There are a lot of reasons that I really enjoy this time of year: the palpable sense of holiday excitement, the once-a-year desserts (tough for me to avoid, but the stare-down doesn't always work)) and time to spend with family. But it's also the time of year that I sit down - at work and at home - to think about our budget. How did we do in 2010? And how does 2011 look?
And, as a former state employee, I'm always following the State's fiscal affairs (although from a different perch in the private sector). Despite the State's present dire fiscal condition, it's not making the front page anymore. (It's still in the news, to be sure, but not on A1.) Maybe it's because people believe that the Prop. 100 solved our fiscal problems. It didn't; though if it weren't for that temporary 1-cent sales tax increase, we'd be in a $1 billion bigger hole.
Here's where we're at right now, courtesy of the Joint Legislative Budget Committee's November 19 update:
- FY 2011 (July 1, 2010 - June 30, 2011) ~$825 million shortfall
- Failure of November ballot props = $469 million
- Lower Federal Matching Funds = $158 million
- Possible revenue shortfall with new forecast = $206 million
- $100 M K‐12 shortfall (offset with federal funds)
- $15 M net budgeted balance available to offset shortfall
- Despite large increases in individual and corporate income tax receipts (6.7% and 48.5%, respectively), sales tax receipts were down 2.8%, leading revenues to be $30 million below forecast.
. . .and where we're going:
- FY 2012 ~ $1.4 billion shortfall
- FY 2013 ~ $1.3 billion shortfall
- FY 2014 ~ $2 billion shortfall
- . . . unless the legislature enacts permanent solutions (spending cuts or revenue increases) to bring down shortfalls in future years. (Though 80% of the legislature's prior budget gap-closing "solutions" have been one-time, not permanent.
But this is the really big problem. . .

Source: Joint Legislative Budget Committee's November 19 update
Arizona faces a structural deficit: on-going expenditures exceed on-going revenues. 2008 and 2009 (and to a much lesser extent, 2010) were tough years for all of us - individuals, businesses, and governments. But when you have a generally cash-flow positive budget - when you generally earn more than you spend - the difficulties associated with hard economic times are truly temporary. And the solutions you devise to deal with those tough economic times are temporary too. Perhaps, as a family, you stop going out to eat. As a business, you defer capital expenditures.
Clearly, Arizona was hard-hit by the economic downturn and by the real estate bust that was much worse here than in many other states. It's why revenue to Arizona's coffers fell 33% between 2007 and 2010. But the greatest problem for Arizona is that even as recovery takes hold and revenues increase, we're still projected to be spending more than we bring in. And, there is no rainy day money to fill the gap.
Any individual or business owner looking at a budget forecast like the one above would sit down with a pencil, lots of paper (and plenty of coffee) and make the hard choices that need to be made to bring the red and blue lines together. It's been said that we can't cut or tax our way out of the fiscal mess we're in, and I think that's plainly obvious, when you look at ongoing budget shortfalls of $1.5 billion plus. So, Arizona business, education, and health care leaders, Arizona legislators, grab your pencils and your mugs - it's time to get to it.


