Scramble over rising revenues begins – save it or spend it

Arizona Capitol Times

by Luige del Puerto

Published: January 13th, 2012

After four years of painful slashing, a steady uptick in state revenues could lead to a budget showdown the public hasn’t seen since the heydays of Arizona’s economy — what to do with “surplus” money.

The Governor’s Office estimates a $600 million surplus this fiscal year, and believes it might be as high $1.5 billion for fiscal 2013, which begins July 1.

In any case, what’s clear is lawmakers will not be dealing with a deficit this year, and there are high hopes the trend will hold or even get better.

What that means is an end to the sometimes heart-wrenching budget-balancing acts lawmakers resorted to in the last few years — decisions that included temporarily eliminating funding for certain transplant services, freezing Arizona residents out of the state’s health care system, and squeezing the child care subsidy. That’s not to mention major cuts to education and temporarily raising taxes, an action that once bitterly divided Republicans at the Capitol.

Instead, the big question that now preoccupies policymakers is what to do with revenues above what’s earmarked for the current spending plan.

In short, this session will undoubtedly be less painful for those who had been at the receiving end of the budget cuts, and for those who once made those decisions.

But it doesn’t mean crafting the budget will be any less contentious.

Sometimes, more money can mean more wrangling. Already, pressure is mounting about where to spend the “surplus” money — or whether to spend it at all.

• • •

Some sectors were hit especially hard by the budget cuts, and they offer sound arguments why their funding should be restored.

But many of today’s policymakers are grizzled veterans of budget battles and they are mindful that while more revenue is trickling in, Arizona — or the country — is not quite out of the woods yet.

The threat of another economic downturn or prolonged recovery is ever present, which cannot bode well for Arizona, a state that outperforms the country when things are doing well, but is worse off when things are going bad.

Additionally, a temporary sale tax hike that propped up the state during its direst hour will expire by the middle of 2013, and the governor, who fought hard for the increase, recently promised she’ll see that it ends as scheduled.

And so depending on how the economy performs, the state could be looking at another budget deficit by fiscal 2014.

• • •

What’s likely to happen is the revenue “surplus” will go to several pots, and maybe even include a little bit of additional spending.

The two big ones will likely be debt-reduction and setting aside money to prepare for the loss of revenue when the 1-cent sales tax increase goes away.

In fact, there are broad agreements between the governor and the Republican-led Legislature on the need to pay back some of the debt the state has incurred in the past few years.

More specifically, Gov. Jan Brewer has asked the Legislature to send her a bill before Statehood Day — Feb. 14 — to buy back the Capitol complex, where some of the buildings, including the very edifices where laws are being crafted, have been mortgaged.

Republican lawmakers appear amenable to buy back the state buildings that were sold in a sale/lease-back scheme to offset staggering deficits a few years ago.

The governor is asking the Legislature to appropriate $106 million for the buy-back scheme. The money will be placed in an escrow account and it will cover the interest and principal payments until the earliest time that the debt can be called — in 2019.

She’s also claiming the move will save the state $47.5 million in interest payments, which would have accrued over the debt’s original 20-year life span.

But Democrats aren’t sold on the idea. They said the state would save the same amount of interest if it waited until 2020 before paying off the debt.

Letting $106 million “sit” in an escrow account would do nothing to address the state’s other budget priorities — except get the title to the Capitol back, a “symbolic gimmick,” House Democrats said.

Legislative leaders also often mention the state’s unpaid obligations to school districts, which is about $1 billion. So portions of school rollovers —meaning deferred payments to districts — might actually get paid.

Another prevailing sentiment is to put a good chunk of any “extra” cash into a rainy-day fund, to be drawn once the temporary sales tax expires.

But beyond these two concepts, policymakers and interest groups diverge about where else to put the money — and there’s no shortage of ideas about what to do.

Senate Minority Leader David Schapira, for example, wants to set aside some money for school building renewal, arguing it would benefit students and spur jobs.

