Budget major challenge for new Arizona Legislature

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By Christina O'Haver By Christina O'Haver

PHOENIX (AP) -- Arizona's new state Legislature will face a big problem as soon as its members are sworn in - a projected $1.5 billion budget deficit in the next 18 months, a third of that in the current budget year that ends June 30.

Top Republicans who hold the majority in both chambers know they'll be hard-pressed to come up with the cuts needed to balance revenue to more than $9 billion in annual spending. But while they wait for incoming Gov. Doug Ducey's first budget proposal, they say everything is on the table - especially universities.

Ducey takes the oath of office Monday, and lawmakers will be sworn in a week later, just before they hear the governor's state-of-the-state address. Ducey will roll out his first budget proposal on Jan. 16.

John Kavanagh, the current House appropriations chair who is moving to the Senate, expects a $500 million hole in the current year's budget to be filled primarily using the state's rainy day fund. But the $1 billion deficit projected in the budget year that begins July 1 will be a major problem. Even if all of government with the exception of K-12 education and the new child safety department had a 10 percent cut, that would only shave $150 million off the current $9.23 billion budget, he said.

"So I will have to say you're probably going to see several hundred million coming out of the university appropriations," Kavanagh said. "And then you'll probably see the rest of it done with so-called gimmicks."

Don Shooter, the Senate appropriations committee chairman, said this budget mess is worse than the state faced in 2009, when revenue plummeted by one-third because of the Great Recession. That deficit was filled by a combination of cuts, borrowing, a temporary sales-tax increase and federal stimulus money.

"We've used up our aces, we don't have any buildings to hock, we don't have any federal stimulus money, and we don't have all the things that kind of patched it over the last time," Shooter said. "So those are options that aren't available this time."

Kavanagh and Senate President Andy Biggs joined Ducey in saying tax increases are off the table. But Shooter said he's open to anything - and will listen to anyone with a reasonable idea, going so far to invite them to his office.

"There's only two sides of the equation - you've got to spend less or bring in more or a combination of both," Shooter said. "So I'm not going to rule out anything - I hate taxes, you won't find anybody who hates taxes more than me. But I also know if you want government to function, what are you going to do? I'm not thrilled about it, but I'm the guy that's gotta solve the problem and governing is different than campaigning."

More than half the deficit comes from a court order to boost school funding by about $335 million this year and each subsequent year that the Legislature is still fighting. And a judge is considering whether to order back payments to make up for cuts the state Supreme Court ruled were unconstitutional.

Democrats cringe at the talk of cuts to universities. The state's three universities received $768 million this budget year, 31 percent below the 2008 peak, while community colleges received $72 million in revenue, down 57 percent. They say putting off corporate tax cuts passed in 2011 and now being phased in would help. Nearly $60 million in cuts go into effect this year, and the legislature's budget staff estimated two years ago that the tax cuts and other changes would cost $538 million once fully implemented in 2017.

"They're saying they're not going to look at revenue increases in any way - although they say everything's on the table," said Rep. Eric Meyer, the incoming House minority leader. "That essentially means they're going to continue down the path they've gone down for the last six years - cutting education and raising tuition at universities."

Sen. Steve Farley, a Tucson Democrat who will be assistant minority leader, said looking at tax credits and sales tax exemptions granted to select businesses could go a long way toward closing the budget gap. But at this point, he doesn't see that happening.

"They don't want to increase any taxes. They don't want to delay their tax cuts. They just want to cut their way out of it," Farley said. "It would be devastating to our economy if they did go after the universities because that is our main source of economic development. The real drama will be whether the business community allows that to happen."

All sides will look to Ducey to see what he proposes as a solution.

"We've got to wait to see what our new governor has in mind because he's going to lead that parade," Shooter said. "So until he makes his State of the State (address, set for Jan. 12), we kind of just have to sit there and be polite and see what he has to say."

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