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KJZZ Friday NewsCap: Arizona's budget shortfall could be an easy fix

KJZZ’s Friday NewsCap revisits some of the biggest stories of the week from Arizona and beyond.

Former state schools superintendent Jaime Molera of Molera Alvarez and Dawn Penich-Thacker of Agave Strategy joined The Show to discuss the debate over the future of the Arizona Commerce Authority, dueling proposals to extend Proposition 123 and more.

On Gov. Katie Hobbs’ budget proposal

MARK BRODIE: So let’s start with the governor’s budget proposal. Last Friday, after The Show last Friday, she released it. Dawn, Republican appropriations chairs called it an “unserious mess.” She’s gotten a lot of praise. She’s gotten a lot of criticism from it. What are your sort of main takeaways from what she's proposing here?

DAWN PENICH-THACKER: Well, in a document like this, a proposal like this, a governor has to achieve two aims. So one is to signal her values, to show that she is actually putting dollars and intention behind the ideas and the values that she shared in her state of the state and that are held by her party. But also be practical and realistic enough to say, “Two sides are going to have to agree on this. Here are some of the priorities. Here are places that I’m giving and taking.” And so she did that.

And this is the reaction that we have every time a governor puts forward a proposal, because one side says these ideas are crazy. The other says we’re not seeing enough of what we want, and it’ll go through that process. It’s funny that some of the criticism from Republicans has been that it’s chipping away at too many Republican programs because last budget, the one that cost so much, was predominantly Republican programs. And these claims of partisanship were not heard at the time that Republicans are getting outsized giveaways.

BRODIE: Well, so one of the interesting things about the criticism, and maybe one of the reasons why it was called an unserious mess is that the governor proposed, at least in part, by closing the shortfalls that we’re dealing with for this fiscal year next by putting new restrictions on school vouchers — on the (Empowerment Scholarship Account) program — and basically doing away with the (school tuition organization) program — the dollar-for-dollar tax credit where people can donate to organizations that give scholarships to go to private schools. And Republicans are like, “We’re not going to do that.” So what’s your next idea?

PENICH-THACKER: Well, and that’s the perfect example of where she has to kind of put her budget where her mouth is. She has said that the ESA voucher program is unaccountable, It’s costing too much. And so it’s kind of her responsibility to then follow that kind of statement up with something in the budget that is back to that, like standing by your values. Even if she simultaneously knows that Republicans have been crystal clear that they are not going to chip away at the ESA program.

But again, budgets are moral documents. You have to show what you believe, even if you know that that’s not the part that’s going to get done or certainly not at least the way you said you’d like it to.

BRODIE: Jaime, what did you make of what the governor proposed?

JAIME MOLERA: Well, the first thing that struck me was how much of a difference from last year, because last year — and you can see the governor’s administration starting to get their sea legs when it comes to putting out a budget, setting their priorities, making the case for what they’re doing. Last year, if you recall, they basically took the joint Legislative Budget Committee’s revenue estimates and expenditure estimates on all the agency expenditures hook, line and sinker. Hmm. So that really set the stage for the Legislature then to kind of dominate the discussion of what was or was not going to happen.

This time around is a little different. I think the governor came out with her own budget recommendations. It was interesting because the afternoon she was going to give her State of the State, the JLBC, the Joint Legislative Budget Committee came out and said, “Oh, by the way, our budget deficit isn’t about $1 billion over the next two years. It’s really $1.7 billion over the next two years.”

So I think they wanted to set the stage. But the governor, in my opinion, did a pretty deft job of saying, “You know what, we’re going to stick to our budget recommendations, we’re going to stick to our policies, not fall into into the tit-for-tat, at least for now, because that’s going to come soon enough.”

BRODIE: How do you see this process going? Because as Dawn said, every year we go through this — at least when you have a Democratic governor, a Republican Legislature — where the governor puts out a budget, the Republicans say, “Nah, we don’t think so.” And you can’t do this year what they did last year, where everybody got a certain amount of money just do it what they want. They need to close a shortfall this year. So I’m curious how you see the next few months going.

