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Tue, Jan. 21

State universities to take $30 million hit in budget proposal

PHOENIX -- Republican legislative leaders and Gov. Doug Ducey have agreed to extract nearly $30 million more from state universities than the governor first proposed.

The deal calls for reducing university funding this coming year by nearly $104 million. That compares with his January proposal to slice just $75 million from the $746 million in current state dollars.

That also compares with nearly $1.1 billion in state dollars in 2008.

Ducey defending taking even more from the universities, saying it was necessary to slash deeper there to ensure the entire state budget was balanced.

"We have a budget that reflects the values of Arizonans,' he said.

"We protect children, we protect K-12,' the governor continued. "And we're making the difficult decisions that are necessary so that we can live within our means.'

But Eileen Klein, president of the Arizona Board of Regents, said the additional lost dollars could result in the presidents at the University of Arizona and Northern Arizona University seeking higher tuition hikes than planned, at least for students not in guaranteed tuition programs. She said the universities will lobby lawmakers to return to the Ducey's original proposal, calling the higher figures "a serious step backwards in terms of economic development.'

Arizona State University is expected to stick to its pledge not to hike tuition, no matter what. But Klein sees the revised budget, coupled with prior cuts, as a bad sign for the state university system.

"Right now, they're on a path to defund,' she said.

As revised, the budget would bring the cuts to ASU to $55.8 million. The UA Arizona would lose $29.3 million plus another $600,000 for the school's college of medicine, with $18.1 million taken from NAU.

The decision to take more from universities came about, at least in part, because Ducey could not get lawmakers to adopt his proposal to increase the fee Arizonans pay to register their vehicles. That $8 annual fee generates about $35 million; Ducey wanted another $30 million, boosting the fee to $15.

But many Republicans saw that as a violation of their pledge not to raise taxes, rejecting Ducey's argument that fees don't count.

Universities are not the only ones losing even more money in the deal.

Ducey had originally proposed slicing state aid to Pima, Pinal and Maricopa community colleges in half, saving more than $10.1 million. The deal takes away the other half, leaving the three systems with zero state cash.

Aid to other community colleges remains untouched.

Ducey did back off his demand for the state to spend $75 million a year on 3,000 new private prison beds. Instead, the Department of Corrections will seek just 1,000 new beds at a cost of $24 million while allowing county sheriffs, who claim they have space in their jails, to bid to house additional state prisoners.

On paper, the budget does include an additional $90 million in aid to public schools above the $11 million Ducey had offered.

But Rep. Justin Olson, R-Mesa, said that does not mean more money per student. He said Ducey's original budget failed to recognize the number of new students in the system.

One potential sticking point is Ducey's contention he is putting $134 million into classrooms. But that's really an accounting maneuver, with his plan actually telling schools to take $123 million of that from what they're already spending on non-classroom expenses.

Rep. Paul Boyer, R-Phoenix, said that removes needed flexibility for schools to use the limited state dollars they are getting.

The deal also is getting complaints from hospitals.

Ducey's original plan cut the reimbursement rate the state pays for Medicaid patients by 3 percent. Greg Vigdor, president of the Arizona Hospital and Healthcare Association said that was probably manageable.

But the deal boosts that to 5 percent, a figure Vigdor said means a $120 million loss for hospitals. He called that "simply unsustainable for a healthcare industry that remains so critical to the Arizona economy.'

Ducey, however, said he is happy with the deal.

"I've been talking about fiscal responsibility and living within our means since we kicked off the campaign,' he said. "It puts the state in the right position in which to grow so we can focus on why we ran for office.'

That "why,' Ducey said, is focusing on the economy and "improving the results in the K-12 system.'

House Minority Leader Eric Meyer said he is hoping to block the plan.

There are not enough Democrats to do that. But Meyer said some Republicans, unhappy with the original plan, are objecting to the deeper cuts to higher education.

Meyer's solution, however, may not be politically saleable.

He wants lawmakers to reconsider tax cuts for corporations that were approved in 2011 and 2012 but are now just beginning to kick in. Legislative budget staffers figure that by 2018 those cuts will reduce state revenues by $226 million.

Ducey has dismissed that suggestion out of hand.

"This budget is focused on protecting the taxpayers,' he said. "And we do think it serves the citizens of Arizona.'

And the governor said making these deep cuts now should make future large reductions unnecessary.

"I believe that we have tightened our belt and made the tough decisions early,' he said.

That's also the assessment of Sen. Don Shooter, R-Yuma, who chairs the Senate Appropriations Committee.

"My hope is that with the painful decisions that we've had to make in this budget that we will begin to have an effort as soon as possible to make sure this doesn't happen again,' he said. But Shooter said that it may be appropriate at some point to look at the revenue side of the picture and not just continuing to cut.

None of this has kept the Republican-controlled Legislature from approving even more tax cuts.

On Wednesday alone the Senate Finance Committee voted 3-2 to index state individual income tax brackets, increasing annually with inflation the points at which higher rates kick in.

Proponents say that's only fair. But foes say the measure will result in the loss of $30 million in revenues this coming budget year.

The budget deal does include one new source of money: Unpaid taxes from prior years. In essence, the Department of Revenue would create an "amnesty' program, forgiving back interest and penalties if individuals and businesses pay up what they owe.

Budget negotiators are counting on raising $15 million between the time the budget is adopted and Oct. 15, the cutoff date.

Follow Howard Fischer on Twitter at @azcapmedia.

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