Next Governor Faces Looming Budget Gap

Posted on October 01, 2002 | Type: In the News
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Closing the state budget gap is going to be more than a theoretical exercise.

When state lawmakers make their annual pilgrimage to the state Capitol in January, they're likely to be staring into a pit $1 billion deep. Legislators, many of them incoming freshmen, will be looking to the Governor's Office for a framework, particularly since the last budget was closed using a host of relatively painless fixes.

The three gubernatorial contenders espouse different visions for getting to equilibrium between spending and revenues. Independent Dick Mahoney and Democrat Janet Napolitano have more detailed proposals, both of which involve closing special interest tax exemptions. Republican Matt Salmon, who is expected to release a more detailed plan this week, has offered instead a general direction, as has Libertarian Barry Hess.

Dick Mahoney

The plan: A combination of budget cuts, totaling about $333 million, while recapturing $600 million in as-yet-uncollected taxes.

Included in his ideas for shaving state expenses, Mahoney would reduce the governor's salary by $10,000, sell the state plane and consolidate the five natural resources agencies (water, land, environmental quality, survey and agriculture) into one, reducing their budgets by a quarter. He would eliminate the office of tourism, instead sending half of the office budget to the local chambers of commerce. He would cut 15 percent from state agency budgets, except for education, universities and health services.

Mahoney wants to remove a host of sales tax exemptions, including those on out-of-state energy sales, dating services and health club fees. He would keep the exemption for groceries and nonprofits, as well as on services such as medical, legal and engineering.

He also supports passing the Colorado Taxpayer Bill of Rights, known as TABOR, which caps government spending growth to no more than the annual growth in population and inflation.

Feasibility: It's difficult to get accurate dollar estimates on some of the tax exemptions. Since some of the items have never been taxed, the Department of Revenue has no way of calculating how much could be recaptured. In other cases, data are unavailable because of confidentiality/trade secrets issues.

However, there are some ballpark figures. Revenue estimates reflect nearly $6 billion in tax exemptions. It would take a super- majority of legislators to raise any new revenues, although Mahoney said he will go to the ballot if he has to.

A bigger problem might be that the state requires a balanced budget. Even assuming the Legislature goes with the revenue increases, it will take at least a year for them to start coming in. Mahoney said he would roll over the debt into the following year - a position that may be open to challenge, although it appears the Constitution would allow it.

Since Colorado voters passed TABOR in 1997, taxpayers there have received $3 billion in refunds. How it's working depends on whom you talk to: Supporters have noted that Colorado residents ranked second in the United States for state personal income growth from 1995 to 2000, but critics have said it has short-funded critical services, particularly with growth in some areas - such as corrections - surpassing the cap. Arizona's spending has surpassed population and inflation in six of the past 14 years.

Mahoney does have a reputation for being able to turn back money. He cut his own salary as secretary of state and returned $1.2 million of his 1992 office budget to state coffers.

Barry Hess

The plan: The Libertarian has said it is impossible to lay out cuts in any detail, because it is too speculative. He has suggested cutting 35 percent of the state budget, paring corporate taxes and eliminating the state income tax. Hess supports the Colorado growth cap and wants to privatize much of government, including schools and health care, saying AHCCCS should be scrapped. While the other three candidates say they would protect classroom funding, Hess said everything is on the table.

Feasibility: Seven states have managed to do without an income tax, including Alaska, Florida and Nevada. Many have other compensations: Alaska with its oil, for example, and Nevada with gambling. The income tax makes up 38 percent of Arizona's general fund. Such a proposal seemed headed for the 2000 ballot, but it was knocked off for technical reasons. Although foes of the measure were deeply concerned about how to pay for schools and vital services, the Goldwater Institute, a conservative think tank, released a report last year saying cutting the income tax could provide more than 600,000 jobs by 2016 and grow personal income by 42 percent.

Contact Rhonda Bodfield at 573-4240 or at rhondab@azstarnet.com.

