A state budget preview
Will Hobbs offer a governing budget or a political budget? Toma should resign as speaker.
Earlier this week, I taped an interview with KJZZ’s incisive Mark Brodie previewing the budget challenges confronting Gov. Hobbs and the Legislature after the first of the year. I thought it might be useful to amplify some of the points I made, and make some points I didn’t have the wit to offer during the interview.
Getting past the blame game
My view, offered on several occasions, is that the proximate cause of projected deficits was the decision by GOP legislative leadership to spend all of an inherited $2.5 billion surplus in this year’s budget. Democrats are blaming the previously enacted income tax cuts and universal K-12 vouchers.
However, the big hit from the unanticipated take up of the vouchers by students already enrolled in private schools occurred in the previous budget year, Fiscal Year 2023. The voucher program in this fiscal year, FY 2024, is only $40 million over budget. Personal income tax collections are running $368 million below what was budgeted, year to date.
With a $2.5 billion surplus, these two contingencies could have easily been absorbed, with a very healthy increase in spending on other state programs, and still have had a reasonably sized cushion for other unanticipated expenses or shortages in revenue.
While it was the decision of the GOP legislative leaders to use up all of the surplus by giving each legislator millions of dollars to spend on anything and everything, rather than manage the surplus prudently, Democratic legislators and Gov. Hobbs went along. Their hands are not entirely clean.
It is impossible to ask politicians not to be politicians. I don’t know how legislative Republicans can blame Hobbs and legislative Democrats for the red ink, but they will come up with something. And Democrats will continue to grossly exaggerate the extent to which the tax cuts and vouchers are at fault.
But all were complicit with frittering away a massive surplus that easily could have been managed in a way that kept the state budget in the black. Dealing with the easily avoidable deficits will best be done, if not most likely to be done, in a bipartisan fashion. The less time spent on the blame game, the better the political climate for a bipartisan approach.
The scope of the problem
The Legislature’s budget staff projects a shortfall of $400 million in this year’s budget and $450 million in next year's (FY 2025). GOP legislative leaders are saying that making those up will be easy-peasy.
That could be true, at least in theory, for the current year’s deficit. The politics of it are likely to be much more difficult.
However, the deficit for next year, FY 2025, is being seriously understated. I hasten to say this isn’t the fault of the budget staff, who are collectively real gems of state government. It’s because of the rules for making these projections legislators have imposed upon them.
The $450 million deficit projection excludes several items that have been labeled one-time expenditures but should actually be regarded as ongoing obligations. The most obvious is building renewal grants for major repairs and renovations of district schools. Litigation in the 1990s established this as a state obligation, and the state is already being sued for shortchanging it. Not funding it would, in essence, be conceding the lawsuit.
The starting point for calculating state aid to K-12 schools for operations, called the base level, is adjusted each year for inflation. But the adjustment is capped at 2%, whereas inflation has been running much higher than that. The current budget includes supplemental funding which, along with other measures, has kept state assistance above inflation. The supplemental funding is categorized as one-time, but failure to continue it would result in an inflation-adjusted cut to schools.
State government is not exactly at the cutting edge when it comes to facilities and technology. Yet the budget treats most capital spending as one-time. Each project is one-time, but new one-time capital needs inevitably replace those receiving a check mark for having been completed.
Consider expenditures labeled one-time that it would be impossible or highly unwise to drop, and the projected deficit for FY 2025 quickly climbs to over a billion dollars. Resolving that won’t be easy-peasy, in theory or politically.
Hobbs gets the first crack
Gov. Hobbs is supposed to submit her proposed budget in early January, which presumably will address these twin deficits. It will be interesting, and important, whether she proffers a governing budget or a political budget.
A governing budget would take into consideration fiscal and political reality and provide a workable framework for a bipartisan approach to state finances for the next year and a half. A political budget would ignore these realities and offer a liberal dream of what state government ought to be. And try to set the table for next year’s legislative elections, in which Democrats have a realistic shot of taking over both chambers of the Legislature.
It would be better for the state if Hobbs proffered a governing budget. But it is impossible to argue that legislative Republicans would reciprocate by proceeding in a bipartisan fashion. They have made playing political hardball against Hobbs a top priority, including misusing their confirmation authority to prevent her from staffing her government with qualified agency heads of her choosing. They will undoubtedly try to play some kind of political hardball with the budget.
So, the temptation has to be for Hobbs to go the political budget route for election positioning. However, the dodge the GOP leadership concocted to avoid true budget deliberations last session – giving every legislator millions to spend until the surplus was exhausted – isn’t available this session.
At some point, the GOP leadership will have to face the tough budget tradeoffs and two political realities. The first is that any budget requires Hobbs’s signature. The second is that if there is a government shutdown just before the upcoming election, voters are highly likely to blame Republican legislators rather than Hobbs or Democratic legislators. In fact, that would set up Democrats to take over the Legislature infinitely more than anything Hobbs could put in a political budget.
If fiscal and political reality ever sinks in for the GOP leadership, a governing budget from Hobbs would offer the starting point for responsible bipartisan deliberations. It might take a couple of months to get there, but a governing budget could ultimately have a greater shelf life than a political one.
Toma should resign as speaker
House Speaker Ben Toma is running to replace retiring Debbie Lesko in Congress. He says that he will stay on as speaker while doing so. That’s in the interest of neither the state nor Toma. Simply put, there will be countervailing pressures on Toma the speaker and Toma the congressional candidate in a Republican primary.
As speaker, Toma needs to negotiate and navigate a budget in very tough circumstances that Hobbs will sign. It may very well incur some Republican defections and require Democratic votes to pass. And if Toma does that, it will be used against him in the Republican primary for Congress. Toma should resign as speaker and devote himself full-time to the congressional race.
I say that with regret. Toma has policy chops that could be very helpful in getting the state through this budget crunch. And I say it with full knowledge that Toma might be replaced by a more intransigent MAGA speaker who would make the budget politics even worse.
However, Toma’s leadership potential on the budget will be compromised by his campaign for Congress. Even if he purely bifurcates the two, no one else in the political world will. His every action as speaker will be viewed and evaluated through the prism of his congressional candidacy.
Toma has the potential to be the non-MAGA Republican hope for this election cycle. He has had substantive policy achievements from a traditional conservative perspective. He was a vital chief architect of Arizona’s low and flat personal income tax and universal vouchers. And, thus far, he’s been a traditional conservative who hasn’t alienated the MAGA base.
For the congressional seat, he is currently facing off against several pure MAGA candidates, increasing the odds that Toma could prevail. Trump’s endorsement of one of the MAGA candidates, Abe Hamadeh, may winnow the field. Even if that happens, Toma’s record of conservative accomplishment might have a shot against the politically green Hamadeh, if he can raise the resources to make the case.
Toma is cheating his congressional candidacy by remaining as speaker. The one commodity a campaign can never get more of is the candidate’s time. Toma is behind in name recognition and has to overcome the Trump endorsement, which was determinative in GOP primaries in 2022. If he wants to maximize the chances of his congressional bid, he shouldn’t be spending the most precious resource his campaign has, his time, doing stuff at the state capitol that is tough, taxing, and probably damaging to his congressional prospects. He needs to be working full-time recruiting supporters, meeting voters, and raising money.
Toma can try to be an effective speaker negotiating and navigating a bipartisan solution to a difficult budget crunch. Or he can try to be an effective and plausible candidate for Congress. If he tries to be both, he’s more than likely to fail at both.
Reach Robb at robtrobb@gmail.com.