Governor candidates light on details to overcome budget shortfall

• The next governor is sworn in Jan. 12 and must produce a budget by Jan. 16.
• Current projections show a %24282 million budget shortfall going into the next fiscal year.
• Candidates continue to focus on big-picture ideas like cutting taxes and boosting education funding.

Whoever wakes up as Arizona's governor-elect on Nov. 5 will have less than three months to figure out how to fill a $282 million state budget shortfall.

The leading candidates, Republican Doug Ducey and Democrat Fred DuVal, have offered big plans to boost the state's economy and bring in more revenue. But those ideas will take time and add millions — if not billions — to the impending shortfall.

Ducey wants to begin eliminating personal and corporate income taxes, which would take a $4 billion bite out of the state's $8.8 billion revenue. He's promised to veto any tax hikes.

DuVal wants to restore education funding to 2008 levels and fully fund all-day kindergarten, adding about $500 million to state costs. He's also proposing a variety of tax credits and wants to kick-start construction of a multibillion-dollar passenger train between Phoenix and Tucson, all of which would drain an unknown amount from state coffers.

Big ideas are to be expected in a campaign, say candidates and political experts.

"We are not the governor today," Ducey said. "We are candidates. What the campaign demonstrates is where a candidate's priorities are."

Still, the financial reality one of those candidates will confront has begun to set in. Ducey and DuVal are starting to talkabout how their ideas are more long-term goals, meant to be implemented over an entire term — or two — as opposed to during their first year.

"Both of the candidates have acknowledged the economy isn't as strong as we like to see in Arizona, but are optimistic," said Jim Rounds, an economist and senior vice president with the Elliott D. Pollack and Co. real-estate and economic consulting firm. "Their long-term vision, I think, will be fine. But the first term is going to be balancing the budget, first and foremost."

The next Arizona governor will be sworn in Jan. 12, and must produce a budget on Jan. 16.

Gov. Jan Brewer's staff has already begun work on the 2016 budget. Many of the details require few decisions, as state or federal regulations or formulas dictate spending. The new governor will form a transition team to work with Brewer's staff and either add their own specifics to her budget or produce an entirely new one.

Both candidates are familiar with the state budget. As state treasurer and a member of the state's Financial Advisory Committee, Ducey has played a role in budget conversations for the past four years. DuVal has budget experience from his time on the Arizona Board of Regents, and has said he's already begun going over the budget line by line.

Both have also received budget briefings from Senate President Andy Biggs, R-Gilbert, who will play a key role in the upcoming budget process.

DuVal's campaign has focused on a promise to boost education funding, particularly for K-12. But he says he is realistic and admits that's a long-term goal. In the short-term, he makes two specific promises: no new cuts to education and no new taxes.

"We are going to have to make choices, but those two are iron-clad," he said. "No more cuts to schools. None."

His plan to make up the budget shortfall: dipping into the $455 million rainy-day fund and centralizing procurements made by all Arizona state, county and local governments to get lower prices. He's also researching privatizing the Lottery.

"That's exactly what the rainy-day fund was built for," he said. "It gives us a bridge."

DuVal said he believes he can find money to make "modest improvements quickly" to help teachers. That includes immediately instating the annual $317 million increase in education funding, which the courts have ordered the state to pay after determining they didn't adequately fund inflation during the Great Recession.

"We have the largest class sizes in the United States," he said. "One-third of our teachers leave every year. There are 500 classrooms in the state of Arizona with no permanent teacher."

Another Year 1 goal, he said, is restoring $80 million to the child-care assistance fund to help low-income working families pay for child care.

Also in the short-term, he said he will invest in restoring staffing for the State Land Department so they can more quickly sell state land. Revenue from the sales benefits schools. "Moving state trust land is very much a tier-one strategy," he said.

Ducey's campaign has focused its campaign on touting ways it would grow the economy.

He sticks to that as his short-term budget solution as well. "There's no real solution to a budget shortfall that's better than a growing economy," he said.

The second part of the solution, he said, is fiscal responsibility. "We are going to start by managing the budget one fiscal year at a time. Like a business person, we're going to look at it line by line and dollar by dollar," he said, adding that process would begin after he's elected.

