Wednesday, January 5, 2011

New report says Arizona needs tax reform, not cuts

Given the Courier's history of head-in-the-sand responses to budget challenges, I'm a little surprised to see this piece by AP's Paul Davenport on the new Brookings/ASU Morrison report on how we got where we are. A commenter kindly provided a link to the original report, which it seems to me puts a lot more blame on reckless tax-cutting than untoward spending than DAvenport would have us believe. From the introduction (emphasis mine):

Arizona is now struggling with two related but distinct fiscal disasters. Recognized is the portion of the state’s budget crisis that has resulted from the sudden collapse of annual revenues after the real estate crash and economic downturn. This crisis has hit hard but will ease as the economy recovers.

Less understood is the depth of the state’s massive structural imbalance, which has arisen thanks in large part to policy choices made during the go-go years of the state’s recent past but which will not soon relent. During the growth years, legislative and executive leaders acted as if the state could maintain a basic level of service provision even as it implemented tax cuts that permanently reduced the state’s revenue base.

Now, the illusion has been shattered and the state’s yearly labors to close its fiscal year budget gaps are about to get harder. With one-time fixes, gimmicks, and fund sweeps exhausted, budget cuts from this point forward could—if handled crudely—prove devastating and difficult to recover from. Serious discussions among state leaders have included opting out of Medicaid, cutting a K-12 system often cited before the recession for receiving the lowest per-pupil funding in the nation, and significantly reducing funding for the state’s university system. At the same time, if managed well (that is, with a balanced approach and a sense of strategy and rigor) the crisis might actually prompt innovation instead of just pain.

But what is certain, at any rate, is that the current fiscal crisis will continue to have lasting and damaging ramifications unless the state takes prompt, sober steps to address it. To this end, this short introduction to the state’s cyclical and structural deficit problems provides two groups of suggestions to the state as it prepares to attack its problems.

First, the state needs to improve the quality of its fiscal policymaking by moving to broaden, balance, and diversify its revenue bases while looking to the long-haul balance of taxing and spending. Implicit in this push must be a recognition that action has to occur on both the revenue and reduction side of the equation. Spending cuts alone are not going to put Arizona on a stable fiscal path.

And second, the state needs to improve the information sharing and budgeting processes through which fiscal problems are identified, analyzed, and addressed. As part of this, the state needs to put in place the sort of strategic plan that furnishes a long-term vision of state success against which budgetary and other sorts of performance can be measured against clear goals and mileposts.

In sum, the choices that need to be made by Arizonans are difficult and will require of leaders substantial self-discipline. Success at this work is imperative as the first order of business for Arizona as the state prepares to embark on its second century.

Tax policy reform first. What have I been saying?

Editorial: Walking the talk involves learning to walk first

The unnamed Courier editor warns the new Legislature that " Arizonans will be watching very closely," but he's not clear about what he'll be watching for, exactly. Even the most clever measures to spur job growth won't see results within the next two years. It's hard to parse out what he means in the non-sentence "Private prisons," but I'll be charitable and take it to mean no more of them. Allowing the sales-tax extension to sunset on schedule will save the editor a few pennies, but without comprehensive revenue reform it will only increase the pain. Playing nice in Washington after the tantrums of the past few years is worth a try, but to what end, editor? Tell us what you support.

He asserts, "the challenges are largely the same as they were last year and the year before that." Really? Sure, we still have a no-growth economy, a collapsed housing market, record unemployment and a dunderheaded tax structure. But this term adds the complications of Republican supermajorities in both state houses composed mostly of complete newbies who feel empowered to pursue every silly idea that springs from Sarah Palin's mouth. No, editor, this year we can expect it'll be much worse.

The results will be a confused and ineffectual budget process, grandstanding galore, endless lawsuits to fix the many mistakes, and two more years of Arizona being the butt of every third political joke.