarce resources between education and end gent healthcare. Low-income healthcare for Arizona resident dollars consuming a larger and larger share of the budget. Tom Betlach was on last night talking about that. There's no place in the state budget for that pressure to go but into education and it has systematically reduced the share of the general fund going to particularly higher education.
Dennis Hoffman: Exactly. He’s exactly right. We've engaged in the competition and the universities lost that competition.
Ted Simons: But is that not the nature of the beast with so much of the budget protected, the only things you can go after are things like healthcare and education?
Dennis Hoffman: You need to change the revenue base in this state.
Ted Simons: Explain.
Dennis Hoffman: I think we need to be honest with the citizens of this state, look every one of them in the eye, not look for pockets of rich people or corporations or loopholes over there, there's something mysterious. You look at everybody and ask them, each one of them, to contribute according to their means toward providing a greater base of revenue to pay some of these bills.
Ted Simons: That sounds like a tax hike.
Dennis Hoffman: You're absolutely right it's a tax hike. We could go to a fair flat tax, 3% or 3.5%. We could go to a broadened sales tax base. We could stop subsidizing residential property taxes through the homeowners rebate. We can do any number of these things.
Ted Simons: what do you think about those ideas?
Alan Maguire: Well before I went to a tax increase, particularly in this climate in this state, I would try and figure out how to get my balance back in my budget. What we have done over time is starve higher education and community colleges and universities, we’ve starved infrastructure. In the best years of the mid 2000s when we had so much cash coming in, we didn’t almost know what to do with it, we were still taking money out of the state highway fund to fund general fund spending.
Dennis Hoffman: Absolutely right.
Alan Maguire: So how does that help your economy? Let's have a serious conversation about what are the essential things to build an economy and once you make that decision, then you maybe can talk about how to pay for it.
Dennis Hoffman: And we will have to talk about how we're going to pay for it. You know, there's one more piece to the puzzle Ted. Tax increases are something that I've advocated not because I want to tax the world, it's just that it's so clear to me, the arithmetic is so clear that this state is short. But this particular budget being passed in March, first time they've passed a budget in March in my memory. Why? What in the world was the hurry? Revenues are coming in. We hit double digits in retail. We've got income taxes coming in the end of April. We're going to see this revenue. It’s like what were they thinking? Did they have a bowl game to attend or what?
Ted Simons: Watch it there, fella. We’ve got about 30 seconds left. Bottom line, is this a good budget for Arizona?
Alan Maguire: Well you know one of my favorite quotes is from Abraham Lincoln which was, "whatever you are, be the best you can be," and I think that the most important thing about this budget is turning the direction toward fiscal stability. Imperfect as it may be, it's heading in the right direction.
Ted Simons: We've got to stop it right there. Gentleman, good stuff thank you very much.
Alan Maguire: Very good Ted.
Dennis Hoffman: Thank you Ted.