2007 Arizona Legislative Wrap-Up

(A version of this wrap-up will be published in this week's edition of the Arizona Capitol Times, http://www.azcapitoltimes.com/)

Using last year's adopted budget of $10.1 billion as a baseline, this year's budget of $10.6 billion means a five percent increase in spending -- in line with the ten-year average yearly growth of population plus inflation. If we just look at this snapshot (and ignore a "one-time" transportation spending increase of $340 million), this year's budget does not look so bad.

That said, this year's budget comes as a brief rest after a four-year run of fiscal irresponsibility, in which state spending increased by an average of more than 12 percent per year -- more than double the rate of growth of population plus inflation (the conservative upper limit on spending growth). 12 percent is also significantly higher than the average rate of growth of state personal income over the past decade (7.6 percent), which means that state government has been growing much faster than the ability of Arizonans to pay for it.

The trend of overspending is unlikely to reverse itself. The principal drivers of state spending are education (both K12 and higher ed), health care, and transportation, which saw increases this year of at least 10 percent, 6 percent, and 25 percent, respectively. Apologists for runaway spending argue that prices in those sectors are rising more rapidly than prices in other sectors of the economy. But why do prices rise so rapidly in education, health care, and transportation? Answer: Those sectors are dominated by government spending, and the suppliers in those sectors are not forced by competitive market discipline to achieve efficiencies and control costs.

The solution is to move as much of education, health care, and transportation as possible into the private sector. Sadly, almost nothing of significance was achieved in these areas during this legislative session. There was almost no progress whatsoever on school choice this year (other than a tax deduction for contributions to 529 college savings accounts), and there was no forward movement on removing the costly mandates on health insurance that keep many of the uninsured from buying low-premium policies.

In transportation, the solution is not to continue throwing one-time cash at projects, but to rely on the private sector for the financing, construction, operation, and maintenance of new highway capacity. Senators Ron Gould (R-Havasu) and Pamela Gorman (R-Anthem) introduced important legislation to enable private projects to go forward, only to see it shot down by local political interests pushing the creation of new taxing districts.

What we got in the FY 2008 budget was a little more government. What we needed was a lot less government.

Major Progress:

Thanks to pressure from taxpayer activists, the Legislature passed a bipartisan reform that will penalize cities in Maricopa and Pinal Counties that carve out special tax giveaways for politically-connected developers. Kudos to Sen. Ken Cheuvront (D-Phoenix) and Rep. Rick Murphy (R-Glendale), who led the charge.

Some Progress:

The budget agreement included a provision that will allow state tax deductions for families that make donations to 529 educational savings accounts.

The Legislature made some incremental progress on reducing the assessment ratio for taxation of business properties.

No Progress:

No progress on prohibiting governments and government agencies from using taxpayer money to lobby the Legislature ("No Taxpayer Money for Lobbyists").

No progress on giving voters a chance to lower the state's existing constitutional spending limit from 7.41 percent to 6.4 percent of state personal income. Without reform of the state's spending limit, more gigantic budget increases are sure to come.

No progress on allowing private financing, construction, operation and maintenance of new highway capacity.

No progress on permanently zeroing-out the county equalization property tax rate.

No progress on reducing the rate of Arizona's job-killing corporate income tax.

No progress on further reducing Arizona's personal income tax rates.

No progress on vouchers or tax credits, including a tax credit proposal that would have allowed donors until April 15 th to make scholarship donations for the previous tax year, and a proposed "G.I. Jr." program that would have given school-choice grants to children of US Armed Forces personnel.

No progress on reducing mandates on private health insurance plans, which would make premiums more affordable for many of the uninsured. This bill passed the House in March, but was squashed in the Senate.