“It’s easy to see that every issue on the minds of Arizonans today has a common and critical thread: Fiscal responsibility and funding sustainability. And how Arizona approaches handling the State’s budget from here on out will impact every area of concern in the tabs below.

It’s not enough to make “spending less” as the goal of a fiscally sound Arizona government; budget cuts alone will not solve our deepening deficit problem.

Programs we fund must help produce more jobs in the private sector (which, in itself, helps raise revenues over time) and develop entirely new revenue streams, without raising or creating any new taxes. To revitalize Arizona’s economy, we need to think and work harder to find ways to accomplish both.

I have confidence that with grit, determination and willpower, with innovative thinking and careful administrative practices, we can do it.

Will it be painless? No. Will it take time? Yes. Can it be accomplished? Absolutely.”

- Karen Fann

Arizona’s Budget

We face a projected State budget deficit of $1.5 billion this year. And it’s now anticipated we’ll have amassed a $3.4 billion shortfall by 2011.

How did we get here? Within former Governor Napolitano’s first term, depletion of the General Fund increased by 70% as $28 million per day was spent; while revenues were only at $22 million per day. This started the slide toward an initial $5.8 million shortfall, a deficit that has continued to snowballed over time. Since 2007 the State has lost:

• 22% of its sales tax revenue

• 38% of personal income tax revenues

• 57% of corporate income tax revenues

(Statistics above from Governor’s Executive Budget Status Report, 12/09.)

Our former reserves are now depleted; today we find we’ve been left with a budget that was constructed much like a house of cards.

A fresh, common-sense approach is now critical*. The previous governor’s practice of repeatedly spending the State’s reserves, coupled with overly optimistic calculations of (projected) State revenues, has created a deep hole from which Arizona must now extricate itself.

Reduction of spending is only a partial solution. Creation of new jobs and additional revenue streams are essential to a comprehensive solvency plan for Arizona’s budget - a plan that includes prudent use of existing resources, but does not raise taxes on Arizona citizens who are already overburdened in a weakened economy.

Just one example of Karen’s ideas for additional revenue streams: Lease highway rest areas to private enterprises, such as restaurants, service stations, etc. - this would generate new revenues for taxpayers and reduce maintenance costs for the State.

*The “3 R’s” of Fiscally Responsible Government

REVISIT ... all programs and projects we’re currently funding. There are hard choices to be made in a tough economy. Which programs are really essential, and which ones need to go? Which ones can be restructured for greater efficiency at less cost?

REDUCE ... wasteful spending on inefficient processes, excess administrative costs, and eliminate unnecessary programs. Let’s find ways to lessen the bureaucratic burdens that are making it harder than ever for businesses to keep doing business in Arizona.

REINVEST ... or redirect available dollars to those programs and projects that will actually yield returns - now and in the future, both directly and indirectly. Let’s focus on putting more Arizonans back to work; helping small business enterprises get the funding they need to thrive (and thereby helping them contribute to the health of the State’s economy), and ensuring better educations for our children, who are Arizona’s workers and business owners of the future.

Jobs for Arizonans

In August 2007, Arizona had 2.6 million jobs. Today that number has dwindled to 2.4 million: That’s a loss of 280,0000 jobs. When Arizona citizens are out of work, they may have to rely on state subsidies, deepening our deficit via increased State spending on the Arizona Health Care Cost Containment program (AHCCCS), unemployment benefits, welfare payments, food stamps and more. Significant losses since 2007 in State sales and personal/ corporate income tax revenues (see Arizona’s Budget) are also tied to the decrease in available jobs.

It’s now imperative that revenues (those realized by revisions to State spending patterns) be used to generate new jobs for industries and projects that will - in turn - yield additional revenues over time. New job creation for Arizonans must be targeted in such areas as infrastructure improvements, border control, education, public safety and renewable energy, to name a few. This will provide our taxpayers a return on the investment of these dollars, in addition to putting Arizonans back to work.

An important component of new job creation is stimulus for small businesses, helping them to retain employees and add more jobs. They need some relief from certain government mandates, as well as tax incentives designed to help small businesses grow, thereby enabling them to hire more employees and further contribute to State revenues. In addition, so many small business owners would like to provide health care benefits for their employees. Unfortunately, far too many have had to drop or forego such employee benefits due to out-of-control health insurance costs. Small businesses need a broader range of options from insurers, allowing them to offer reasonable, affordable employee health care coverage.

