New numbers from legislative budget analysts show the state brought in $425 million more than was forecast since this summer. And while they project further economic growth in the current fiscal year, that growth is expected to be slightly less than 2%. And that means Gov. Katie Hobbs and lawmakers may not have a lot of money for new projects and programs when they start working on their next state budget.
Alan Maguire, economist at the Maguire Company and member of the state’s Finance Advisory Committee, joined The Show to discuss.
Full conversation
MARK BRODIE: Alan, good to see you again.
ALAN MAGUIRE: Nice to see you.
BRODIE: So anything in particular stand out to you about these numbers from the joint legislative budget committee?
MAGUIRE: Yeah, the numbers look good, not great but not terrible. And we've had sort of a roller coast the last couple of years. Two years ago, we spent $2.5 billion that we didn't have. Last year, we had to make massive cuts to adjust for that.
This year looks pretty good. Revenues are up a little bit, not a lot. So I expect pretty much a steady state budget going forward. It's important to know, for example, that, that number you mentioned about the big increase in the first quarter, most of that was from non-tax revenues. Other things out there that shifted Medicaid readjustments and things like that, so that's not like real money. That's one-time sort-of money.
BRODIE: Well, and that's an important point because, you know, lawmakers break up and, and you and I talked about this a lot, the difference between one-time money and ongoing money where one-time money you can spend on one-time things, whereas ongoing money you can, in theory, at least spend on things that you're going to pay for year after year, right.
MAGUIRE: And recognizing that difference is important. I will say that the definition of one time has sort of expanded over the years. So for example, one current quote unquote, “one time” is K-12 school construction and school repair. Well, I'm pretty sure those schools are gonna be there every single year, and those roofs are gonna leak and those AC units need to get replaced. So they call it a one-time, but it's kind of a one time every year.
BRODIE: Well, so I wonder if that raises the question of like you can, if you call something like that one-time, does that in a sense mean that you can do it once? But even though the needs are there beyond that, sorry guys, no money.
MAGUIRE: Yeah. That's kind of what happens. They call them one-times because when they have money, they do them, and when they don't have money, they don't do them. Not the best system, but it gets them through the ups and downs of revenue.
BRODIE: So you reference the cuts that lawmakers and the governor had to make this past summer into the current fiscal year. Is there any chance that some of those cuts might be able to be restored with some of the money that is coming in now?
MAGUIRE: Well, you know, hope springs eternal. And there's a list out there of things to restore from highway funding to certain budget cuts. Border regions came out with a $700-plus million request. Now, that's sort of their standard comment, but they say, well, we have, we've been losing money since 1980.
Well, 1980 is like a lifetime ago, but they do have some recommendations for a couple $100 million here and there in a budget that probably only has maybe $100 million of spending increases. And that would be risky because the trend over the next three years is for the cash balances to decline.
BRODIE: So a lot of the money in the general fund is tied up in so called formulas, things like K-12, Corrections, things like that, like increases that have to happen every year when you take those into account, will there be really any money left over for new initiatives that lawmakers and the governor might want to do?
MAGUIRE: Well, if you take a little bit longer term view, probably not very much. So, for example, the current forecast for the current year is that at the end of the year, there'll be about $450 million. But if you take that same forecast and go out three years that drops to $159 million that's a lot smaller. That means if you spend too much of that $400 this year, you're going to have to cut it next year or the year after.
BRODIE: And of course, like bringing in new revenue is pretty much not going to happen in the state, right. I mean, you need a two-thirds vote in the Legislature. You need, I think, a 60% vote now of voters if you put something on the ballot. So essentially the state basically got to work with the money it's got.
MAGUIRE: Right. That, that's the, I think that's the starting point. I do believe however, that the Arizonans have shown us over the last 50 years that they will raise taxes for things that they want. We saw that when we had the crisis in around 2010 and Governor Brewer passed her temporary sales tax. We've seen that for highway funding a couple of decades ago. So, you could put together a package of really important things and probably get either legislative support or public support.
BRODIE: What are you looking for? Obviously, we don't know who's going to control the Legislature and by what margins and we'll know, you know, in a few weeks what those numbers look like. But assuming that things are fairly close to what they are now, maybe Republicans leading one of both chambers by a seat or two, or maybe Democrats or a tie. How does that impact what we're looking at here in terms of the numbers that, you know, lawmakers and the governor could be looking at with the budget.
MAGUIRE: Right. I think it would help if both parties lowered expectations and said, you know, we can make a few changes this year but not a lot. And if you get start with that mindset, my guess is you could find a number of items of common ground.
We both wanna fund a little more for K-12. We both wanna make sure that our prisons are secure and like the locks work, you know, for example. So I might, my guess is if you start with that mindset that we can find some things we agree on. I think that's very, very helpful.
BRODIE: It sounds like what you're saying is that people who are looking for a budget come next spring, that is drastically different than the one that we're operating under now. We're going to be disappointed.
MAGUIRE: Yeah. Very disappointed.
BRODIE: So in terms of then, like you say, there's maybe a little bit of, you know, moving around the edges. Does that become, I mean, you've been at the Capitol for a while? Does that become a political fight or does that become more of a math fight?
MAGUIRE: A little bit of both. I think a lot of it, if either chamber changes leadership, so it goes from Republican to Democrat, there'll be high expectations and they're gonna wanna fix the world and that's gonna be very challenging frankly. But the thing that I really worry about in this whole thing is if you look at just a change of inflation from 2% to 3% right? That's $100 million. That's a huge that, that takes away your cash balance in three years.
So caution is the watchword. And I think if they can, if they can settle on the numbers, except that this is kind of a status quo year that may reduce the politics, right? Because hopefully reality will settle the politics a little bit.
