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Fri, Oct. 18

State deals with budget crises, revenues look rosier

Late in 2002, the Legislature trimmed the $6.1 billion budget by $200 million. Then, in March 2003, it cut out another $338 million during a one-day special session in the midst of a protracted regular session that ran nearly six months.

"Overall, I thought it was a fair compromise," said Senate President Ken Bennett, R-Prescott. "No one person gets their way."

In March, legislators were predicting that this budget year which began July 1 would be an even tougher nut to crack, as they expected revenues to be $1 billion lower than last year.

It took a 158-day legislative session to finish working out a compromise in June on the current year's budget.

The Republican-dominated Legislature eventually settled on Bennett's idea to hold the line on most departments' spending while financing voter-mandated increases in K-12 education and health care.

The Legislature's budget included approximately $300 million less spending than Napolitano proposed, but dropped many spending cuts included in Republicans' initial budget proposals of $6.1 billion and $6.2 billion.

The initial "zero-based" budget proposal from the Legislature didn't include any money for the departments of Tourism and Commerce, for example.

"We're going to invite the agencies in to justify what they're spending money on, beginning with the first dollar," Bennett explained in February.

In a visit to Prescott Valley in February, Napolitano called that shortsighted.

During a Prescott meeting with government officials from Yavapai County and its municipalities during the governor's visit, several local officials said the Department of Tourism is important to them.

Other local officials at that meeting expressed concerns about cutting other areas of state financing, including county Health Department money, county probation officers, and the Superior Court's family law commissioner.

"There seems to be an all-out attack on the judicial branch by the legislative branch," Yavapai County Superior Court Presiding Judge Raymond Weaver said.

Sharlot Hall Museum in Prescott also faced a quarter-million-dollar cut, but local legislators helped fight that off. The state created the Prescott Historical Society to care for the museum as well as to acquire, preserve and exhibit objects relating to the history of Arizona and the West.

Napolitano eventually signed the Legislature's budget bill, but not before vetoing 35 line items to reduce the cuts by $31 million. That action sparked the ire of legislators to the point that leaders including Bennett filed a lawsuit challenging her authority.

Napolitano restored spending on housing, environmental projects, arts, drug education, land conservation, substance abuse treatment, health crisis intervention, emergency dental care for poor adults, law enforcement and services for children. She also vetoed lump-sum cuts for a variety of state agencies.

"We have found a way through our historic budget crisis. With my signature and my line-item vetoes, we will balance the 2004 budget without raising taxes or gutting vital state services," Napolitano said.

A $400 million one-time federal government bailout contribution was key to this year's budget.

While the state avoided some cost shifts to counties and municipalities, it took a larger share of state-shared sales tax revenues and state-shared gas tax revenues that amounted to a $2 million revenue loss for the Yavapai County government alone.

Bennett said he supports restoring the previous share to the counties and municipalities in next year's budget.

"I'm committed to going back to the original number by the end of this year," Bennett said this month.

The governor called legislators back for another special session in October, to patch up the state's Child Protective Services program after some children died despite CPS visits to their homes.

The governor also wanted more money for the Department of Corrections (DOC) as it faced huge inmate population increases.

The 55-day-long special session that ended this month proved to be longer than local legislators had hoped, but less painful in a fiscal sense.

The Legislature dipped into the state's general fund for $17 million of the CPS money, but decided to use other funds and borrowing to help out the prisons.

"I thought the outcome was fairly good," said Rep. Tom O'Halleran, R-Village of Oak Creek, citing new accountability standards for CPS.

He hopes to deal with long-term issues related to the prisons' population during the Legislature's next regular session, which is scheduled to begin Jan. 12.

"I really felt like it needed to be done, and we emerged with some good processes in place," said Rep. Lucy Mason, R-Prescott, of the latest special session.

Several legislative committees dealt with individual issues related to CPS and DOC, then shared information, Mason noted. The better understanding of the issues by the entire legislative body led to more fruitful negotiations between legislators and the governor than previous sessions, she said.

She hopes to see that more inclusive process carry on to next year's session.

Preliminary numbers show about a 6 percent growth trend in the state's sales tax revenues, versus zero growth a year ago and a 6 percent drop two years ago, Bennett said.

"Things are improving quite a bit – not that it's going to be easy," Bennett said of the budget work for the fiscal year that begins July 1, 2004.

Instead of being $1 billion short compared to the previous year, the budget may be dealing with a half-million fewer dollars, he said. However, the state won't have $400 million in federal money to help balance the budget this time.

At the worst, most departments will get what they got this year, O'Halleran said. Again, those with voter-mandated increases – K-12 education and health care – will get more money.

Health-care costs for the poor could cost the state another quarter-million dollars next year, O'Halleran said.

He is increasingly concerned that "box stores" want the government to cover their employees' health care costs, witnessed by their preference for part-time employees.

He's even heard that some large retail companies are offering employee seminars on how to stay qualified for government health care.

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