The Math Matters
By Goldwater Institute: Byron Schlomach (03/07/08)
Doing the numbers leads to the obvious option on budget woes - Governments facing a financial pinch generally have five options. They can print money, borrow, raise taxes, cut spending, or spend fund balances. State governments cannot print money, so we're down to four choices. Because a two-thirds vote is required for the Arizona legislature to raise taxes, practically speaking, that alternative should also be taken off the table.
So, the only options to solve Arizona's budget problems are to borrow, cut spending, or use up fund balances. The budget stabilization fund's substantial balance is not, by itself, enough to solve even fiscal 2008's over-budgeting problem, now estimated at over a billion dollars. That leaves borrowing and cutting spending.
The governor emphasizes borrowing, proposing at least $2.4 billion in bond packages over two years, along with new spending. Budget leaders in the legislature emphasize spending cuts.
This sounds like an honest ideological disagreement, but there's really nothing to debate. Senator Bob Burns, chair of the Appropriations committee has pointed out that there's really a problem in with the state's basic budget mathematics. Arizona's state revenues increase about $700 million per year. The state's budget automatically increases as much as $600 million every year. The governor's borrowing package would push up automatic spending increases by another $215 million. That means the state would automatically be on the hook for $815 million, or more than $100 million short of our average annual revenue growth. The math for borrowing just doesn't work.
Additionally, as Goldwater's litigation director Clint Bolick admonished, borrowing for the sake of solving a deficit is legally dubious. So it becomes clear that spending cuts must take priority over other options to balance Arizona's budget.
Byron Schlomach is the director of the center for economic prosperity at the Goldwater Institute.
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