MOLERA: So in the context of a $16 billion budget over the next two years, you got $32 billion that’s going to be expended. To deal let’s say it’s a $1.5 billion deficit. It’s not astronomical. I guess I'm a little scarred from having gone through the Great Recession and the massive cuts that were made at that point. But a lot of it is going to be sweeps. A lot of it is going to be curtailing the projects that were supposed to go. Now a lot of those projects — and I was on The Show with you criticizing that pork that they basically did in last session, where they gave everybody $20, $30 million and “Go spend it how you wish.”

That just wasn’t good budgeting in my opinion. There really wasn’t a focus on what the state was needing to accomplish. But because of those projects, it makes it easier. A lot of them were capital, and there were not initiated. So now they can come back and say, “Well, if they haven’t been initiated, we can just say we’re not going to do them or we’re going to wait to do them until later, until we actually do have the money.” So it makes it easier to put a budget together, in my opinion.

BRODIE: But as we heard in the montage from (Rep.) David Livingston (R-Peoria), most of those projects that the governor’s looking to claw back are Republican projects.

MOLERA: And because the fascinating point of that was because last year, many of the Democrats used their allocation to support a lot of the state agencies or education or, for instance, community colleges and universities. So a lot of that was to existing budget structures, whereas a lot of the Republican dollars that they expended were on their district initiatives. Sidewalks in Globe or rodeo grounds in Prescott and all of those kinds of things. So it does make it easier for the governor to say, “Well, wait a minute, there’s capital projects and they haven’t been initiated. We’re going to stop them.” As opposed to ripping dollars out of a budget that might be going to state agencies for educational purposes, for instance. So that’s, I think, the biggest difference.

On proposed changes to the Arizona Commerce Authority

BRODIE: Dawn, talking about people questioning where state money is going, let’s talk about the Arizona Commerce Authority, because (Sen.) Jake Hoffman (R-Queen Creek) wants basically wants to stop the Arizona Commerce Authority from existing, citing an auditor general’s report, citing Attorney General Kris Mayes’ letter from earlier this week basically saying if these CEO forums are unconstitutional. Is there a real danger here that the Commerce Authority could go away?

PENICH-THACKER: I don’t think so. And I think even Hoffman has signaled, “Well, I’ll be open to amendments on this.” This is a tough one because it’s one of those issues that the average voter, a regular person looks at this and says, “How much money was spent wining and dining CEOs?” I mean, they spent over $2 million taking a few dozen CEOs to the Super Bowl and the Phoenix Open. So any reasonable person would look at that and say that’s out of control. But municipalities, mayors, some of our state leaders who participate in this say this is how we show the business community how good it could be for them to relocate here, to live here, to give their workers this quality of life. And so often these are going to be people of the same party or with shared interests saying, “Look, this is extravagant,” versus “We need this kind of opportunity to show off how great our state is.”

So I think that they will put some guardrails on. They will limit some things, maybe even budgetary limits, to make sure we’re not seeing these massive price tags. But I cannot lose the opportunity to quote Attorney General Mayes quoting the Arizona Supreme Court when they established the gift clause of our Constitution and saying that this gift clause protects against “orgies of extravagance.” And I think that if you look at some of the spending, again, the average person will say, “That’s over the top. Yes, let’s attract business. But concert tickets, hotels, tailgate parties — maybe that’s more than needed.”

BRODIE: That was not a phrase I had on my bingo card for hearing today, I will say that. Thank you for that. So, Jaime, the committee that took this up this week voted to revise or consolidate the agency as part of this sort of regular sunset review that all state agencies go through. We don’t really know what revising or consolidating could look like. I mean, do you have any sense of what kinds of guardrails, what kinds of changes they might be looking to put on this agency?

MOLERA: No, And I don’t think a lot of those members that were part of that discussion do either. You know, the one thing that strikes me — and I just got to say this because when this was put into place and I was around when the ACA was formed under Gov. (Jan) Brewer and then expanded to great extent under Gov. (Doug) Ducey, it’s funny that you had a lot of Democrats that hated the ACA. They really were absolutely against it. And you can see why Chris Mayes, from a more populist standpoint, is saying that this is unconstitutional. But at the end of the day, it has to be — these orgies of expenditures — to be of benefit to Arizona, a benefit to the state. That’s part of the constitutional framework of this.