He says he will not raise taxes. In the short-term, he said, he would find additional revenue by closing "lobbyist loopholes."

"A tax code that looks like somebody wrote it on purpose can be the first way to demonstrate that you will have a healthy and growing economy," he said. "Our taxes could be lower, flatter, fairer and a whole lot easier to deal with."

He said he would review the state's 80 agencies to find efficiencies, including through improving technology and staffing. He said more than a quarter of the state's workforce outside of education is eligible for retirement in the next four years, providing an opportunity to reduce the workforce without needing layoffs.

He said he will also look for additional savings through privatizing the Lottery.

Opponents are criticizing both candidates for being too vague in their plans to balance the budget. But past economic advisers to Arizona governors say it's common for candidates to keep their budget ideas broad at this point in the campaign.

"I wouldn't expect them to have all the details already in their personal notebook at this time," Rounds said. "Over the next two or three months, they are going to know a lot more about where the budget stands."

But Rounds said the candidates need to begin preparing for the economic reality they'll face come January.

"They are going to have to stretch their goals over a longer period of time than you would normally see if a candidate was coming in when the economy was doing well," Rounds said. "They should maybe treat this as a research year in terms of determining what problems need to be solved and how to go about solving them."

Ted Ferris was Gov. Jane Dee Hull's budget director and before that ran the Joint Legislative Budget Committee. He said it's nearly impossible to get into budget details right now anyway because there's so much uncertainty about what the market will look like in a few months.

"Normally, the harder you fall, the harder you come back. In this case, we fell harder and we're recovering more slowly," he said. "You've got a really unusual situation where as this campaign is moving forward, there's anticipation of what will be waiting in January."

Dennis Hoffman, director of the L. William Seidman Research Institute at the W.P. Carey School of Business at Arizona State University, said a year ago he was optimistic about the economic recovery and what the next budget cycle would bring.

"I've got a little Pollyanna in me," he said. "Unfortunately, Pollyanna has crawled into a hole."

Without employment growth of more than 3 percent — it's so far on track to be at 2 percent or below — Hoffman said, candidates need to start considering tough choices.

"Aspirationally, I think it's great that the candidates want to protect education and they don't want to raise taxes," he said. "But unfortunately, based on this business cycle, I think the state is in for another round of real tough choices."

He said it's puzzling to see surrounding states, including Colorado, Utah and even California, improve faster than Arizona.

"It's tougher to blame this on some kind of national debacle," he said. "We have our challenges here and we need a strategy."

Doug Ducey proposals

■ Veto tax hikes.

■ Lower taxes, with goal of pushing income taxes to zero. Budget impact: $4.3 billion.

■ Simplify the tax code. No details provided.

■ Continue appealing the court order requiring the state to give schools an additional $317 million a year. This would delay payments.

■ Reduce redundancies among state agencies. No details provided.

■ Save on cost of operating state government with improved technology. No details provided.

■ Privatize government services, possibly including the state Lottery. Budget impact: unknown.

Fred DuVal proposals

■ No new taxes.

■I mmediately begin paying the additional annual $317 million to schools, which the courts have ordered.

■ Increase staffing in the State Land Department to expedite land sales. Revenue from state land goes to education.

■ Use the rainy-day fund to make up budget shortfall.

■ Restore education funding to 2008 levels, including restoring all-day kindergarten. Budget impact: about $500 million.

■ Restore $80 million to the child-care assistance program.

■ Restore funding for state parks. Budget impact: about $7.5 million.

■ Restore funding for homeless veterans through the state housing trust fund. Budget impact: more than $70 million.

■ Increase tax credits for bioscience and emerging innovation, as well as research and development.

■ Centralize procurement among state, county and local governments to get lower prices on some items.

■ Possibly privatize the state Lottery.

■ Start building Tucson-to-Phoenix passenger rail line. The project has a price tag of more than $3.5 billion, but it is unclear how much of that would be federal funds.

The Arizona Republic is scrutinizing the gubernatorial candidates' positions on key issues.

COMING SUNDAY: How to get Arizona's lagging economy on track.