(Statistics above from Governor’s Executive Budget Status Report, 12/09.)

Arizona Health Care Cost Containment System (AHCCCS) Program

Spending for the AHCCCS program went from $2 billion in 2000 to $4.7 billion in 2007. In just the past 12 months, another 207,800 Arizonans are receiving benefits.

How did this happen?

In 1984, the first year AHCCCS was functional, it covered just 185,409 Arizonans. As of 2007 there were 1,080,185 enrolled under this program, mostly due to changes in the law which made it easier for people to qualify for this assistance.

The initiative to fund this program, Proposition 204 (also known as “Healthy Arizona”), was passed by taxpayers who had the best intentions, and who’d understood that this program was to be funded by tobacco settlement dollars. It was anticipated that the State would receive between $92-$102 million annually from this settlement through 2006.

Additionally, what was not anticipated was the economic downturn. This, coupled with changes to the law that had earlier enabled broader participation in the AHCCCS program, has created a situation in which the costs to run the program now sharply exceed its original funding plan. As a result, AHCCCS has become a significant drain on Arizona’s General Fund monies, diverting dollars that had originally been slated for other important areas, such as education, infrastructure, and public safety.

What’s needed now is a comprehensive review, to return AHCCCS to what it was originally intended to be: Short-term help for those Arizonans who require temporary “bridge” insurance and aid for those citizens genuinely in need of ongoing assistance. It would appear that, over time, AHCCCS has become the insurance program of thousands of working people, some who could actually contribute to an affordable program if it were available.

Reform is sorely needed. In addition to a full review of the program’s administration, Arizona voters should be provided the opportunity to revisit Prop. 204, to cap general fund spending on AHCCCS, and/or to limit funding to those dollars provided by the tobacco settlement.

Other reforms are also needed to ease the weight of AHCCCS. These should include changes in state health insurance industry regulations to increase competition among insurers and cause them to offer basic, less-expensive plan options for those unable to afford comprehensive coverage; and existing tort law must be revisited by our State Legislature.

(Statistics above from Governor’s Executive Budget Status Report, 12/09 and Ballot Proposition 204, publicity pamphlet at State of Arizona official website.)

Illegal Immigrants & Border Security

The cost of illegal immigration to Arizona is staggering - with the current estimate at more than $3 billion dollars. Those who’ve slipped across U.S. borders to reside in Arizona illegally weigh heavily on our health care, educational and prison systems - in addition to taking jobs now urgently needed by Arizona’s legal residents.

This drain on Arizona’s taxpayers and our State’s budget can no longer be tolerated. Illegal immigration is a violation of our federal and state laws. We cannot arbitrarily enforce some laws and not others. Karen will be a strong voice in our State Legislature, favoring:

• Swift action to effectively secure our borders to protect our citizens from terrorism, drugs and gang wars

• Deportation of illegal residents

• Severe penalties to those Arizona employers who willfully break the law by use of illegal-immigrant workers

Education

Education represents the largest single expenditure in Arizona’s budget.

Public school spending on students in kindergarten through 12th grade now consumes more than 22% of the State’s total budget.

The exorbitant amount of taxpayer dollars currently spent on unfunded mandates and bureaucracy prevents the limited funds we do have from being directed at teaching our children.

The No Child Left Behind Act (NCLB), signed into federal law in 2002, is troublesome for Arizona. In principle, this Act violates the 10th Amendment of the U.S. Constitution, which states:

“The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”

In practice, however, the federal government provides states a loophole: Any state in the union may opt out of participation in the “No Child Left Behind” program.

But opting out means a staggering loss of federal dollars to help fund education.

For Arizona, that would deprive the State budget of more than a half-billion dollars in federal funding for education. Given the costs outlined above, it’s not hard to understand why Arizona accepted this “golden carrot” - the federal government’s inducement for states’ participation in NCLB.

On its face, NCLB would appear a win-win, but there are inherent problems in the program’s structure. Initially devised to help provide incentives for poorer school districts to raise standards for their children, NCLB has proven flawed.

