Report: Ariz. fiscal crisis cannot be solved by cuts alone

Arizona is struggling with two related but distinct fiscal disasters, as thoroughly documented and explained in "Structurally Unbalanced: Cyclical and Structural Deficits in Arizona," a report released by the Morrison Institute for Public Policy and Brookings Mountain West.

Widely recognized is Arizona's budget crisis, which resulted from the sudden collapse of annual revenues after the real estate crash and prolonged recession. Less noted or widely understood is the state's massive structural imbalance, which arose in large part due to unwise policy choices made during phenomenal growth years. Such imbalance is not cyclical and threatens Arizona's long-term future and its ability to compete during an economic recovery, according to the report, which is posted at morrisoninstitute.asu.edu.

When the structural deficit of $2.1 billion is factored in, Arizona in fiscal year 2011 faces a $3.4 billion deficit – a mammoth of 21 percent of stable expenditures. That's the largest estimated percentage structural deficit among Mountain West peers, with the total equaling state spending on the university/board of regents system along with all state spending on protection and safety.

"The budget gaps in AZ cannot be realistically resolved by spending cuts alone without creating extraordinary hardship for residents. A balanced approach that uses a mix of spending cuts and tax increases, and focuses on the long-term economic development needs of the state would be a superior solution," said Matthew N. Murray, the report's chief author and professor of economics and associate director of the Center for Business & Economic Research at the University of Tennessee.

The briefing will be distributed at the State of Our State Conference, conducted by Morrison Institute, Jan. 7, in downtown Phoenix.

"The impetus of the Arizona report, which is part of a larger four-state report on fiscal crises in the Mountain West region, is to raise awareness about the often hidden component of Arizona's budgetary challenge," said Susan Clark-Johnson, executive director of Morrison Institute, an ASU resource. "In turn, it is hoped the dialogue will move from 'cuts alone' to a more sustainable solution with input from all Arizonans. With this report and conference, our goal is to educate and hopefully engage all Arizonans in the critical decisions that lie ahead."

Media contact:
Joseph Garcia
Morrison Institute for Public Policy
602-496-0205
joseph.c.garcia@asu.edu