2001 January 9

Hull asks 11.2% boost in state spending over 2 years
By Howard Fischer
CAPITOL MEDIA SERVICES

PHOENIX - Gov. Jane Hull wants an 11.2 percent boost in state spending over the next two years, bringing the budget to more than $7.2 billion by the 2003 fiscal year.

And that's $200 million less than lawmakers want to spend.

The biggest boost in sheer dollars will be state aid to education, where simple growth of students and inflation will add nearly $132 million next year and $175 million in the 2002-03 fiscal year. That is not unusual, as public school education already eats up half the state budget.

And that figure doesn't include spending on higher education or another $460 million a year for K-12 that will be collected in higher sales taxes, the result of voter approval in November of Proposition 103.

Tom Betlach, the governor's chief budget aide, said the ballot measure allows those funds to be considered separately from the regular budget.

Betlach said the governor's recommended increases are easily justified. He said Arizona's population is expected to grow about 5 percent over the next two years, with inflation running somewhere between 5.5 and 6 percent in that same period. Betlach said government itself is not growing, with only the equivalent of 462 full-time positions added, less than 1 percent.

Hull said she fears that lawmakers, whose own spending plan is being unveiled this afternoon, are being overly optimistic about state revenues. That concern, the governor said, is more than a simple question of whose numbers are right.

She pointed out that in 1990, when she was speaker of the House of Representatives, legislators were forced to slash state spending by about 10 percent in the middle of a budget year because the tax revenues didn't keep pace with estimates. Hull said she doesn't want to have to go through that again.

Small errors cause big problems: Betlach said each 1 percent difference in revenue projections translates into $70 million.

House Speaker Jim Weiers defended the higher figures, saying revenue estimates of the legislative budget staff "have been extremely accurate" in recent years.

Betlach said the governor is being cautious because the wildly good times of the last decade appear to be over.

He said the number of jobs in Arizona is expected to grow by only about 3.7 percent this year, the lowest level since 1992. And construction employment is predicted to decline.

There also is the very real problem that people think the economy is slowing down. He cited a Wall Street Journal survey showing 43 percent believe a recession will occur within the next year, vs. 26 percent two months ago.

"This almost becomes a self-fulfilling prophecy," Betlach said. "When the consumer stops spending, the economy shrinks up."

That, in turn, means that state sales tax revenues will grow by only about 7 percent a year.

While that sounds healthy, Betlach noted that it follows a year of 10 percent growth. More to the point, sales taxes amount to nearly half of the state budget.

Betlach also predicted that receipts from individual income taxes will soften, going from a year-to-year growth rate of more than 9 percent to 7.8 percent. He said the drop will be caused by fewer new people on payrolls, coupled with a drop in collection of capital gains taxes caused by the lackluster performance of the stock market.

The 45th Legislature

In a special series, the Arizona Daily Star will focus on the 45th Arizona Legislature, which convened in Phoenix Jan. 8. Coming Thursday: A look at growth, the environment and Rep. Steve Huffman.

Visit Arizona's Legislature online at www.azleg.state.az.us.