The budget process, as usual, has become a complete mess.  As you probably read, the House Appropriations Committee (on which I serve) passed out a $10.6 billion budget last Monday.  We did this at the same time approving three Democrat sponsored amendments which added money for some programs, but did not change overall spending.  This was accomplished by adopting some of the Governor's revenue and case load projections, which were lower than the originals used for the Republican version.  We did this to try to get bi-partisan support for our plan, but only three Dems were persuaded.

The Senate released their version on Tuesday, which, if you believed the Arizona Republic, spends less money than the House version.  Actually, the Senate plan spends about $60 million more on Health & Welfare programs, another $40 million or so on other programs, and does not include some necessary capital spending projects or any tax relief.  How can this happen?

To me it's a matter of smoke and mirrors.  Because of a change in how unclaimed property held in stock portfolios is accounted for, there will be a one-time revenue boost of $45 million.  The House budget spends this "windfall" on specific, needed capital improvements -- one time funds spent on one time projects.  The Senate puts this money in the General Fund, to be used just to balance the budget for their increased social programs.

The House budget includes about $60 million in tax cuts for 2008 and 2009, mostly for corporations and insurance companies, but also $10 million for state tax relief for those families who have certain college savings plans -- already untaxed at the federal level.  The Senate gives no tax cuts at all for 2008, and a paltry $7 million for business (via accelerated depreciation) in 2009.  The argument is that with a possible downturn in the ecomony, now is not the time for tax cuts.  The reverse is true, and has been proven over and over -- decreasing tax rates create additional tax revenues.

The Senate leadership decided to bring their Democrat counterparts into the negotiations, which by default brought in the Governor.  It seems that Gov. Napolitano now has the budget she wants (or would at least be happy with).  At least the Senate did not give in to her plan to return to bonding for school construction, but they did agree to go to 30 year (vs. the current 20 year) bonding for highway construction.  I've confirmed with our budget staff that at least the additional revenue would be spent on transportation needs, not going into the General Fund for more social programs.

As much as the Governor would like to be portrayed as the "education governor," the Senate proposal actually adds less for K-12 education than the House's.  Our budget adds $548 million to last year's spending (which was a record increase), for a total of approximately $5 BILLION of General Fund money going to K-12.  This does not include federal monies received, nor the money that comes from local property taxes.  Already I've received numerous e-mails from teachers telling me to vote no on this budget because we're still underfunding education.  My response is that is appears that there will never be enough money spent that will satisfy the education "industry."

There are also some important policy differences that become apparent in the Budget Reconciliation Bills (BRBs or "burbs").  Many are technical in nature and difficult to explain in just a few sentences.  Suffice to say that I believe the policies in the House version are the more conservative.

Just as with the last two years, I'm not ecstatic over the House budget.  There are many areas I would have cut (or at least not increased), and there are some areas that I feel are shortchanged -- especially those that are so important to my "rural" district.  So much of what we spend is driven by formulas (education and health care for the poor are two examples) and that discretionary spending that remains has to be balanced to the needs (and wants) of all the state.  I've pledged my support for what is now the House budget.  But I'm on record with the Speaker and other leadership that I cannot and will not support the Senate plan.  We are starting from such a high level of spending on our own that I do not see how we can agree with any of the Senate's additional spending.  The Speaker says he will be firm, but essentially it's 2 against 1 -- and one of the two has veto power.  We're required to have a budget by June 30th, the end of the fiscal year.  How we can do that without compromising both our principles and dollars remains to be seen.

If I seem a bit discouraged, I am.  We fight and fight to keep the State's spending of taxpayer dollars somewhat under control, and now we've been let down by leadership in the Senate.  And, as you've probably read, that leadership doesn't even have the support of many Republicans in the Senate.  Two "moderates" are balking at reforms for charter schools and tuition tax credits, while the more conservative members are aghast at the level of spending proposed.  President Tim Bee is hoping to get the Senate Appropriations committee to pass his budget this week -- after "cooling off" over the weekend.  Then the House and Senate versions still have to be reconciled.  As I said, we're starting from such a high point in spending, that any compromise will necessarily raise that level.  I'm fearful of what the ultimate product will be.  This should be an interesting week.

Until next week,

Nancy McLain