The state budget of Arizona combines both the one-year budget and the two-year budget. A fiscal year (FY) runs from 1st July to 30th June of the following year. In this work, I am going to consider the fiscal year 2008-2009 and the factors that influenced its budget. The factors can be said to be political, economical, social, and cultural. However, they can broadly be grouped as the economic and demographic factors, the fiscal structure, and the political decision making.
In every fiscal year, both the two budgets (one-year budget and the two-year budget.) are adopted. However, in 2008-2009, only the one-year budget was adopted due to the state’s budget crisis. This crisis was two-fold. Arizona suffered from both cyclical and structural deficit. The economic factors directly led to the cyclic deficit. Reduced economic activities lowered the revenue performance. At the same time, the low incomes and the high rates of unemployment added a lot of pressure on the spending. Similarly, the weak economy resulted into long-term structural imbalances between the revenues and the expenditures. The revenues failed to grow synchronously with expenditure obligations and government costs due to the past policy actions which created the imbalance. The structural imbalance majorly resulted from the choice of the policies in the previous years. The action of both the executive and the legislative leaders was aimed at maintaining the basic level of service provision and at the same time, there was the implementation of tax cuts which permanently lowered the revenue base.
The economic and demographic factors greatly influenced the budget. The sales tax weakened the revenue performance as there was a shift towards a service-oriented overall economy. This was because; the sales tax that was in use only took into account the tangible goods but not services. In the same period, there was a huge increase of low-income earners as most people lost their jobs. The high rates of unemployment and the low incomes added too much pressure on the budget. The aging population also contributed towards a huge spending on human services and health.
The fiscal structure of Arizona contributed greatly towards the imbalance. As we all know, the physical structure of a given state defines both the expenditure obligations and the mechanisms of financing them. This is done through a tax system and it greatly influences the revenues and expenditures growth over time. The fiscal structure owes its roots to the constitution and the statute. This state had both discretionary and mandated expenditures. The state’s constitution required a level of spending on education (both elementary and secondary) as was legislated in the funding principle for schools. The revenue system that was used to pay for such expenditures already had a low base. This highly affected the budget.
The main factor that affected the Arizona state budget was the political decision making. In the previous years, Arizona had cyclical budget surpluses. The politicians, who were also the decision makers, failed to notice that the previous surges were temporary. As a result, there was a minimum save on the budget surpluses, if any. At the same time, a good percentage of the surpluses were given back to the people through the tax cuts. Another good percentage was also used to support the permanent spending increases. This expenditure-tax mismatch that was created during the economic expansion periods directly led to the deficit. The legislatures made policy decisions which, in one way or the other, contributed towards the budget imbalances. Also, the Arizona voter initiatives mandated higher spending and also placed restrictions on the state’s capacity to raise revenues.
ABC15,”Why Arizona could decide to turn down stimulus money,” March 9, 2009
Arizona Capitol Times, “Legislature to restore funding to ’09,” March 11, 2009
Arizona Joint Legislative Budget Committee, “Monthly fiscal highlights – February 2009,” retrieved March 11, 2009
Arizona Republic, “State’s budget ax to cut deeply”, January 11, 2009
Phoenix Business Journal, “Arizona Stimulus Dollars,” March 6, 2009
Phoenix Business Journal, “Arizona budget deficit labeled country’s worst,” February 28, 2009
State of Arizona, “The Legislative Budget Process,” December 10, 2008
The Arizona Republic, “District may cut 700 staffers,” March 10, 2009
The Arizona Republic, “Schools prepare for worst-case budget scenario,” March 7, 2009