“I know this: Everybody is wanting programs restored and obviously, priorities are going to have to be set,” said Byron Schlomach, an economist with the Goldwater Institute.

But Schlomach advises caution. He said any funding increase, if there has to be one, has to be strategic: spend the money only if the public good is clearly defined and the benefits are absolutely necessary.

“I think the bottom line is we need to hold the line on current program spending and not create any new programs,” he said.

• • •

But holding the line on current spending isn’t music to some people’s ears.

Bruce Liggett, executive director of the Arizona Child Care Association, said his industry has been at the harshest end of lawmakers’ budget decisions. State subsidy for child care was completely eliminated in the last budget go-round.

Now that the state is getting some fiscal relief, Liggett is hoping to persuade the Legislature and the governor to restore funding for child care, saying it’s a wise investment.

For Liggett, it’s not just a safety net, it’s also a boon to the economy.

“We have a situation where revenues are up, and yet the number of low-income families trying to go to work being helped continues to go down,” Liggett said. “(But) there’s no better investment than child care. It keeps people off welfare as families work and support their children.”

Undoubtedly, many others will also be offering powerful arguments why certain spending is also good and necessary.

But they face a tough climb in the Legislature, where leaders have repeatedly said they want to hold the line on spending.

In fact, some, like Senate President Steve Pierce, have been saying there’s really no “surplus” revenue given the state’s debt load. Any extra money is “already spent,” he says.

But other Republicans, such as Rep. John Kavanagh, are open to funding population increases at schools, prisons, the state’s health care system, and a few specific items like boosting Child Protective Services and upgrading the state’s computer systems.

Kavanagh, chairman of the House Appropriations Committee, however, said he doesn’t see the “gates opening” for other types of spending.

The other route for interest groups is to convince Brewer to include their priorities in her budget plan since she appears more open to a little extra spending. For example, the governor said she plans to ask the Legislature for $7 million to promote tourism.

• • •

The governor is expected to lay out her spending plan Jan. 13.

She’ll have to sell her budget to legislators, who, for now, appear to be agreeable to granting some of the spending she has publicly talked about.

But as always, the fights will be over concepts as well as details.

Pierce’s reply when told about tourism money that Brewer is expected to ask for was this: “I have to look at it and see what she’s talking about.”

But House Speaker Andy Tobin was immediately supportive of the governor’s tourism plan.

“I always thought that tourism was something that had a place in the Competitiveness Package,” Tobin said, referring to last year’s “jobs” bill. “That’s a place where we can put money that will bring a return for the state.”

Meanwhile, Brewer unveiled her tax proposals a few days after the session began. Their fiscal impact could be big or small depending on when they take effect, but they will cost the state some money, regardless.

The bulk of her proposal provides tax breaks to businesses, such as bringing down the corporate income tax rate to 4.9 percent from nearly 7 percent beginning in 2014, reducing commercial, industrial and agricultural property taxes while increasing rebates for residential homes, and creating a new tax credit for “quality jobs.”

Democrats, on the other hand, said they will offer their own “jobs bill”

While they did not have specific details yet, it would likely include a package of tax incentives to help small businesses, which they argued have been neglected in favor of tax cuts for big companies.

The cuts would be funded by closing tax “loopholes” elsewhere, they said.

It’s not only Brewer and lawmakers who will have to reconcile potential differences.

Republican leaders will have also to manage different expectations by the rank-and-file, as well as deal, or not deal, with the wishes of the minority party.

Already, there’s potential friction within the majority between fiscal hardliners who want to continue cuts even as revenues are growing, and those who are wary about further reductions.

“I imagine that that will be an internal struggle inside of the Republican caucus,” said Sen. Ron Gould, a Lake Havasu City Republican who is arguing that policymakers need to make “preparatory” cuts now to cover the potential loss of revenue when the 1-cent sales tax expires.

