Republican Rep. Noel Campbell, foreground left, speaks with GOP Rep. Travis Grantham, foreground right, as members gather in the Arizona House under a closed public gallery before a floor session at the Capitol in Phoenix, Wednesday, March 18, 2020. The House hopes to quickly pass a bare-bones budget and send it to the Senate before adjourning until the coronavirus crisis ebbs. (AP Photo/Bob Christie)
As some grocery store shelves lay as bare as Cactus League stadiums and restaurant dining rooms, lawmakers in the Arizona Legislature are scurrying to wrap up their business, begin their social isolation and hunker down for a storm. Their rainy day is here.
Gov. Doug Ducey pushed over two legislative sessions to fill a rainy-day fund against resistant Republicans who preferred to use an abundance of revenues to address the state’s debt, and Democrats who wanted to enhance government services.
The state tapped into the $1 billion savings account March 12 to wage the medical fight against COVID-19, a pandemic that is decimating economies worldwide, and while those resistant Republicans and Democrats are grateful for the extra cash, they stand by their arguments against the rainy-day fund.
When Ducey came into office, the state had about $455 million in the rainy-day fund, an amount that remained steady for the first few years of his governorship and one he worked to increase each year of his first term. In 2018, the same year the state got an unexpected $155 million windfall in state income tax revenue changes from federal tax law, Ducey demanded that money be saved, not spent, and that the fund be brought up to $1 billion.
In order to do that, he had to convince Rep. Mark Finchem, R-Oro Valley, and a few other Republicans who wanted that money spent to pay down state debt or put back into taxpayer pockets. While Finchem and others were not against the idea of having money stowed away, they weren’t as receptive to savings as much as Ducey was asking for.
For Finchem, it wasn’t the best way to “recession-proof” an economy – he says taxing less is.
“When government takes less money, we are helping people with preparing for an economic downturn,” Finchem said. “But if government takes that money and puts it into the rainy-day fund, well, now the folks are less prepared to deal with changes in their own personal financial condition.”
The balance of taxing what’s necessary and spending and saving wisely on a government level is a tough balance, Finchem said.
Finchem was one of the few Republicans vocally advocating against raising the rainy-day fund to $1 billion in the 2018 legislative session and instead wanted to raise it to $750 million in that time, push for the $1 billion threshold in the 2019 session and include a tax reduction. In the end, he was overruled and he said he’s OK with that.
“Either way, we built up the storehouse, if you will, for a day when things were not so good, and we appear to have arrived at that day,” Finchem said. “I’m somewhat ambivalent at this point. The money is there, but I pray that we are cautious, very cautious and prudent about how we extend those resources for the greatest community.”
If and when they have to dig into the fund, an abundance of caution is crucial in the weeks and months ahead, Finchem said, because once that billion is gone, it’s gone. But that’s dependent on how bad future state revenue projections are.
That’s what Finchem and other Republicans hope to find out in about a month, assuming they pass a so-called “skinny-budget” Ducey approves of and return to work to pass a budget using more current and accurate revenue forecasts.
Democrats, including Minority Leader Charlene Fernandez, D-Yuma, said while they do believe in the idea of a rainy-day fund and are grateful to have one, the severity of this economic uncertainty could have been lessened.
Cutline: Members of the Arizona House recite the Pledge of Allegiance before the start of an unusual floor session devoid of members of the public in Phoenix on March 19, 2020. The Legislature worked on passing a basic state budget and fixes for schools and workers before adjourning to allow the coronavirus crisis to ebb. The Legislature has a rainy-day fund of nearly $1 billion to work with as the state falls into a recession because of the corona virus crisis. PHOTO BY BOB CHRISTIE/ASSOCIATED PRESS
Had the state invested more in public education, health care services, agencies and other budget items Democrats argued were crucial, Fernandez said, the state may have been in a better place. Instead, the state may need to partially bail out these things with emergency funds if the economy worsens exponentially.
With these things at a lower capacity than Democrats asked for, Fernandez said, they’re worried that essential public services, like unemployment insurance, might not be available at the level they could have been. Fernandez compared the budget to maintaining a home.
“You have to have a savings account, of course you do, but you also have to maintain your home and make sure that the water is running and all those things too, to make sure our government is prepared for this,” Fernandez said. “Who prepares for a crisis like this? Who would have known?”
What made building up this fund possible, Fernandez said, was stripping agencies “to the bare bones” and creating an artificial, unearned budget surplus.
Senate Minority Leader David Bradley, D-Tucson, has long advocated for state leadership to focus less on building up a rainy-day fund and more on restoring cuts made during the recession and before.
The state doesn’t have a budget surplus, he insists. Instead, it’s underwater on a debt to underfunded state agencies.
But while he has criticized the rainy-day fund, he said he’s glad the state has some money set aside to deal with the current crisis.
“In the large scheme of things, is it good that we have some resources to deal with this crisis to the extent that we know about it?” he asked. “Yeah, that is true. That’s true. Even though those might seem like conflicting statements.”
These arguments are nothing new for Corporation Commissioner Bob Burns, who said he’s heard, and settled, them before. In late 1993 when Burns was chairman of the House Appropriations Committee, he helped lead discussions with other lawmakers and Ted Ferris, then-executive director of the Joint Legislative Budget Committee, who first suggested the idea of a rainy-day fund.
That idea became Burns’ project, which he made a reality by the end of that session after pushing against a lot of resistance, mostly from conservatives who thought it was a “method of government growth.”
After weeks of meeting with members, Burns and others finally convinced enough people that it was a good idea and while the formula for the rainy-day fund has slightly changed, the idea in principle has remained consistent.
“My philosophy has always been to have money in the savings account,” Burns said, speaking from personal experience.
When he and his wife moved to Arizona, they financially disciplined themselves to live only on his salary. During good and bad years, he spent frugally and saved what he could while she continued to work and save all of what she made – they eventually used that money to start a business.
The same philosophy applies to state government, Burns said, when even during an abundance of “good” economic years, it’s important to remain hesitant to spend in anticipation of what could come.
“You never know when a downturn could occur and you don’t continue to grow forever – it’s a cycle,” Burns said. “You got to be careful how you spend your money and, and especially careful when you’re in that sort of lucrative income period. That’s when you get in trouble.”
Ducey inherited a projected $1 billion dollar deficit, partially due to pending K-12 litigation, as well as debt from the Great Recession and because of that had to make cuts to agencies and services to generate a surplus. These cuts came at the expense of some pet projects lawmakers wanted, who called the effort to grow the fund a public relations gimmick.
Republicans, like Rep. Regina Cobb, R-Kingman, one of the members leading budget talks, wanted more of that money spent on paying down the state debt. In fact, she joined Finchem in calling for the $1 billion rainy-day fund balance to be met this year instead of last year, but was also overruled.
Despite how the state got here and built up the fund, it’s here and its economic future remains foggy until forecasts come. Cobb said that feeling of uncertainty is affecting budget talks for now, but she’s glad the fund is here.
“Whether it’s a gimmick or whether it’s not a gimmick, it’s there,” Cobb said. “I know there wasn’t a broad support for a billion dollars for it, but it’s there and thank God we have it. This is our rainy day.”
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Lawmakers grateful for rainy-day fund, some hold to principles against it - Arizona Capitol Times
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