Martin says changes needed for state budget to be fixed

IN THE PHOTO: State Treasurer Dean Martin spoke Wednesday night at the Parker Community/Senior Center

Arizona State Treasurer Dean Martin said he hated to be the bearer of bad news when he spoke Wednesday evening at the Parker Community/Senior Center. He said the state is broke, and he said bad decisions on the part of state officials had more to do with this than the recession. He added the problems won't be fixed without some fundamental changes in how the state does business.

Martin described his job as the banker for the state. He manages the state's funds and investments. His office also handles investments for the state's counties and municipalities.

Prior to being elected Treasurer, Martin served in the Arizona Senate, where he chaired the Finance Committee. He said he felt frustrated by the lack of long-term planning and the fact there was no "early warning" system for when budget problems were on the horizon.

After he was elected Treasurer in 2006, Martin decided to see if the difference between daily revenue and daily expenditures could be an indicator of the state's economic health. By researching records back to 1990, Martin said the difference grew during the good times but dropped in bad times. During the recession of 2001-02, the numbers actually were negative. They became positive again as the economy improved.

In January 2007, Martin found the numbers for that month had shrunk 5 percent from January 2006. The figure for March 2007 was 22 percent smaller. That was when Martin began stating the state was in a recession.

For fiscal year 2008-09, Martin forecast state revenues would be down 13 percent. Gov. Janet Napolitano's office, however, projected growth of 6 percent.

Martin noted Napolitano called him "Chicken Little."

In fact, revenues were down by 20 percent, to $7.2 billion, as compared with governor's office forecast of $10 billion.

"It turns out 'Chicken Little' was an optimist," Martin said.

On April 15, Martin said the state literally ran out of money. They had to borrow money from the treasurer's office to make the payroll.

Martin said the governor and the legislature ignored the warning signs and continued spending like there was no recession. He said the economy has reset itself at a lower level, and the state needed to do the same thing.

The state's budget problems also make it difficult for county and municipal governments to plan their budgets as they don't know how much revenue they'll be receiving from the state.

As for the state's current budget, Martin said it's balanced, but only because the legislature did not include a $500 million shortfall from the previous year. Gov. Janice Brewer reinstated the state equalization property tax, which should bring in $250 million, but she also approved $400 million in new spending.

Martin described the relationship between Brewer and the Legislature as "petty and emotional."

Martin said spending needs to get back to the levels of 2005 and '06, but he objected to across-the-board cuts. He said some agencies had grown faster than others in recent years. As an example, education had increased by 1 percent as compared with the rest of the budget. AHCCCS, the indigent health care program, had increased by 70 percent as compared with the rest of the budget.

Several structural changes need to take place before the state can get its budget in order. Martin said Proposition 204 needs to be presented to the voters again. This proposal mandated health care programs to be funded by tobacco settlement funds. Martin noted the proposal called for the general fund to cover any shortages from tobacco funds. This has cost the state $500 million in general fund revenues each year.

Martin said voters need to be presented with two options: either lower benefits to meet the available tobacco funds, or raise taxes to cover benefits.

Martin also suggested revising the state's "rainy day" fund. He said each department should have its own reserve fund to see them through a recession. He said this would encourage departments to set aside more funds.

As a third example, success for entitlement programs needed to be redefined. Instead of judging them by how many people they serve, Martin suggested success be defined by how many people who once needed service no longer need it.

Parker Mayor Steve Madoneczky asked Martin if it would be to the town's advantage to accept Heritage Fund Grants, knowing they could be swept again.

Martin said the chances of funds being swept are unlikely if a project is already underway. He added the town should put contingencies in place should the funds be swept, like being allowed to back out of a contract for the project.

When told the funds would be for a public pool, Martin said he supported the idea for a low-income river community because of the recreational opportunities and public safety issues involved.

Martin predicted the recovery will begin early in 2010, and will likely be a slow one. The most important thing for Arizona to do is to get its budget in order. He said the budget can be fixed, but the longer the legislature waits, the harder it will be.

"We need to get our act together," he said. "California and Arizona are becoming known as states that can't do anything right. They're making jokes about us on 'The Daily Show.' When they make jokes about you on 'The Daily Show,' that's getting pretty bad."

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