Budget Bonanza or Bust?

Discord between GOP lawmakers and the governor is just one reason the budget battle might get ugly.

He says Hull believes the state personal income tax has been reduced enough, and that other taxes--such as the vehicle-license tax--should be curbed. "We are very much out of line with other states," Ferris says of the license tax.

While Ferris was mum on how much of a tax cut Hull wants, other sources say to expect a reduction of around $50 million.

Hull also is expected to seek reductions in certain business taxes, particularly business property taxes, which run more than twice the rate that homeowners pay.

The magnitude of the governor's tax cuts will not be as great as in previous years, when the Legislature was routinely passing hundreds of millions of dollars in cuts, Ferris says.

"She is reducing the pace because it is late in the business cycle and she doesn't want to get behind the eight ball on the budget," Ferris says.

The governor's budget plans--especially the provisions related to school construction--appear to be dead on arrival in the Legislature.

The chairs of the House and Senate appropriations committees are against Hull's proposal to carry forward the $110 million in unspent school construction funds and are opposed to issuing revenue bonds.

Senate Appropriations Committee Chairman Gnant says the state should pay for school construction out of current funds.

"Revenue bonding for an ongoing need is little more than passing the price tag for future wants and needs on to succeeding legislatures and taxpayers," he says. "It is not something we want to do."

House Appropriations Committee Chairman Bob Burns concurs, saying, "We are not going to go the revenue-bonding route."

Senate Finance Committee Chairman Scott Bundgaard calls the revenue-bonding proposal "ridiculous."

"It's kind of like a cocaine addict looking for a quick fix," Bundgaard says.

Burns and Gnant agree that the $110 million Hull wants to move into the fiscal 2000 budget should remain in the current budget.

"It is our plan to leave at least $110 million on the shelf and park that money," Burns says.

Gnant says keeping the $110 million in the fiscal 1999 budget will force the state to act responsibly and offer an opportunity to take a closer look at government's role.

"What we have chosen to do is live within our means," Gnant says. "This is an excellent opportunity to adopt the value approach to state government."

If Burns, Bundgaard and Gnant get their way, the Legislature will make significant cuts in spending in other areas to balance the budget.

"There are some public-policy changes that the Legislature is going to have to weigh in on," Gnant says.

One area likely to take a hit is university budgets.
"They are probably not going to be very happy," Burns says.
One proposal being discussed would reduce the faculty-salary base at Arizona's three universities by up to $50 million--equivalent to a 7 percent reduction. The decrease would likely spur an exodus of talented professors away from the state, says Cunningham, a strong supporter of universities.

In addition, Cunningham says further reductions of state funds to the universities will increase pressure on the Board of Regents to hike tuition fees.

Universities are just one potential item on the chopping block. Legislators are reviewing JLBC suggestions for cutting $602 million, including:

* Eliminate the Medically Needy/Medically Indigent program in AHCCCS, saving $118 million.

* Cutting Department of Education spending by about $100 million.
* Slashing $20 million in a variety of programs from the Department of Economic Security.

* Delaying prison openings for nine months, saving $9 million.
* Reducing spending for the Department of Public Safety by $12 million.
* Eliminating the Arts Endowment Fund, saving $2 million.

And this list doesn't include a proposal to abolish the Department of Commerce and its $21 million annual budget.

While Republican leaders want to slash spending, there is strong support for additional tax cuts. On this issue, the Legislature and the governor appear to agree that the vehicle-license tax should be further reduced.

However, there is one big difference. Legislative leaders--including Burns, Gnant and Bundgaard--want to finance a tax cut by reducing spending. The governor's tax cut could only come about by issuing revenue bonds to cover school construction.

Not even the Democrats appear to have the stomach for Hull's idea of enacting a tax cut on the back of bonds.

"You don't go out and place yourself in debt so you can have a tax cut," says Cunningham.

The significant policy differences between the governor and the Legislature would offer a serious challenge in a normal budget year.

And this year is anything but normal, thanks to the new, double-budget writing system, which Gnant says will allow lawmakers to "go in and kick the tires" of state programs instead of fighting over another budget next year.

The process is expected to give legislators more information about state agencies. But the trade-off is a far heavier workload this year. The extra work increases the potential for gridlock, especially as the differences between the governor's budget and the Legislative leadership's budget become more defined.

Gnant hopes that the Republican-controlled Legislature will stick together and that Senate Democrats will support the budget. Gnant predicts the budget will be passed by late March and hopes it will be supported by at least 20 senators. Republicans hold a narrow 16-14 edge over Democrats in the Senate.

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