Review of Budgeting Process

State General Fund Revenues

State General Fund Expenditures

General Fund only part of the story…Total FY ’09 Budget is $28.2B

Fiscal Year 2010 Projections

• FY2010 revenue is projected at $7.22B. Although the revenue projections show an improvement from FY2009, the overall forecast projects a (2.1)% revenue decline

• Projected Corporate Income Tax Collections: $530M

• Projected Individual Income tax Collections: $2.87B

• Projected Sales Tax Collections: $3.79B

Source: Finance Advisory Committee March 29th Presentation to the Legislature

Balanced Budget Mandate

• Arizona Constitution contemplates balanced budget, on a “cash” basis

• A requirement in nearly every state• Empowers Legislature to raise revenues in instances where

expenditures exceed revenues (Article IX, Section 4)

“Prop 108”

• 1992’s Prop 108 amended Arizona Constitution to require 2/3 of Legislature to approve any measure that results in net increase in state revenues (Article IX, Section 22)

• Includes imposition of any new tax; increase in a tax rate/rates; reduction or elimination of a tax deduction, exemption, exclusion, credit or other tax exemption feature in computing tax liability; fees/ elimination of fees; change in allocation among state, counties or cities of Arizona transaction privilege, severance, jet fuel, use, rental occupancy, or other taxes

Appropriations and Debt Limits

• Arizona Constitution restricts appropriation of certain state revenues to no more than 7.41% of Arizona personal income (Article IX, Section 20)

• Applicable revenues are primarily tax and fee collections that may be deposited to either the General Fund or dedicated funds

• Arizona Constitution limits debt to $350K (Article IX, Section 5)

Saving for a Rainy Day

• Statute creates Budget Stabilization Fund (BSF) for use in times of economic downturn

• A.R.S. § 35-144 limits the balance of the BSF to 7% of the current year’s General Fund revenues

• The “Rainy Day” fund balance is $0

The Ballot Box

• There have been 4 ballot propositions enacted since 1998 that have required substantial General Fund support:

– Campaign Financing (Prop 200, 1998)– Urban Trust Land Purchases (Prop 303, 1998)– K-12 Inflation (Prop 301, 2000)– AHCCCS Expansion (Prop 204, 2000)

• 1998’s Prop 105 requires 3/4 vote of Legislature to change ballot-required funding so as to “further the purposes” of the original ballot measure (Arizona Constitution, Article IV, Section 1)

• 2004’s Prop 101 requires future ballot propositions to designate a non-General Fund source for any new spending required by new initiatives (Arizona Constitution, Article IX, Section 23)

Budgeting: A Year-Round Process

• The state’s fiscal year begins on July 1 per the Arizona Constitution

• Interim work conducted by Joint Legislative Budget Committee (JLBC), a legislative panel that convenes to review information, program performance and implementation of budgets and programs

• Legislative financial advisors meet three times yearly to review economic forecasts

• OSPB sends copy of each agency’s budget request to JLBC staff

• The OSPB and JLBC each develop a revenue estimate for the upcoming fiscal year

The Budget Bills

• Final budget product is placed in bill form for consideration by the House and Senate

• Constitution requires one bill for general appropriations; remainder

of budget bills must be placed in separate bills by subject

• Referred to as the “feed bill,” General Appropriations Act includes: maintenance and operations (“M&O”) funding levels, FTE positions, footnotes, performance measures, statutory revisions and a budget format for each state agency

• JLBC works with Legislative Council to draft this legislation

Other Budget Bills

• Supplemental Appropriations: If it becomes necessary to adjust an agency budget adopted in prior year, adjustments are reflected in Supplemental Appropriations Act; this bill typically amends General Appropriations Act

• Capital Outlay Bill: A second element of the overall budget is the Capital Outlay Bill, which funds construction, major maintenance and repair of state facilities; capital outlay budget process is similar to M&O budget -- differences primarily involve timeframes for submission

• Budget Reconciliation Bills: Budget also includes changes in law necessary to implement the budget or other policy modifications; changes are contained in bills referred to as “BRBs”