— Caitlin Coakley Beckner contributed to this report

Aid for Child Care Drops When It Is Needed Most

By SABRINA TAVERNISE

December 13, 2011 – New York Times

BALTIMORE — With states under pressure to cut their budgets and federal stimulus money gone, low-income working parents are facing a paradox. Just when they have to work longer hours to make ends meet, they are losing access to the thing they need most to stay on the job: a government subsidy that helps pay for child care.

The subsidy, a mix of federal and state funds that reimburses child care providers on behalf of families, is critical to the lives of poor women. But it has been eaten away over the years by inflation and growing need and recently by state budget cuts, leaving parents struggling to find other arrangements to stay employed.

“States have dropped their investment in child care substantially,” said Linda Saterfield, vice chairwoman of the National Association of State Child Care Administrators, who oversees child care for the state of Illinois. “We’re being expected to do more with less.” Her state has toughened eligibility for the subsidies and raised co-payments from families to cover the growing demand.

Sheontay Smith, a single mother in Baltimore, and her son are among nearly 8,000 families on a waiting list for the subsidy in Maryland. Pennsylvania’s list doubled since last year to more than 10,000 children, and Arkansas’s quadrupled to 11,000, according to the National Women’s Law Center.

At least two states, Arizona and Utah, are no longer appropriating state general funds for child care at all.

According to a recent report by the law center, families in 37 states were worse off this year than last year as waiting lists grew, co-payments rose, eligibility tightened and reimbursement rates for providers stagnated.

“We recognize that this is a tough time for states,” said Shannon Rudisill, who oversees the subsidy program at the Administration for Children and Families, which is part of the Department of Health and Human Services. “They have a hard set of choices that they have to negotiate.”

She said that President Obama had recommended an increase in the subsidy in the 2011 budget, but that it had not been approved by Congress. Stimulus money, which had raised financing by a fifth in 2009 and 2010, is now gone.

Christian Griffith, chief consultant of the California Assembly Budget Committee, said the state cut $335 million in child care financing this year, and with hundreds of millions in cuts to other public services — courts, schools and the public university system — “there aren’t many good options at this point.”

The nonprofit Child Care Resource Center, which determines eligibility for the subsidy for thousands of families in northern Los Angeles County, said it had noted a 13 percent decline in licensed child care centers since June 2010 as budget cuts reduced the numbers of families on the subsidy.

The reduction is prompting advocates for poor women to question whether the implied social contract that emerged during the federal welfare overhaul in the 1990s — that women go to work in exchange for help with child care — is fraying.

“There’s a long history of recognition that child care is essential to helping low-income women work,” said Helen Blank, the director of public policy at the National Women’s Law Center, who helped shape child care policy in the 1990s. “That commitment is being eroded.”

For children in families waiting for the subsidy, life becomes a kaleidoscope of caretakers. Women interviewed for this article said they left their children with grandparents, neighbors, cousins, siblings, and colleagues at a nail salon. Such ad hoc arrangements hinder early-childhood development, state administrators say, just as states are trying to make it a priority.

One mother on a waiting list in Virginia said her 11-year-old daughter rode around in a city bus after school, watched over by the driver, who is the girl’s grandmother, until the mother got off work. The smaller safety net comes as the share of working Americans under or just above the poverty line — the target group for the subsidy, which is linked to income — is the highest in years. And while demand for the subsidy declined with the recession, it has shot back up in many states as employment has returned, putting new strain on child care resources.

“We’ve seen quite a steep increase in demand,” said Elizabeth Kelley, director of Maryland’s Office of Child Care.

Ms. Smith, who works full time at the Baltimore Housing Authority, has been on a waiting list since summer. She applied because her son’s father stopped paying child support, and the monthly $520 she needed for her 3-year-old’s day care was more than her $22,000 salary could support.

She took her son out, but ended up losing half her paycheck in unpaid days off because her regular baby sitters, among them Ms. Smith’s grandmother, who is on kidney dialysis, fell through. The only way to get the subsidy, her caseworker told her, was to stop working and go on welfare. (In Maryland, someone on welfare is automatically eligible.)

