Wednesday, June 25, 2008

On the verge of a spending spree

Its quite a day for spending in Arizona, with Governor Napolitano behind several fronts that will impact Arizona's fiscal future for many years to come. Individually, any one of these items may not that big of a deal, but combined, it could have some serious long-term impacts on the economy.

1. The budget that is being proposed includes growing the Lottery, throwing a whopping $1 billion to the universities to construct even more buildings, plus another $1 billion in borrowing. The Legislature is "ironing out" the difference according to the Arizona Republic but the fact of the matter is that one of the funding sources in the Governor's budget is gambling. As the economy slips, more people probably play the lottery in hopes of getting a big payout so that they don't lose their house, but that doesn't make it a sensible way to fix funding shortages.

2. It looks like the Governor's $42 billion dollar tax increase for transportation will be on the ballot in November. If you recall its a 1 cent increase in the statewide sales tax, which means that some places will be on the verge of having a 10% sales tax. The plan includes more light rail, high speed trains, money for non-profits, payouts to conservation groups. Plus, all of it goes outside the regular procurement process. There is a lot of spending here that may not yield a lot of results.

3. Finally, the Senate has sent the Decades Theme park project to the Governor's desk. This project could issue up to $750 million in bonds for a location that is 50 miles aaway from any major town. Will the state be on the hook if the project issues the bonds, builds the park, and then shuts down? Its not clear if the Governor will sign, but its another potential financial burden that could have lasting effects.

Any one of these things could put the state budget in a bind for many years to come. What happens if the lottery doesn't pay enough for the university construction? What happens when the contruction costs overrun on this grandiose train? Where is the maintenance and operations money coming from since all transit is subsidized? What happens if Decades is a huge failure? Who is on the hook for that?

We are faced with a $1.9 billion deificit right now, and we are facing budget cuts across the board. Is now the right time to be going on a spending spree?

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