So there is a very strong argument to be made. It was difficult because when Sandra Watson, the CEO of the Arizona Commerce Authority, was testifying, she was asked about what organizations are you attracting? Well, it was difficult because you don’t want to say, “Well, here’s the company that we’re trying to get into Arizona.” But the fact of the matter is there has been a massive benefit. You’ve seen literally billions of dollars of economic development that has occurred, that’s come into Arizona by pulling in these organizations. And certainly our ability to attract mega events like the Super Bowl and the Final Four that’s going to be happening here in March, that is a huge economic benefit.

And it’s not just for those days that those games are played. There is a correlation and there’s been a lot of economic analysis. The Elliott Pollacks of the world, the Jim Rounds of the world are very strong economists in the state. There’s a definite link to these types of events and to companies coming into Arizona, or individuals for that matter, just coming into Arizona. Because it's an ability to showcase our state. And the ACA has taken that.

And I think the governor has done a very good job of of rallying the business community, which is interesting because that gives her a forum that she really hasn’t had of of her showing herself to say, “Look, I’m a Democrat, but I’m working with the business community to make sure that economic development in Arizona continues.” And she’s in a good spot.

On extending Prop. 123

BRODIE: Guys, let’s talk about Prop. 123, which is an initiative that was barely voter approved several years ago under Gov. Ducey’s administration that essentially, it’s complicated but essentially takes more money out than had been taken from the state land trust to give to schools. It’s set to expire in a year or two. And there are now dueling proposals for asking voters to extend it. Legislative Republicans have one idea. Gov. Hobbs this week released her idea. Jaime, I’m curious what you make of the two. It seems like the big difference is that the governor’s plan would take more money out and have it go to more things as opposed to the legislative Republicans’ plan, which is keeping it the same amount and just giving it to teachers.

MOLERA: Correct. And then you have State Treasurer (Kimberly) Yee saying you can’t do anything. Or you do that a lot less. So Gov. Hobbs’ plan essentially says we want to increase that amount of what we take out of the state trust land interest at 8.9%.

BRODIE: From 6.9%, I think is what the legislative Republicans are proposing.

MOLERA: So it does increase a little bit, the Republicans from what Gov. Ducey did in creating this. But the governor’s proposal is significant. I mean, you’re talking about $750 million a year in additions that would come into the K-12 system. But I think that that is the big fight with the Republicans. And the Republicans, I think deftly came out and it was an interesting alliance between Senate President Warren Peterson — who’s part of the Freedom Caucus and one of the more hard-right conservatives in the state Legislature. — and Rep. Matt Gress — who was the budget director for Gov. Ducey, seen as more moderate, if you will. But they came together and put together a proposal that said, “Yes, we want to do this. Yes, we want to extend 123, but we only want it to go to teachers and teacher salaries.”

Now we can argue whether that’s good or bad. I think there’s some legal issues because 123, remember, settled a lawsuit. The school districts sued, saying that they weren’t meeting their obligations and had won. And so that's another piece of this. But from a political standpoint, that is a pretty deft maneuver, because what they’re saying is, look, we want to give teachers, we know teachers, the shortage is real. We know there’s a lack of pay. That’s probably the biggest part of it. So that’s where they position themselves.

And right now, if they were to band together, the Legislature doesn’t have to go through the governor because they could do a referral, and referrals in our state if they just have a simple majority in the House and the Senate, it doesn’t need a governor’s signature. They just go right to the ballot. So that’s where you might have some competing proposals. So the governor’s trying to use her power of persuasion and her bully pulpit to make the case about the legal arguments, as well as all of the other folks in the K-12 system that probably need some resources as well.

BRODIE: Dawn, how do you see those conversations playing out? Because to Jaime’s point, the Legislature doesn’t need the governor’s buy-in on what they’re going to do. They can just pass it themselves and send it to the ballot. So do you see the governor having input here, having a role in terms of trying to maybe shape what the Legislature sends, assuming that they send something?

PENICH-THACKER: Yeah, Well, it’s still even though it goes straight to the voters, it’s still important that both sides see enough good in it that they will stump for it, that they will be out there asking their constituencies to vote yes on it. As we referenced the first time, Prop. 123 went to the ballot, it barely passed. And I remember, it was a fight. And so it’s important that even though Gov. Hobbs is not going to probably get everything that she’s asking for, that a little bit gets loosened up. I know for a fact that a lot of teachers, the people who would be the sole benefactors of the Republicans plan, are saying, “Oh, come on, yes, increase my pay. Thank you. I appreciate that. I need that.”

