The big question for 2011: How will Arizona balance its budget?

How will Arizona balance its budget? With the Republican trifecta controlling Phoenix, the answer is easy:

1. eliminate or drastically reduce funding for services that benefit citizens (ie, education, healthcare, parks),
2. cut corporate taxes,
3. ignore the $10 billion in tax loopholes that benefit special interest groups,
4. borrow a few hundred million, and
5. hope for an economic turn-around.

Republican Governor Jan Brewer released specifics of her budget plan last Friday. It included dramatic cuts for universities (20%), community colleges (47%), parks (100%), and commerce (82%). In addition, Brewer wants to cut the Arizona Health Care Cost Containment System rolls by about one quarter, leaving 280,000 people– virtually all adults– with no health insurance. (AHCCCS had been propped up by federal stimulus money.)

The only part of the budget that goes up significantly is corrections— surprise, surprise given Brewer’s and Senate President Russell Pearce’s cozy relationship with the private prison industry. (They do obviously get the connection between long-term unemployment, education cuts, and the inevitable increase in crime.) Arizona was already spending more on prisons than on university education; the new budget just widens that gap– corrections ($957 million) vs universities ($702 million). This budget is criminal.

Brewer did toss tourism– which had been zeroed out last year– $1 million to combat the state’s poor public image.

But, oops, with all of these budget cuts, the budget is still not balanced. According to the Arizona Daily Star (print edition), Brewer’s cuts reduce the budget from $8,518.9 billion to $8,474.3 billion– a $44.6 million reduction to fill a $2.25 billion hole. Brewer proposes to wreak havoc on post-high school education and the parks system, but all of that amounts to only a 0.5% reduction in the overall budget. What’s the point of releasing a budget that basically does nothing to alleviate the state’s fiscal crisis?

This is where the borrowing and the hoping for a brighter day enter into the Governor’s plan. She proposes to borrow $575 million to fill a hole– with the hopes that the economy will improve in the future. Brewer and other Republicans are also toying with the idea of completely eliminating the states’ Medicaid system (AHCCCS). Legislative comments from the Arizona Daily Star…

House Speaker Kirk Adams called it “an excellent framework and starting point.”

“The governor has demonstrated that she continues to be willing to make tough choices,” he said. “And I think the Legislature is ready to follow suit.”

But House Minority Leader Chad Campbell called the plan “the same policies and the same maneuvers that we’ve seen for several years that have gotten us into this mess in the first place.”

He noted that Brewer plans to borrow $575 million just to bridge an anticipated $764 million deficit for the rest of this budget year. Her longer-term plans, he said, are based on a hope the economy will get better, something Campbell said is not a realistic long-term solution.

Campbell wants “long-term tax reform,” including closing what Democrats call $10 billion in “outrageous tax loopholes.”

I agree with Campbell, we need long-term tax reform, but my proposal goes beyond filling loopholes. I think the state should consider sliding scale corporate taxes (currently at a flat rate of 6.968%) and consider adding at least one more upper income tax bracket.  Another option would be to return to the tax levels the state had before the last Republican tax giveaway (which we obviously couldn’t afford.)

Arizona State University’s Morrison Institute released a report on our “structurally unbalanced” government. The bottomline is: We can’t cut our way out of our current economic crisis. Arizona’s tax system relies too heavily on growth and sales; when the economy is down, the state’s income plummets. As a result, the state suffers cyclical boom and bust cycles.

Just how bad is it?

Here is a recap of the deep hole Arizona’s tax cuts have left us in, from AZCentral [Emphasis added].

When lawmakers return to the Capitol in January, they face a $2.25 billion deficit over the next 18 months.

“What we are walking into is major structural-deficit reduction,” said House Speaker Kirk Adams, R-Mesa. “This is no longer a $5 million solution here or a $10 million cut there. It’s a $1 billion decision.” [I guess Adams didn’t send that memo to the Governor.]

GOP Gov. Jan Brewer and the Republican majority in the Legislature have ruled out tax increases, and other options for balancing the budget are nearly tapped out.

That means deep cuts are inevitable…

And because these leaders want to cut taxes to get Arizona’s economy rolling again, that means less revenue for state coffers and a larger hole to fill.

There are additional challenges as well: Lawmakers must erase an $825 million deficit in this fiscal year’s budget, compressing a year’s worth of cuts into a few months. Federal stimulus money runs out at the end of the budget year on June 30, adding to a hole of about $1.4 billion. The Legislature also has 37 new lawmakers, and they will have to quickly learn the intricacies of the state budget.

Some Arizonans already have felt the cuts – they lost child care, health services or educational programs. But many others have yet to feel the budget crunch personally beyond shuttered rest stops or state parks.

One thing is clear: After this session, every Arizonan is much more likely to experience the impact of the budget crisis. Lawmakers will wrangle with difficult decisions with potentially devastating consequences for Arizona residents.