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 29 th 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. § 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”