Arizona Cities Sue State Over Budget Mandate

Published February 1, 2009

Arizona municipalities are suing the state over a last-minute decision to require them to send $30 million to help balance the state’s budget.

The Arizona League of Cities and Towns filed the lawsuit in November. The organization argues the provision increases state revenues in violation of the Arizona Constitution, which requires a two-thirds majority in the House and Senate to approve revenue increases. The measure passed by only simple majorities in both legislative chambers.

As this year’s budget was being finished, “Literally in the middle of the night a package of budget bills came to the Senate floor. Members didn’t have copies of the bills, and in one of those bills was a provision that cities, towns, and counties should deposit money into the state’s general fund,” said Ken Strobeck, executive director of the Arizona League of Cities and Towns. “There was no explanation of why, or what the money is for, or anything.”

The localities’ share of the money is determined by a formula related to the state’s distribution of highway funds.

Dangerous Precedent

“No city budgeted for this,” Strobeck said. “We would have to take money from somewhere else to pay for this. We felt if we let this provision go and just paid it or didn’t do anything, next session they could come after our shared revenue distribution [from a share of the state income tax]. Because of this dangerous precedent, we felt we had to take legal action.”

Arizona is believed to have the largest budget deficit as a percentage of spending among the 50 states. State-authorized spending totals about $10 billion, and the state has a $1.2 billion deficit, said state Sen. Robert Burns (R-Peoria), chairman of the Senate appropriations committee. Total spending, including federal monies channeled to the state, is about $29 billion.

Broken Deal

Burns said he did not know municipalities would have to send $30 million to the state. He said House members had negotiated a deal for localities to give up $17 million, “but that was before the hijacking of the budget that was done by the governor’s office, with the cooperation of some Republican members in the majority. The cities feel they were left out of the loop.”

Gov. Janet Napolitano, a Democrat, has been named by President Barack Obama to run the nation’s Homeland Security department.

“In fiscal years ’05, ’06, and ’07, spending increased 14 percent a year,” Burns said. “Our revenues were coming in high enough to support that. But it was a one-time spike in revenue [largely from an inflated housing market] that was put into ongoing programs instead of one-time projects. In our current fiscal year, we have a $1.2 billion hole.

“What passed in the last session was the use of all our cash reserves to maintain spending levels. That cash is gone,” Burns concluded.

Steve Stanek ([email protected]) is a research fellow at The Heartland Institute and managing editor of Budget & Tax News.