Will Federal Money Cure Arizona’s Budgetary Woes?

It’s been awhile since I featured any Phoenix news, so  on the eve of the fiscal stimulus bill, or almost the eve, I thought I’d review some of the grisly details about the state of the city and state’s finances. It isn’t pretty.

Basically, Phoenix is looking at the prospect of cutting some $270 billion in programs for the current and next fiscal years. That represents a cut of around 22% which is the largest reported among cities of its size or larger. The state’s current $9.9 billion budget is $1.2 billion in the red and timing differences between receipts and disbursements indicate a need to borrow from $2.5 billion to $5.7 billion by March, although these would be very short-term borrowings and one estimate is that no more than $550 million would likely be outstanding at any given point in time. For the 2010 fiscal year which begins July 1st, the estimated deficit is between $2 billion and $3 billion.

These are pretty current numbers and unfortunately may deteriorate. If the general economy continues to roll downhill, the primary drivers of revenue, sales, income and property taxes are likely to come in below already depressed estimates. To add insult to injury, recent data indicates that the population of Phoenix may actually be decreasing. If indeed that is the case then it is likely that the greater metropolitan area has also experienced a loss of people and since that MSA accounts for about 60% of the state’s population, it is more than of little note. In a state that has relied on population growth as the driver of its economy, even a flattening population growth trend is an ominous economic development.

So , you know what the next part of this post is all about. Fiscal stimulus, of course. That’s the white knight that everyone sees on the horizon. Outgoing governor Janet Napolitano (she’s on her way to run Homeland Security) predicts that the state will get $1 billion in government assistance. The city of Phoenix says it plans to seek $2.1 billion for capital improvement projects and the county says it wants $1.5 billion for the same thing.

Now don’t ask me to explain how money for capital improvements is going to help close a hole in an operating budget. Purportedly, Phoenix, for example, has tabled most discretionary spending and is now cutting into the meat of city services closing things like libraries, senior services etc. I suppose that we shouldn’t forget that money is fungible and nobody knows that better than politicians. I will be interested to see how many strings the federal money has attached to it and just how strong those strings may be, or perhaps more to the point how closely anyone really watches where all of this money ends up.

Even if this federal money does plug the holes one way or the other, it is in the end as just a stopgap measure. Phoenix, the state of Arizona and I suspect a lot of other states are still going to be faced with budgeting for a different economy than that to which they have become accustomed. So like the TARP assistance directed to the banks, the fiscal stimulus that flows to Arizona will only stabilize a critical situation, not cure it. It buys the state time but doesn’t change the fundamental need to downsize. Can it or any state belly up to that bar?

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