One unintended consequence: Some school districts have actually had to lower their academic standards.

In its present form, NCLB applies a cookie-cutter approach to its testing standards, as well as to attained benchmarks required of participating states’ schools and their students. NCLB standards appear to have been set with little consideration for “special population” variables - such as gifted students, children with learning disabilities, or immigrant students whose native language is not English.

Karen believes that, as a starting point, the federal government needs to work in close cooperation with states to restructure NCLB. The program’s criteria, unrealistically configured at present, must be fully revisited.

It makes sense that local governments, states, and their own citizens bear the primary responsibility of administering education - not the federal government. And if a state’s educational standards prove to meet or exceed the benchmarks of NCLB - even if that state does not participate in NCLB itself - federal funding should not be withheld.

Local school boards and parents should have more say in how their monies are being used to teach our children. We must find ways to eliminate or reduce spending on unfunded mandates and unnecessary regulations which inhibit direct funding for education. Stopping Arizona’s heavy losses due to illegal immigration, for example, could provide funding to allow us to forgo federal programs like the current, flawed version of No Child Left Behind. With today’s limited resources, Arizonans need a better way to invest in our children’s future.

Water

Arizona remains among the nation’s fastest growing states - and with rapid population growth comes a deepening concern about our water supply.

Even though much of our landscape includes desert, Arizona is also an agricultural state. That industry generates $9.2 billion to the State’s economy, so it is essential that we ensure ample water supplies to our rural areas.

Depending on their location, rural areas throughout Arizona have unique sets of problems. Some have ample water, yet do not have the infrastructure in place to adequately supply it, while others are limited in water supplies and need access to water sources outside their immediate vicinity. Often, nearby municipal water supplies are either too cost prohibitive for rural areas to obtain or the water is already fully appropriated.

Karen has chaired the Upper Verde River Watershed Protection Coalition and has

worked with numerous water groups and committees over the past 7 years. She understands the all-important and often contentious issues surrounding water supplies.

We must view Arizona water in consideration of both short-term needs and long-range planning, thereby helping ensure the wise use of available water today and in the future. This will require coordinated planning and a spirit of cooperation among Arizona’s diverse communities. Together our communities must address infrastructure financing, development and acquisition of water, preservation and protection of existing water supplies, protections of exempt well owners’ property rights, and education of all stakeholders about current best practices in water management.

Public Safety

Arizona’s prison population rose 52% over a 10-year period, as spending on

corrections doubled. In Arizona, spending on corrections increased by 100 percent between fiscal years 1997 and 2007, from $409 million to $817 million.  By FY 2005, corrections spending from the General fund accounted for fully 10% of our State budget - one of the highest proportions nationwide. As of April 2009, the Arizona Department of Corrections manages over 41,191 inmates and over 7,216 parolees.

A handful of nonviolent offenses is fueling nearly half the growth in Arizona’s prison population. These include driving under the influence (DUI), forgery, fraud and theft. Under Arizona’s current mandatory sentencing system, inmates convicted of nonviolent offenses make up the majority of Arizona’s prison population, including:

• 1 in 4 for property offenses

• 1 in 5 for drug offenses

• 1 in 12 for DUI, with average 3-year prison terms

(Statistical information above from the Justice Center, Recent and Projected Growth of the Arizona Prison Population at www.justicecenter.org; and Justice Strategies article, Arizona Prison Crisis: A Call for Smarts on Crime Solutions at www.justicestrategies.org)

Considering the annual cost of incarcerating these individuals, perhaps it’s time we take a hard look at the cost to Arizona taxpayers, who are often also burdened with providing government assistance to such prisoners’ families - for health care, food stamps, welfare and other social services.

How do we remain tough on crime in rough economic times?

We face some difficult choices now. While Karen believes strongly in Arizona’s “tough on crime” laws, given the extraordinary rise in costs of our prison system and the State’s deepening budget crisis, it’s clearly time we revisit how our Department of Corrections functions and find more efficient ways to run our prisons.

Arizona Highway Patrol Association

Arizona Chamber of Commerce and Industry

Professional Fire Fighters of Arizona

Arizona Educational Association

Senator, Steve Pierce

Representative Andy Tobin

Representative Lucy Mason