In Arizona, a GOP budget standoff

In recent years, the onset of summer in Phoenix meant two things -- triple-digit temperatures and a budget battle between the Republican-dominated Legislature, which regularly pushed to cut taxes, and Democratic Gov. Janet Napolitano, who pushed to maintain them to save or expand services.

In January, Napolitano moved to Washington to become secretary of Homeland Security, and Jan Brewer, a staunch fiscal conservative who was then Arizona's secretary of state, took her spot. "We thought, we've got a friendly face in the governor's office and we'll be able to do some good things," said Bob Burns, president of the state Senate.

It didn't work out that way.

Instead, Brewer called for a hike in the sales tax to preserve essential services, and the Legislature and the governor became enmeshed in what many call the nastiest fiscal fight in Arizona history.

Republican lawmakers refused to send Brewer a budget that she has signaled she would veto. Instead, they tried to delay until the end of the fiscal year -- June 30 -- when she would either have to sign it or shut down the government.

Brewer sued Burns and Kirk Adams, the speaker of the Arizona House, to force them to send her the budget, but the Arizona Supreme Court ruled against her this week. On Friday afternoon, the governor and legislative leaders announced an agreement that would basically kick the debate over to the voters, asking them to approve Brewer's $1-billion, three-year tax increase in November.

"It's a really interesting trap for the GOP here," said Earl DeBerge, a Phoenix-based nonpartisan pollster. "They have been so die-hard on shrinking government and shrinking taxes, they couldn't foresee that there's a minimal level of government required."

The recession has created a grim fiscal situation in just about every state capital, and Arizona isn't the only place where members of the party in power are fighting each other over taxes.

In Illinois, the Democratic-led Legislature is balking at approving Democratic Gov. Pat Quinn's proposed 50% increase to the state income tax. Massachusetts Gov. Deval Patrick, a Democrat, has threatened to veto a 25% sales tax hike that the Democratic Legislature proposed to help close its deficit.

But Arizona finds itself in a particularly challenging spot. A shortfall of more than $3 billion amounts to 30% of its annual budget, a higher proportion than even California, which faces a 26% shortfall.

Scott Pattison of the National Assn. of State Budget Officers said that it's almost impossible to compare state budget deficits because accounting differs so widely but that Arizona's situation is "among the worst, if not the worst."

Arizona's predicament has been made more difficult because voter initiatives here (as in California) mandate how one-third of the state's money must be spent. The only way to raise taxes is through a practically unobtainable two-thirds majority in the Legislature or via a simple majority at the ballot box. Like California did this spring when it asked voters to approve a series of tax hikes, Arizona is putting the hard choices on the electorate.

"The Legislature as a whole does not have the resolve to make the reductions in spending to bring us into balance," Burns said. "We almost need a referral to the ballot to get the mood of voters."

Republicans blame their intra-party fighting on the extraordinary circumstances. "The situation is so dire and the solutions so limited," Adams said in an interview, "that we really get down to core decisions that are very hard to make."

Brewer, who spent 14 years in the Legislature and was a Maricopa County supervisor before being elected secretary of state, has said her objections to the initial budget proposal were twofold.

First, she said the $631 million in cuts would cripple public services -- education in particular. "I certainly am not going to decimate education or put at risk Arizona's most vulnerable, or jeopardize law enforcement," Brewer told reporters Tuesday outside the state Supreme Court.

She also contended that the Legislature has relied on accounting tricks (such as deferred payments) and $1 billion in federal stimulus money to close the gap. That would put the state on even shakier footing next year, Brewer has said.

Instead she proposed an 18% hike in the state sales tax -- from 5.6% to 6.6% -- that would last three years, coupled with a law that would limit the speed at which spending could rise in the future. If voters approve that increase in November, many of the cuts and spending deferrals in the budget would be rolled back.

"Jan Brewer is a 27-year fiscal and social conservative," said her spokesman, Paul Senseman. "But she is also the governor, and there is no doubt a level of pragmatism that comes with 27 years of service."

Brewer's support for public services has been a welcome surprise to some. "You become a realist when you face the task of governing," said Tim Schmaltz, part of a coalition formed to protect social services from cuts.

Democratic lawmakers also have opposed Brewer's proposal, but by their own admission they are not a factor in the Republican versus Republican debate.

Nonetheless, it's been interesting for them to watch.

"In many ways, it seems the Republicans in the Legislature are more upset with Gov. Brewer than they ever were with Gov. Napolitano," said House Minority Leader David Lujan.

According to analysts and some Republicans, part of the problem is that the GOP gained seats last year, adding legislators who are more hard-line and less willing to compromise on tax issues. State Sen. Russell Pearce, one of the most vocal conservatives in Arizona and chairman of the Senate Appropriations Committee, said this week that any deal with tax hikes is "off the table."

Adams said that any tax increase could be a death blow to the state's already anemic economy. Arizona, which depended on the housing boom to power its economy, has lost 320,000 jobs in the last 18 months and seen its slowest growth in personal income since 1946.

"We're reluctant to burden that private economy any further," Adams said.

Nonetheless, legislative leaders were optimistic they could convince their members to support the deal with the governor despite the tax hike. As a sweetener to fiscal conservatives, the agreement would also convert the state income tax to a flat 3% in 2012.

Even if the economy continues to deteriorate here next year, say those involved in the negotiations, things are bound to improve in at least one area.

"Politically," Adams said, "I think there's nowhere to go but up."


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