But the support staff, a school does not function without those folks. You know, it’s fine and well if teachers are better paid, if we don’t have bus drivers to bring the kids to the school, because that is what Gov. Hobbs proposal says. Like, let’s also give a pay raise to the nurses, to the bus drivers. Let’s also make sure that our school buildings are safe and up to date so that learning can happen. And so I think that the Republicans should include some of these very good ideas. And Gov. Hobbs will, of course, cheerlead for something that’s not in her exact plan but does a little bit more for schools.

BRODIE: Yeah, that’ll be interesting to see how those two sides kind of come together and if there are true negotiations.

On the new cottage foods bill

BRODIE: One other bill that started its legislative journey this week that I think for a lot of people kind of came out of left field last year, the so-called tamale bill that would have allowed people to make things, foods like tamales in their homes and sell them. The governor vetoed it, surprising a lot of people, angering a lot of people last year. There’s still some question, though, Dawn, about whether Gov. Hobbs is on board with what Rep. (Travis) Grantham (R-Gilbert) has put forward this year.

PENICH-THACKER: Well, I think interestingly enough, we so rarely get to look at our Arizona l=Legislature and say, “Things are working the way they should. This is the democratic process.” But really, I contend that this is one of them. You know, last year’s bill, I think it was very overdramatized that it got vetoed because it was health department concerns saying, “We want to see a little bit more here.” A great example that I care about is, you know, are there pets in the home of this home kitchen? Are there pet allergens that a consumer should be allowed to know about? Let’s be able to find out who the home cook was. Let’s have information on their licensure number or their certificate, whatever it’s called.

So thanks to this process, the bill is getting more feedback. It’s getting improved. And I do predict that it is going to get to a place that already has bipartisan support, that it will get signed. And these improvements are good things that any regular person would like to see.

BRODIE: Jaime, this was described last year as kind of a self-inflicted wound on the governor when she vetoed it, because, as I mentioned, it ticked off a whole lot of people. Do you see this year as maybe a redeeming opportunity for the governor and the Legislature?

MOLERA: I do, and I’ll make a prediction. I think there’s massive bipartisan support. It got out unanimous from the committee. I think come Cinco de Mayo, Gov. Hobbs is going to sign the bill with great fanfare and there’s going to be tamales all over the state Capitol.

On Katie Hobbs’ growth as governor

BRODIE: OK. All right. We’ll I’ll have to go down and partake because obviously they are delicious. Is this a sign of anything, though? Like we’ve talked so much, Jaime, about sort of the relationship between the governor and her staff and the Legislature last year and how in certain ways it maybe wasn’t as good as it could and should have been. Is this maybe a sign that things could be getting better? You mentioned the governor sort of getting her sea legs earlier with the budget. Is this maybe another example of that kind of thing?

MOLERA: I do. I think there’s a lot of growing pains, and I’ve been part of a new administration where it takes a while to really understand the authority that a governor has and the power that a governor has, but also the ability to influence and build coalitions. The governor brought in Chad Campbell as her chief of staff, widely regarded as an adept political player in the system, has a lot of good reputation within the business community and other community organizations. So that makes a difference.

So when you have folks that know how to not just put together a legislative gameplan, but to build those coalitions that could back it up. So, for instance, we were talking a lot about what’s going on with the ACA. The governor has been making the rounds to a lot of these business groups soliciting their support. Last year you didn’t see a lot of that kind of effort. So that’s where I think her ability to galvanize these community organizations and particularly business organizations will go a long way to helping achieve a lot of her agenda.

BRODIE: Dawn, briefly before we wrap up, do you agree with that, that the governor and her staff are sort of figuring it out, figuring out how to be governor?

PENICH-THACKER: Yeah, absolutely. I think it’s really clear. Anybody who’s down there working, talking across the constituencies across the state, it feels like they have found their stride and they’re making real progress and building real relationships.

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Mark Brodie is a co-host of The Show, KJZZ’s locally produced news magazine. Since starting at KJZZ in 2002, Brodie has been a host, reporter and producer, including several years covering the Arizona Legislature, based at the Capitol.