The Ducey-DuVal unrealistic budget vow

A $765 million deficit is projected for next year's state budget. The two major party candidates for governor, Republican Doug Ducey and Democrat Fred DuVal, are vague about what they would do to balance the budget. But both are specific and uniform regarding what they will not do: cut education or raise taxes.

So, how realistic is that vow? The answer: Not very realistic. Let's use this year's budget to illustrate the point.

The state general fund budget this year totals $9.3 billion. K-12 education is $3.8 billion of that. Universities are another $770 million. (State support for the community colleges is, at this point, negligible.)

So, that's a little shy of $4.6 billion both Ducey and DuVal would declare off-limits for budget cuts. That's nearly half of the state's general fund. Education is what the state principally does.

Exempting education from budget cuts would require cutting everything else the state does by 16 percent. Education, however, isn't the end of the sacred cows.

This year, the state's general fund will provide nearly $1.3 billion to Medicaid, the low-income health care program. Federal law sharply restricts what the state could do to reduce that tab.

Ducey opposed the expansion of Medicaid to childless adults between 100 percent of the federal poverty level and 133 percent championed by Gov. Jan Brewer. However, repealing the expansion would make the budget hole bigger, not smaller.

The expansion is paid through a hospital assessment that goes away if the expansion does. The assessment, however, pays for more than just the expansion population. It also pays for childless adults under 100 percent of FPL who were previously covered through the general fund. If the expansion and the assessment go away, they again become a general fund obligation.

There was a special session to increase funding for the new Department of Child Safety (previously Child Protective Services). The new total is around $360 million. Given the bipartisan, self-congratulatory hoopla that accompanied that event, it is inconceivable that either Ducey or DuVal would suggest backpedalling now.

If Medicaid and child safety join education on the untouchable list, that's two-thirds of the state budget. Plugging the deficit would require cutting the remainder of the state's general fund programs by 25 percent.

But of the remaining approximately $3 billion, about a billion of it is in corrections. Perhaps sentencing reform could reduce prison populations over time, but no governor is going to propose letting enough convicted felons out overnight to reduce prison costs by 25 percent.

While pledging not to increase taxes, both Ducey and DuVal talk about increasing revenues from the state land trust and possibility privatizing the state lottery.

Increasing revenue from the state land trust is not a short-term fix. As required by the state Constitution, when state land set aside for schools is sold or leased, the money goes into a designated fund and is invested. Schools then get the investment income, not the sales or lease proceeds directly.

Assuming an investment return of 8 percent, it would take state land sales of more than $1.2 billion to produce an additional $100 million of income for the schools. This is not a strategy to fill an immediate $765 million hole.

Ducey claims DuVal stole the idea of privatizing the state lottery from him. He shouldn't be so quick to claim bragging rights. It's an idea without legs.

A private buyer would be interested in the net income the lottery produces. But much of the net income is already spoken for, earmarked by voter-approved measures to specific state programs.

Moreover, the state has already borrowed heavily, to the tune of $450 million, against the general fund's share of future lottery proceeds, to get past the previous big budget hole. Simply put, the state doesn't have much left of the lottery to sell.

The current general fund budget is configured within constraints developed and sold by Senate President Andy Biggs: no tax increases, no borrowing, no accounting gimmicks, and no stealing money from other state accounts. Ducey and DuVal want to add another constraint: no education cuts.

If the deficit ends up truly being in the $765 million range, not all of those constraints can hold. Something will have to give.

Reach Robb at robert.robb@arizonarepublic.com. Follow him on Twitter at @RJRobb.

(column for 9.19.14)