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By Anonymous Mike, pseudonymously.

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Monday, September 22, 2008
Budget Goes Boom

Espresso Pundit
reports that the Senate and House Appropriations Chairmen have called a press conference tomorrow in order to ask the Governor to address the State's growing budget crisis.

Ho Boy

I'll be curious as to what Messers Burns and Pearce have to report on the budget. Back in late June when the FY2009 budget passed, a Democratic budget by the way, there were some good blurbs on how poorly the the whole thing was going to to hold together with several predictions that the Legislature was going to revisit it during the fiscal year.

The enacted budget reflected a base growth in revenue of 1.9% compared to the revised FY2008 budget; if that revenue estimate looks to be conservative keep in mind that the FY2009 budget was balanced with alot of borrowing and accounting gimmckery. However cracks in even that moderate revenue estimate started showing in late July when JLBC reported that the preliminary ending balance for FY2008 was projected to be less than zero.

Now the State of Arizona can pay off its FY2008 bills, in part because the projected deficit for FY2008 was a maximum of $99 million and the State still has cash reserves in its Rainy Day Fund. However any deficit is worrisome for 2 reasons:

1) Any cash used to close the FY2008 hole would have to be taken from the cash pile used to close the FY2009 hole; it's robbing Peter to pay Paul.

2) The revenue projection for FY2009 is based on the revised projection for FY2008. The Legislature had to revisit the FY2008 budget in April, with little more than 2 months left in the fiscal year, and in that short time the budget already sprang a leak. The FY2009 which was already considered a paper-over was based on those revised FY2008 estimates.

Think of the FY2009 budget hole as an approaching hurricane, one that's going to cause lots of damage. Just like the other week in Galveston when the streets were being flooded by a storm surge and Ike was still hundreds of miles out to sea, we're already suffering damage and patching leaks and the big one has yet to hit.

I posted last month about the hole in the FY2008 closing balance and the fact that JLBC was to have reported the final numbers last week. I assume that report is already in, though not yet posted; I have a sneaky suspicion that it will be discussed tomorrow but that it will be a mere harbinger of things to come. I think the Finance Advisory Committee hearing scheduled for next month will be very interesting.

For the past year, Governor Napolitano has been betting that the current fiscal storm is temporary, that rather than battening down the budgetary hatches with sharp cuts that the holes could be patched with borrowing and gimmickery. Well the storm is not abating and given the problems in the national financial markets and how tied our economy is to housing and construction, it may be getting worse.

Stay tuned.