Robb: Gov. Doug Ducey is playing politics. Will lawmakers play budget grown-ups?

Gov. Doug Ducey is claiming that his proposed new spending initiatives for education are affordable without a tax increase because a more robust economy will produce higher state revenues.

Ducey may turn out to be correct about the higher revenues. But even if he is, the amount of new spending commitments he proposes would be imprudent, if not reckless.

Budget objective should be sustainability

The objective should be state finances that are stable and sustainable. That means that existing tax rates can reasonably be expected to cover the cost of state programs in any given year.

There also should be a reasonable cushion to cover unexpected expenses that might crop up after a budget is finalized, in the range of, say, $100 million.

The fiscal boffins at the state capitol try to capture this concept with what is referred to as “structural balance.” This compares ongoing spending with ongoing revenue.

“Structural balance,” however, isn’t the same thing as sustainability. Every year, the state has one-time expenses, such as building a new facility or upgrading technology. For state finances to be truly sustainable, ongoing revenues have to cover ongoing spending plus an allowance for unknown but inevitable one-time expenses. Plus a decent contingency for unexpected expenses that may be required during the budget year.

Ducey’s proposed budget, with the new education spending commitments, flunks this definition of sustainability, even if the higher revenues he projects are realized.

Ducey's projections aren't unreasonable

Ducey’s revenue projections aren’t unreasonable. It’s wrong to dismiss them as that bane of sound government finance, the rosy scenario.

During the recovery, state revenues have grown in the 3 percent to 4 percent a year range. So far this year, they have leaped by more than 6 percent. Ducey’s budgeteers project they will grow at a 4.8 percent annual clip over the next three years. The Legislature’s budgeteers, in contrast, project a 4.1 percent growth rate.

Budgeting at the Legislature’s rate is more prudent. Given seven years of sluggish revenue growth, it’s premature to assume that eight months of more robust growth represents a new trend. There may be some unknown and temporary phenomenon that has created an artificial bump.

However, economic activity in the state has picked up. If sustained, the governor’s higher number would not be a reach. Budgeting based upon it would be defensible, if somewhat incautious.

Higher revenue won't cover the spending spree

However, even Ducey’s higher number doesn’t produce enough money to embark on his new spending commitments while maintaining sustainable state finances.

Ducey proposes increasing teacher salaries by 20 percent across the board over three years, for a fully phased-in cost of $580 million a year.

He also proposes to replenish what’s called additional assistance to schools over five years, for a fully phased-in cost of roughly $370 million.

So, that’s nearly a billion dollars of new spending commitments.

In 2021, three budget years from now, Ducey projects that the state will have nearly $1.5 billion more in general fund revenue than it expects to have this year.

Even with more cash, it'd be $150m short

However, the legislative budgeteers project that the state will need to spend $850 million more that year just to maintain existing programs. And that’s a highly conservative estimate.

There’s no increase for population growth or inflation for most state programs. Very little in the way of the inevitable one-time expenses.

With that unrealistically conservative estimate of spending on existing programs, and with Ducey’s higher revenue estimate, there would be a theoretical excess of revenue over expenditures of around $650 million.

But the cost of Ducey’s new education spending proposals would be more than $800 million that year, or $150 million more than his higher revenue figure would produce, even if all the rest of state government is put into a deep freeze for three years.

Boost education spending - the right way

That’s not putting state finances on a stable and sustainable footing. It’s not prudent budgeting. It will put state government back into the position of scrambling to make ends meet and relying on fiscal gimmicks, such as borrowing, fund shifts and funny accounting.

Even if the state were rolling in dough, Ducey’s teacher pay proposal would be a stinker. The state should be increasing funding to schools to the extent possible within a sustainable budget, and leaving teacher pay decisions to district officials, charter school operators and market forces.

Ducey has made a craven political gesture to neutralize the teacher pay issue in his re-election bid.

Republicans in the Legislature should play the budget grown-ups. Pass a budget that is truly sustainable. To the extent possible within that constraint, increase funding for education, but in a way that doesn’t usurp the role of school boards and charter operators.

Reach Robb at robert.robb@arizonarepublic.com.

READ MORE FROM ROBB:

• Ducey's teacher pay plan could haunt Arizona for decades
• The simplest way to meet #RedforEd's funding demand
• 2 radical approaches to reform Arizona education funding
• David Garcia's plan won't fund #RedforEd. Not even close