Apr 092014

By Tammy Gray
It’s déjà vu all over again for the state of Arizona’s economic forecast, as a general fund shortfall is forecast for fiscal year 2016, despite revenues that are slowly, but steadily increasing.
According to the Arizona Joint Legislative Budget Committee (JLBC), revenues are projected to increase by 5.3 to 5.5 percent over the course of the next two fiscal years. Spending, however, is expected to outpace revenues, leading to a shortfall as soon as fiscal year 2016.
If the state’s economic activity remains on the current track, the state will end fiscal year 2015 in the black by about $163 million. In fiscal year 2016, however, it would end the year with a shortfall of $202 million, and that would increase to $303 million in fiscal year 2017 if the state does not use the rainy day fund to balance the budget.
“Under these assumptions, the state would gradually spend down the significant accumulated general fund balance, as ongoing spending is expected to exceed ongoing revenue through fiscal year 2017,” the report notes.
A budget shortfall could have a major impact on city, town and county governments, as well as schools. During the last fiscal crisis, the state shifted funding normally provided to local entities for roads, education, health care and judicial services to pay for other state services. Most of those funds have not been restored, despite a recovering economy. For example, counties are still pleading with the state to restore cut Highway User Revenue Funds (HURF), which are used to maintain and improve roads. The state shifted the funds from counties to the Department of Public Safety and has not yet restored them.
Navajo County Public Relations Administrator Hunter Moore previously noted that during the current fiscal year, HURF shifts cost the county nearly $750,000, and a loss of lottery revenues cost another $550,000. Since 2008, state cuts have cost the county more than $7 million.
“Since fiscal year 2008, when the county adopted a general fund expense budget of $47.3 million, the State of Arizona has hit the county with what amounts to a ‘bill’ for nearly $7 million,” Moore noted in a report. “In the current fiscal year, the county was forced to give $746,317 of its Highway User Revenue Funds to the Department of Public Safety and give up an additional $550,000 in state lottery money. Total losses for the current fiscal year at the hands of the state? More than $1.8 million.”
Holbrook schools are looking at a loss of around $500,000 per year, as the state refused to pay voter-mandated inflation increases since the last economic downturn.
Cities and towns are also short on HURF funds normally received from the state, and are feeling the pinch even further as the county passes down its costs for services that were once available to cities at no cost, such as housing inmates.
The JLBC report on the state budget notes that the predictions are based only on information available at the time of the report, and small changes in revenue or spending could have a significant impact on the long-term outcome of the state’s budget. It notes, for example, “Long term budget forecasts are subject to considerable change. A one percent change in annual growth over three years has a $500 million impact in fiscal year 2017.”