The Governor is right and (as usual) the Legislature is wrong

There was this article from the East Valley Tribune about the current budget difficulties faced by Governor Napolitano and the legislature. The Republican controlled legislature gets things wrong as usual. The dispute can be summed up as a fight over about $300 million dollars. The governor wants to borrow the money (through bonds) and the legislature wants to cut spending.

I know all my anti-government Libertarians out there do not want to hear it, but cutting government spending in this context is a bad idea. First, borrowing for capital expenditures is the norm and a good practice for government to make large scale capital improvements. The $300 million dollar short fall is mostly intended to be used to build schools (a capital expenditure). Borrowing in this context is smart because it insulates the government somewhat from uneven revenue.

Here is the problem with cutting government spending in Arizona, we are always behind the curve of our growth. This means that our revenue growth trails our expenditures. If we keep government expenditures the same, we are actually falling behind because of growth. If we lived in the North East where growth is flat or declining it might be a different story.

I think a smart way to think of it is as a per unit cost. The unit being a person. Our government's costs on the state and local level increase with every resident. The revenue also increases, but not immediately. A person would have to live here a year before they would pay full taxes in Arizona.

Another thing to look out for is the state cutting state shared revenue to cities. This is the legislature's favorite budget balancing trick (along with stealing DSH funds from Maricopa County Hospital). In a nutshell, cities and counties are promised a certain % of revenue from the state. This was put in place when the state prohibited cities from having an income tax. Unfortunately, the legislature can cut the amount to balance their budget. This forces the real cuts to the cities. Way to pass the buck guys!