Arizona Republic Column on State Fiscal Issues

Basic economics key for state

By Jack Cox
Nov. 17, 2009 12:00 AM
Special for the Arizona Republic

Arizona's fiscal challenges ultimately are the result of demands by the voters. Every election, voters also are presented with a myriad of proposals to increase spending or change taxation. Unfortunately, three little words often are missing in the consideration of these policy options: "At what cost?"

Let's start with our own home budgets. How many people dream about that new six-figure sports car, a marvelous La Jolla beach house or other less exotic wants?

Economic realities creep into making decisions. We tell ourselves: "We'd like a vacation but should fix the roof or pay for braces for our children." It all comes down to one simple economic truth: We have unlimited demands and limited resources requiring the setting of priorities.
Therein lies the problem with government spending and taxation. Voters often are told they can have it all - but again, at what cost? The state of Arizona has reduced many tax rates over the years. State spending has grown by 10 percent each of the past four years with little regard to whether the funds will be there to pay bills in future years.

A growing percentage of state policy on spending and taxes in states such as Arizona and California has been established by voter mandate.

Richard G. Little, director of the Keston Institute for Public Finance and Infrastructure at the University of Southern California, contends that policy makers fail to educate voters about the impact of ballot choices. He says California bond initiatives often are presented as being "budget neutral" to be paid from general-fund revenues.

"This is disingenuous bordering on fraudulent because while this is technically true on an individual case basis, there simply is not enough money collected to pay debt service in the aggregate for already approved bonds," Little says.

He proposes the initiative process be changed to help voters make better choices.

An example: Proposition 3. Children's Hospital Bond Act. Grant Program - State of California:

Shall $980,000,000 in general obligation bonds be authorized for expanding children's hospitals?


• No.

• Yes, and the debt service should be paid by reallocating funds from:

* Education.

* Human services.

* Public safety.

* Environmental protection.

* Transportation.


• Yes, and levy a special assessment on all taxpayers to pay the debt service.

Arizona voters have approved initiatives limiting taxes without accompanying spending reductions.

While Arizona's system differs from California and the state's ballot questions have been about program expansions, not bonds, Little's key message still resonates.

Government provides vital services. However, economic growth is the key to deriving more taxes to fund government services. It takes money provided through tax dollars and debt. Higher business taxes reduce the ability to expand and grow the "economic pie."

Another simple truism: Reduce economic growth and the government has less revenue. The conundrum is that controlling spending is important, but government programs benefit society by creating a better-trained workforce or providing vital services.

At the end of the day, politicians from both parties need to come together and realize that governance must be based upon economic realities and choices that preserve the maximum amount of individual income while providing for legitimate, important government programs and public needs.

Jack Cox is president of the Communications Institute. For information on Governing Arizona, go online to www.governingarizona.org.