Compare the candidates

The Star's election reporters Rhonda Bodfield and Hipolito R. Corella have done a six-day series to examine the candidates and their stances on issues in the gubernatorial and congressional races.

Janet Napolitano

The plan: Napolitano opposes a general taxincrease but has likened the existing tax structure to Swiss cheese as a result of special interest tax breaks granted over the years.

To close the budget gap, she wants to ask a panel of citizens and experts to comb through the budget looking for duplication and waste. She wants them to identify $200 million in sales-tax- exemption closures. While her plan is more open-ended than Mahoney's, she has suggested a few starting points: closing tax exemptions on natural gas for power generation, massage and dating services, and soaps and shampoo for hotel guests. Any standing exemption, she believes, must be reviewed every five years to judge its effectiveness.

In addition, Napolitano wants agencies cut 10 percent across the board to save $200 million, with the exception of education, corrections and some children's services. She would consolidate some government functions and eliminate others, such as the Office of Excellence in Government, and make the liquor industry pay for its own licensing. She has suggested tapping more federal money and allowing the state to bond for new school construction.

On paper, it appears the Attorney General's Office budget has grown since Napolitano tookover from $50 million in 1998 to $65 million this fiscal year. But a closer review shows that growth is largely a result of new accounting measures that now reflect what other agencies "pay back" the office for counsel, as well as pass- through money seized in racketeering cases, for example. The general fund growth of the office went only from $24.4 million in 1998 to $25.7 million this year. That reflects an 8 percent cut from two years ago, which Napolitano managed by cutting office travel, freezing positions and paring purchasing.

Feasibility: She's going to have some serious political struggles, and while there may be room to work with a brand-new field of House and Senate leaders, they're likely to be from the opposing party. Lawmakers have balked at a number of fixes she is proposing, including her push to bond for school buildings. Lawmakers have argued the resulting debt service would make it more expensive than pay-as-you-go proposals.

On the other hand, there appears to be a growing willingness to at least review the tax exemptions. Putting that charge to a nonpartisan commission may defuse some political maneuverings, but only if it is truly a well-rounded committee. The bigger problem is timing. It would be difficult for this kind of comprehensive review to be completed by January when lawmakers meet. And it's hard enough getting 90 lawmakers to agree on budget fixes without getting more people in the mix.

Business leaders have complained that the five-year review of tax breaks would undermine efforts to lure companies here. Supporters counter with studies showing businesses primarily make such decisions based on quality of life, not tax cuts.

Matt Salmon

The plan: Salmon is a devout supply-sider, saying he wants to shrink the size of government, hoping to trigger more private- sector growth, which in turn would result in more revenue coming in. Salmon said he wants to reduce the number of middle managers in the state, even if that means layoffs.

He wants to implement zero-based budgeting, reversing the general wave of budgeting in which agencies keep last year's allocation and then get a percentage increase. Instead, every agency would start with zero every year and justify each of its programs.

Salmon also wants to reduce duplication, noting that half a dozen agencies have some authority over domestic violence, when one agency would be not only more efficient, but more helpful to clients as well. He has said he will take off the table K-12 classroom spending - meaning he remains open to administrative cuts - and local revenue sharing. He also said he would look for ways to privatize government services but has not said which ones. He is not talking about closing existing tax exemptions, saying that amounts to a tax increase. He also supports Colorado's growth cap.

When Salmon served in Congress, he consistently came in under budget. During his term, his office budget averaged a little more than $1 million a year. He spent an average of $812,059.

Feasibility: According to the National Conference of State Legislators, a nonpartisan clearinghouse of legislative information, no states use zero-based budgeting. With California's budget woes, however, more lawmakers there are calling for a switch in their own budget recommendations, recommending zero-based and performance- based budgets, where motor vehicle employees, for example, would be paid based on applications they process.

The most glaring problem with his plan is that if the budget deficit is $1 billion next year, that's a lot of cutting without trying to recapture any revenues, particularly since any positive economic effects of shrinking government would not occur immediately.

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