How state GOP lawmakers blew a $2.5 billion surplus

It wasn't because of universal vouchers or the flat tax.

In crafting the state budget for this fiscal year, which began July 1, GOP lawmakers were expecting to inherit a $2.5 billion surplus. They decided to spend it all, leaving a projected reserve of a mere $8 million to cover contingencies in an $18 billion budget.

State revenue collections of late have been slower than projected, which threatened to put this year’s state budget in the red. The most recent report from the legislature’s budget staff avoids that fate, at least momentarily. In June, non-tax revenue, such as interest, came in higher than expected, offsetting the underperformance in tax collections. 

However, it is incontestable that state finances have gone from extremely healthy to precarious. And if the trend in underperforming tax collections continues, this year’s budget could very well end up in the red. 

There is an attempt by the left to blame the deteriorating condition of state finances on the adoption of universal vouchers to attend private schools. But that’s far from the proximate cause.

Unsurprisingly, there has been quick and comprehensive uptake on the offer of roughly $7,000 a year in state funds to offset private school tuition by parents whose children were already attending private school. The usually astute legislative budget staff projected a slower uptake, so initial costs exceeded projections.

But the projections have now been revised to reflect the reality that there is really no reason for anyone wanting to attend private school to turn down the voucher support. This year’s budget allocates approximately $550 million to cover the cost of the voucher program.

The school superintendent’s office has projected that the program will grow this year to include 100,000 students at a cost of $900 million, far above what has been appropriated.

There are roughly 60,000 Arizona students enrolled in private schools. So, the superintendent’s projection would involve a massive and sudden transfer from district and charter schools to private schools or other voucher options, such as supporting homeschooling or micro-schools.

There has been confusion sowed in the public debate over whether such transfers save or cost taxpayers money. The confusion comes from considering exclusively the effect on the state’s general fund budget, rather than looking at taxpayer costs holistically. From state and school district tax resources, taxpayers are paying over $11,000 per pupil in the public school system. So, a $7,000 voucher to attend private school represents a substantial taxpayer savings. 

It’s more of a wash for the state’s general fund budget, neither a substantial savings nor a substantial cost.

My guess is that the question is moot, because I don’t think there is a large, pent-up demand for private school education in the state. Virtually all Arizona’s private schools are religiously based. The state’s robust charter school networks have stagnated private school enrollment, despite attempts to prop it up through vouchers and generous tuition tax credits.

Now, I believe that parents who want to have their children receive religious as well as academic instruction shouldn’t be denied their fair share of the common pot of taxpayer money to educate kids. That’s why I’m a strong supporter of universal vouchers. 

But, since charters are free and, in most cases, vouchers won’t cover all the cost of a private education, the demand for vouchers is largely limited to parents who really want their children to receive religious instruction as well. The vouchers will induce some transfers, and the religious schools probably have some capacity. But I suspect the numbers will be small. And the voucher amount isn’t enough to stimulate the establishment of secular private schools, such as are common in the Northeast. 

By calling for repeal of universal vouchers, Gov. Katie Hobbs made the distance between her budget priorities and those of GOP legislators appear greater than it really was. Hobbs had a relatively modest wish list of expansions in social welfare programs. 

Even with the flat income tax cuts, there was plenty of room to craft a budget that funded universal vouchers, including at the superintendent’s probably inflated level, and Hobbs’ social welfare expansions and still have a comfortable reserve and sustainability going forward.  

Instead of crafting such a budget, GOP leadership decided to bind their caucuses together by going on a pork-barrel spending spree. Every legislator got a certain amount of money to spend on whatever he or she wanted. 

There was a less irresponsible way to do even this. The amount of the pork could have been limited to a sum that still provided a somewhat reasonable reserve and cushion, say in the $200 million to $400 million range. 

Instead, GOP leadership decided to let the rank and file spend it all. This was fiscally irresponsible and reckless. Every year, unanticipated expenses come up requiring a supplemental appropriation. So, a reserve needs to be built in for that. 

And revenue projections are just that, projections. They aren’t money in the bank. So, a reserve is also prudent in case the projections turn out to be on the high side, as they are currently trending on tax collections.

Now, the trend may reverse and revenues going forward might exceed projections. And there is nearly $1.5 billion in the rainy day fund, although irresponsible and reckless budgeting isn’t the sort of inclement weather that is supposed to trigger a withdrawal.

Hobbs did sign this budget. But the decision to spend all the surplus through a pork-barrel spending spree was that of the GOP leadership. Her option was to accept it or run a substantial risk of a state government shutdown.

This all illustrates the discomfort traditional conservatives have with the MAGA Republican Party. The flat tax and universal vouchers are significant conservative policy victories. But no true fiscal conservative would take a $2.5 billion surplus and spend it all, rather than retaining a substantial reserve for contingencies and sustainability. And wouldn’t spend it all through pork-barrel projects. 

Outside events haven’t turned the condition of state finances from extremely healthy to precarious. And it wasn’t necessary to cement the conservative victories of the flat tax and universal vouchers. It was a conscious, if unfathomable, political choice by MAGA legislators.  

Reach Robb at robtrobb@gmail.com.