“Is the system set up for me to fail? Because that’s what it feels like,” said Ms. Smith.

Her son is now back in day care, at the expense of other bills. Her phone was cut off this week, and she is behind on her gas, electricity and car insurance.

Another hurdle has been the rates at which the centers are reimbursed. The law center’s report found that only three states reimburse at federally recommended levels, down from 22 in the beginning of the decade, and some providers say they can no longer afford to take families on subsidies. Toni Cacace-Beshears, who runs a network of child care centers in southeastern Virginia, said families on the subsidy paid at rates so far below her other customers — about two-thirds — that she had to do fund-raising to help make up the difference.

“I’m subsidizing my subsidized clients,” she said. The gap created a shortfall over the past year of about $272,000 — or about 14 percent of her child care budget.

Parents in income brackets that are a little higher pay more as a result. Monica Jackson, a bakery worker and a pharmacy technician in Norfolk, Va., was told that she and her husband, an Army reservist who is looking for work, did not qualify for the subsidy because their income, around $20,000, is too high, a ruling she is disputing. They cannot afford child care, which Ms. Jackson said cost $1,400 a month, more than their rent.

“What do you tell people who call you for an interview?” she asked. “ ‘I’m bringing my 3-year-old and 11-month-old’?”

Those who have the subsidy live in fear of losing it. Lori Lebo, a customer service worker for an electricity company in Pennsylvania, said she had to ask her new boyfriend and her 8-year-old son to watch her baby girl, who was at home screaming with a fever, because she had received too many warnings at work about taking time off to care for her.

“If we get removed, it will be back on the waiting list for both kids,” she worried. “That will be havoc for a new job.”

State Child Care Cuts force hard choice on Parents

By AMY TAXIN, Associated Press – Dec 29, 2011

OXNARD, Calif. (AP) — Sarah Comito rolls out of bed before dawn most days and slips quietly out of her house. Before her rambunctious toddler wakes up, she heads off to work as a waitress in an upscale weight-loss resort in Malibu.

The hour-long commute is exhausting, but the 33-year-old is thankful to make the trip when she remembers where she and her husband were four years ago: living in a tent in a nearby river bottom, strung out on methamphetamine.

Now Comito fears the progress they have made since then could be lost as California cuts her from a vital child care assistance program, more than doubling the cost of her son’s day care to $600 a month. On a $10 hourly wage, she said she’d be better off quitting her job and staying home with her son while her husband works as a professional tree cutter. But if she stops working, they can’t make rent.

“The only thing I can do is attempt to prepare for the worst,” Comito said, while watching 3-year-old Matthew dart across the yard at the couple’s working-class apartment complex in Oxnard.

For years, child care assistance programs offered low-income parents such as Comito a lifeline. But state legislatures dealing with multibillion dollar budget deficits during the recession have been targeting child care subsidies as one way to help balance their state budgets.

The cuts have come at just the time many parents need that help the most because full-time, well-paying jobs are in such short supply.

In the last fiscal year, combined state and federal funding for child care assistance fell by 2 percent to $12 billion, according to a 46-state analysis by the National Conference of State Legislatures. Federal stimulus money gave a temporary boost to the subsidies, but nearly all that money stopped in 2011.

At the same time, states reduced their general fund spending for child care programs by 7 percent during the current fiscal year, including a 25 percent decline in California, 30 percent in Hawaii and 10 percent in Michigan. In the fiscal year that ended June 30, 22 states reported declines in their budgets for child care subsidies, according to the state legislative group.

But providing child care assistance to low-income families, a central tenet of the country’s 1996 welfare overhaul, is seen as critical to getting people back to work at a time when the country is struggling to reduce unemployment. The goal of the programs is to subsidize the cost of day care to help keep poor parents, many of them single mothers, working. Over time, the subsidy is scaled back as parents advance in the labor force and wean themselves off government assistance.

