When Revolution Meets Reality

Governor Symington says his massive tax cuts have brought prosperity to Arizona. Actually, they are bringing on a fiscal train wreck that could damage the state for decades.

According to numerous studies, Arizona was, at most, a moderately taxed state before Symington implemented his tax reductions. This medium-tax status raises further questions about the governor's reliance on supply-side theory.

Despite the uncertainties surrounding supply-side economics, Arizona Republican leaders present the theory as absolute truth.

Besides Symington, the key budget and appropriations leaders in the Legislature--House Appropriations Chairman Bob Burns, Senate Appropriations Chairwoman Carol Springer, Senate Finance Chairman Marc Spitzer and House Ways and Means Chairwoman Daniels--all embrace supply-side dicta.

"It simply makes sense to me that when government takes more of your money, you as an individual will not tend to spend as much, therefore, that money is not doing as much good as it was before," says Springer, a real estate agent from Prescott.

So far, the tax cuts advanced by Symington and the Republican Legislature have not resulted in an overall surge in tax collections as would be expected under Laffer's theory. While the total amount of tax revenue has increased each year during the recent economic expansion, it is doing so at a much lower rate than supply-side theory would predict.

There is one exception. Corporate income tax collections have increased sharply and are projected to rise to $432 million in fiscal 1996--up from $239 million in 1993.

But the strong surge in corporate income taxes has not been able to overshadow a drop in personal income tax collections--a decline caused by Symington-sponsored tax cuts.

And most economists attribute the surge in the Arizona economy not to some supply-side effect, but to a continuing national economic expansion that has carried Arizona with it.

All economic theorizing aside, there is a bottom line here: Total state tax revenue for the 1997 budget year is projected to be almost $64 million less than fiscal 1996 tax collections.

The budget trains are about to collide.

Whether the carnage from the upcoming budget derailment will be light or heavy depends on the severity of the next recession. But there is little doubt that a crash will occur.

"The Legislature and governor are either going to have to cut a lot of state services or things are going to have to get bad enough that the Legislature will get a two-thirds vote to raise taxes," says Timothy Hogan, an economist and director of the Center for Business Research at Arizona State University.

For Symington and his legislative allies, taxes are anathema. Yet they don't appear to have developed a plan for dealing with the injured after the budget train leaves the tracks.

The Symington administration has made some attempts to identify inefficient areas in government and implement cost-cutting moves.

Symington initiated the cost-cutting program known as Project SLIM within months of his election in February 1991. The program, which later became enmeshed in bid-rigging scandal, was designed to review the operations of all major state agencies and teach state employees better management techniques.

The results of the $6 million-plus effort to imbue state workers with "total quality management" concepts have been mixed. Overall state spending and the number of employees continue to increase, even if some agencies--the Department of Transportation, for example--have managed to keep their employment levels relatively stable.

It seems clear, however, that SLIM will not be able to slim state government nearly enough to accommodate the large state and federal funding cuts that will almost certainly occur during the next two to three years.

So far, state leaders have not released any public plan for dealing with the looming budget crisis.

But there are suggestions as to what programs might bear the brunt of the Symington drive toward limited government.

Some of the first areas likely to face large funding cuts will be secondary education and the state's welfare agency, the Department of Economic Security.

The reason involves simple mathematics: Large cuts will have to be made in the agencies with the largest budgets.

"In the bigger agencies--higher education and funding for DES--[that] is where the Legislature has some discretion," says the Morrison Institute's Rob Melnick.

Although it is one of the state's most mismanaged agencies, DES is also significantly underfunded, New Times research shows. Deep cuts in state DES funding, combined with projected cutbacks in federal welfare funds, could produce devastating results.

"I think we will see more people falling through the cracks and ending up in a total crisis situation," says Dana Naimark of the Children's Action Alliance.

The state's largest expenditure is for primary education--kindergarten through high school. A New Times investigation has revealed that current state budget policies have already put some school districts into financial crisis.

But when the train wreck hits, knowledgeable observers say even this area is vulnerable.

House Appropriations Chairman Bob Burns, for one, appears willing to reduce the state's role in public education.

"If there is any significant cutting that takes place, you almost have to bring education into the mix," Burns says.

In fact, restrictions in funding reasonably can be expected to hit almost every state agency, with the exception of one--the Department of Corrections.

Spending money on public safety, particularly prison construction, is sacrosanct in Symington's world.

"The one moral obligation of state government is to protect innocent people against criminals," Symington says.

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