Last week, the Joint Legislative Budget Committee (JLBC) released an updated state revenue forecast showing that Arizona may be facing a $400 million budget shortfall next year. And as predictable as the sun rising in the East, Democrat politicians and their friends in the media went on the attack, blaming the deficit on two historic reforms despised by the left—universal school choice expansion and the 2.5% flat tax cut passed in 2021.
For the Democrats and their sycophant media allies, the problem is always too much parental choice in education and letting taxpayers keep more of their hard-earned money. Yet this narrative couldn’t be further from the truth. A closer look at Arizona’s budget and the projected budget deficit reveals that we have a spending problem, not a revenue problem.
Projected Budget Shortfall Is a Spending Problem
Just 5 years ago, the legislature enacted the FY 2019 budget that included $10.1 billion in on-going spending, plus $500M in “one-time” expenditures ($10.7 billion total). By last year, that number had exploded to nearly $15 Billion in ongoing spending, a 50% growth in ongoing spending in 5 years! The most recent budget negotiated with Democrat Katie Hobbs earlier this year kept ongoing spending at a lower trajectory but included “one-time” outlays that brought the total budget cost to $17.8B.
The truth is that Arizonans continue to be overtaxed. And even with the largest tax cut in state history, tax revenue has continued to climb, largely due to the decision by state lawmakers in 2019 to start taxing online sales. That one change in our sales tax collection has resulted in BILLIONS in new revenue for state and local governments. Yet the media and the left only want to talk about the income tax cut, not all the tax hikes Arizonans have endured.
Record Levels of K-12 Spending
Along with bashing our much-needed income tax cuts, the left has targeted school choice as the other culprit for the budget deficit. Since universal expansion was enacted last year, Empowerment Scholarship Accounts (ESAs) are now providing over 60,000 families the freedom to make educational decisions for themselves, instead of being locked into government schools. According to the teachers’ union and math-challenged educrat organizations, ESAs are costing the state hundreds of millions of dollars and diverting funds from district schools.
Conveniently left out of their analysis—Arizona taxpayers are giving district schools more money than ever before, by a long shot. Public school funding has soared to $15K per student, up from $10k just five years ago.
In fact, the legislature had to vote this year (for the second year in a row) to override the constitutional expenditure limit for government schools. This spending limit was overwhelmingly supported by voters to protect against runaway spending. The waiver this year, which requires a 2/3 majority to authorize, was to the tune of $1.4 billion, more than three times the potential budget shortfall.
As for the claim that ESAs are costing taxpayers hundreds of millions of dollars, the reality is the opposite. According to an excellent analysis by Matt Beienburg at the Goldwater Institute, ESAs represent only a tiny fraction of all K-12 school spending, and taxpayers actually save money when a parent decides to leave a district school to attend a charter or private school.
Additionally, during COVID the federal government was spending trillions of dollars racking up the federal debt and inflation. That has thrown off budget projections nationwide, and most states are now seeing a slowing of tax revenue leading to potential deficits.
Budget Deficit Presents Opportunity for Long Overdue Spending Restraint
The current budget volatility Arizona is experiencing shouldn’t be that big of a surprise to anyone who has been following local and national trends. State governments around the nation are dealing with volatile budget projections, falling tax revenue, and widening budget deficits. And in every case, runaway spending has been the culprit.
So, the solution is simple: reduce spending to be more in line with what population and inflation growth has been over the last five years. Republicans did the best they could with Katie Hobbs on the 9th Floor, who vetoed their first fiscally responsible budget proposal. We don’t expect Hobbs and her spend happy allies to be any easier to work with next year, so fiscal hawks in the legislature will have their work cut out for them.
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