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What new numbers say about Arizona's financial situation

As budget talks start to get moving at the Arizona Capitol, some lawmakers were keeping an eye on new numbers that would paint an updated picture of the state’s financial situation.

While lawmakers and the Governor’s Office agree Arizona is facing a deficit, they did not agree on its size — nor did they see eye to eye on how to close that shortfall.

All parties now have a bit of a clearer view of what that deficit looks like, after a meeting late last week of the Finance Advisory Committee, a group of economists that breaks down various data and provides estimates for the future.

Alan Maguire is president of the Maguire Company and a member of the Finance Advisory Committee. He joined The Show to talk about the state of the state’s finances.

Full interview

MARK BRODIE: Alan, good morning.

ALAN MAGUIRE: Good to be here.

BRODIE: So what have you and your colleagues found about where the state is in terms of the deficit and you know what, what the shortfall looks.

MAGUIRE: Well, the good news is that the bad news isn't quite as bad. But the bad news is it's still really bad. You put this in perspective, the shortfall for the current year, the one that runs through June is now down to $650 million. Next year, the budget year which begins in July, is estimated to be $676 million. Those are big numbers, particularly when you think about the fact that the current budget is about $17 [million]-$18 billion. So it's a sizable number and that short continues for in the, in the second year and the third year going forward, so for a number of years going forward.

BRODIE: To what do you attribute things not being as bad as maybe folks thought, say like in January, right, well, there was a lot of uncertainty.

MAGUIRE: We had a significant change in our income tax and that has turned out that refunds were not as large as we thought they were going to be in January that's helped a little bit and some of the negative trends have sort of slowed, not gone away but slowed down. And so things are looking a little better than they were, although again, rather bleak. 

BRODIE: So you mentioned the deficit for this current fiscal year which runs through the end of June, we're now in April. So what are some of the options for closing that in, you know, literally a month or two here?

MAGUIRE: Very, very difficult, the less time you have to do something, the harder it is obviously. Frankly, it would have been, it would have been terrific if come January, when the, the first real set of dire numbers came out, if they had just slowed everything down, told the state agencies if you got a new program in last year's budget, don't start it. Wait, let's see where we are. Well, you can always spend the money next year. I don't know how much that's happened. I haven't heard reports of much of it happening, so I'm concerned about that. A lot of things are gonna have to be pushed over the fiscal year line to, to make it look like th this year's imbalance, but it's gonna be very challenging given it's April and you have May and June.

BRODIE: Well, when you do that, that it necessarily right, makes next year's deficit worse, at least look worse if not actually worse.

MAGUIRE: Absolutely. That's right. But when you're in a rowboat and you're taking on water, you're not worried about the sharks. You're just trying to keep the boat afloat and that's what we are right now.

BRODIE: So what are some of the options then for closing? If not, let's assume that lawmakers will take your advice and just sort of push things, you know, from June 30th into July 1st. What are some of the options then for closing that deficit for the fiscal year that starts on July 1st?

MAGUIRE: So the, the thing here is you just have to stop spending money. I mean, this is not very complicated. You may remember ...

BRODIE: Easier said than done.

MAGUIRE: Oh, absolutely. Very hard. Yeah, you always get like a, a nice little hand clap when you create a new program and you get curses when you end it. So it's always easier to not spend money in the first place than to spend it and cut after that, that I think is their big challenge. Look, the amount of one time spending in last year's adopted budget was gargantuan. They actually spent over a billion dollars in the then current year, fiscal 23 which ended last year and then $2.8 billion in the current year. Well, most of that $2.8 billion is new stuff. Some of it is expansion of existing program, but much of it is new stuff. So a lot of that stuff could be delayed because we survived without it two years ago. We can survive without it now.

BRODIE: Well, so there's been a lot of talk earlier on in this year, for example of a lot of transportation projects that were funded in last year's budget that haven't started yet. Are those the kinds of things that you're saying maybe let's just push those off for now and we'll get to them when we have the money.

MAGUIRE: Absolutely. Any capital expenditure which was approved in last year's budget last May could be delayed. Most likely not all of them, but most likely could be delayed into the next fiscal year or two fiscal years down the road and that would be easier to do than just cutting them out completely. 

BRODIE: Does that get the state to where it needs to be in terms of closing the shortfall?

MAGUIRE: Probably not. Probably not. But I think,, what's gonna happen is some organizations, agencies that got a big bump last year will find that bump going away this year, which will be hard, particularly if they committed those funds to ongoing expenditures. So that, that concerns me, I mean, it was a big chunk of money pushed into K-12 education. They probably won't be there in the next budget year or the year after that. So until we get back to some semblance of balance between revenues and expenditures.

BRODIE: So there were a number of lawmakers and the governor also said this, that they were looking forward to last Thursday's meeting to sort of get a sense of, of where they were before really getting into budget negotiations. So now that the numbers are there, you've worked on state budgets for a lot of years now. How do you foresee this year's talks shaping up?

MAGUIRE: Well, I think it's a question of the, of whether or not all of the principal parties, meaning the leadership on both houses in both houses as well as the governor recognize that this is the reality and, and then we can't put it off. We can't ignore, we just have to deal with it. And do the best we can and, and, and then it's a funny thing, you know, it's like capitulation. Once you realize you have to deal with this problem, it's much, it gets much easier because your mindset changes. 

BRODIE: Does it get easier though given that you have divided government? And last year a lot of folks would say it was not a real negotiation because as you pointed out, like, pretty much it was the Oprah budget, right? Like everybody gets a few million dollars here.

MAGUIRE: Yeah, it was like, I'll take your $300 million and I'll raise you $300 million. It was just like something I've never experienced in my life. Something I can barely even imagine. But the, the, the reaction was that they so overs spent that it's kind of like a, you know, a they're on a food high here. They've got to just relax, come out of the comatose state and get back to reality and it's going to be hard, but the key is gonna be, they have to accept the situation that they're in.

And frankly, if you look at what ha what has happened to revenues over the last say, 10 years, not the last three years, the last 10 years, what you realize was we've got a whole bunch of revenue in state government through the sales tax and the income tax from the COVID spending. COVID was a big increase in spending and that all flowed into our tax revenues. But logically you could predict that was not gonna continue. And so rather than spend %3 billion, excuse me, $3 trillion that they didn't have $3 billion that they didn't have, they could have spent maybe say $1 billion this year and $1 billion next year and 1 billion in the next year. In which case, their problem would be way smaller.

BRODIE: Right. Interesting. Alright. That is Alan Maguire, president of the Maguire Company. Alan, thanks as always for coming in. I appreciate it.

MAGUIRE: My pleasure

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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.