State deficit could be higher than expected

PHOENIX—The latest calculations by the Legislature’s own budget staff point to a significantly larger revenue shortfall than the $1.9 billion figure being used by legislative leaders in their closed-door negotiations.

That has some rank-and-file lawmakers grumbling that their leaders are lowballing a problem that already will force choices between politically troubling spending cuts and borrowing.

Leaders participating in the bipartisan talks said they’re just trying to allow for contingencies, and several raised the possibility of holding a special session on the budget months from now once fiscal conditions have evolved, either for better or for worse.

Lawmakers face a June 30 deadline — a week from Monday — to approve a budget for the 2008-2009 fiscal year which starts July 1. Some state officials have warned of layoffs and skipped paychecks if there’s no budget on time, but Gov. Janet Napolitano is offering reassurances that there won’t be a shutdown.

The state’s current fiscal year has turned out to be much worse than expected, even compared with estimates adopted in April when lawmakers approved a midyear fix to close a $1.2 billion shortfall in this year’s budget.

Because tax collections continue to lag due to the poor economy, the shortfall in the next fiscal year could be $2.2 billion, or $300 million than previously expected, according to a legislative staff briefing last week.

The housing slump and high fuel prices both remain drags on the state’s economy, said Richard Stavneak, executive director of the Joint Legislative Budget Committee. “We’re not sure we’ve reached bottom yet.”

Rep. Andy Biggs, a fiscally conservative Republican from Gilbert, said it appears that leaders are sticking to a shortfall estimate no longer justified by the numbers.

“It depends on what size of the problem we want to solve in (fiscal year) ‘09 in adopting whatever growth rate we want to adopt,” Biggs said.

At this point, the $1.9 billion estimate represents a “big lie,” said Rep. John Kavanagh, R-Fountain Hills.

Rep. David Lujan, D-Phoenix, said the $2.2 billion figure seems more realistic and that it would be better to tackle it now than after agencies have started spending their budgets.

“I’m not in the negotiations room, but I think we’re running out of time and maybe it’s easier to address $1.9 (billion) before June 30 than it is $2.2 (billion),” Lujan said. “That would have to be my thought as to why we’re doing it.”

House Majority Whip John McComish denied that the leaders are “lowballing the problem” and said there are two reasons for still using the $1.9 billion figure.

“One is it’s an agreed-upon number, and the other is that it is also recognition that it is a moving target,” said McComish, R-Phoenix.

He said the leaders could include some provisions in their eventual agreement to automatically trigger budget changes depending on specific circumstances.

Alternately, they could recognize “that we’ll just a special session at some point in time,” McComish said. “Maybe it’ll get better or it will get worse.”

Said McComish: “I don’t think we’re trying to lowball the problem.”

For her part, Napolitano declined last week to say whether the lawmakers’ shortfall estimate was too low.

“I can’t revise my revenue number until they produce a budget and they haven’t produced a budget and I’m not going to revise at this point,” she said. “Now really the ball is in their court.”

Sen. Ken Cheuvront, a Phoenix Democrat whose tenure at the Legislature has included several economic downturns, said the $1.9 billion shortfall estimate appears too rosy and that lawmakers should be prepared to return for budget work.

“I hope nobody makes plan for the fall,” he said.