Some parents give up jobs and turn to the welfare system if they can’t find affordable child care, but that isn’t an option for those who have already used up their entitlements, said Danielle Ewen, a past director of child care and early education for the Center for Law and Social Policy.

“For those families, there is absolutely no safety net and we don’t know what is happening to their kids, but it is absolutely scary to think,” Ewen said. “It becomes a very desperate, horrible cycle for poor families who are doing everything they can possibly do to become self-sufficient.”

The cuts have taken different forms. Some states have lowered the income ceiling to determine child care eligibility. Others have capped the number of families that receive assistance — and created endless waiting lists — or slashed the reimbursement rate paid to day care providers who accept poor children.

Parents are coping in different ways. Some have asked their bosses to cut their wages so they continue to qualify for subsidized care. Others have scaled back hours to reduce the time their children are in day care. Some say they are thinking about quitting and going onto welfare.

Grace Dixon, a service manager for affordable housing in the eastern San Francisco Bay area city of Alameda, said she has paid as much as she can to day care providers for her 1-year-old daughter and 4-year-old son since she was cut off from assistance in July and saw her child care charges nearly triple to $1,500 a month.

“What do they want us to do — not to work and to get on welfare? Would that be better? And then their taxes are paying for me to sit at home and be on the couch?” the 29-year-old college graduate asked.

Advocates say some parents will leave their children in dangerous, unsupervised settings when they feel they have no other choice.

“What you see are very stressed and desperate moms,” said Helen Blank, director of leadership and public policy at the National Women’s Law Center. “Some of them pay huge amounts for child care, and they can’t afford to pay enough for food or they lose their house.”

The scenario plays out differently in different states. In Michigan, the state reduced its budget for subsidized child care this year by lowering the reimbursement rate paid to day care providers.

Advocates say the change has made it tough for low-income parents to find day-care providers willing to take them.

“Some providers have no incentive to participate — especially the high-quality providers,” said Pat Sorensen, vice president for policy at Michigan’s Children, an advocacy group.

In North Carolina, officials have extended a waiting list for subsidized child care. The state reduced its funding for child care subsidies by 15 percent this year and has seen the list grow to 50,000 children this year, up from 27,000 children four years ago, according to the state Division of Child Development and Early Education.

“With this year’s budget cuts, those numbers have just gone crazy,” said Sheila Hoyle, executive director of the Southwestern Child Development Commission, which manages a 600 child-waiting list for seven western North Carolina counties.

The cuts to child care subsidies come as cash-strapped states pare back spending in many areas, including education and health services.

“We’ve been going in the right direction to raise the quality of our day care centers and early childhood education, and I think those programs are important. But you have to balance in your budget the money you have,” said Nelson Dollar, a Republican state representative in North Carolina who is co-chairman of an appropriations committee.

For children, the cuts can mean the difference between a stable, educational child care experience and being shuttled among different providers, family and friends with little consistency.

When parents cannot find affordable care, they often leave children with a neighbor or friend even if they don’t trust them. Or they might leave them at home with an older sibling.

“There’s an impact on that child’s development,” said Bruce Liggett, executive director of Arizona’s Child Care Association, which represents the state’s licensed providers. “They’re not learning as they would in a child care center and they’re not going to get to kindergarten ready to learn.”

It’s hard to know how many children have been affected by the recent cuts and in what ways.

In Arizona, more than 48,000 children were covered by child care subsidies at the beginning of this year. Now, fewer than 29,000 are, Liggett said.

Many in Arizona are on a waiting list. Ann Herron, 25, said she signed up as soon as her son was born 2½ years ago, but assistance is nowhere in sight.

A single mother, Herron said she can’t afford to send her son to a day care center, so she has different friends watch him for minimal pay while she works as caregiver at a group home.

It’s hard on her not knowing who will look after him a month from now. But the Phoenix woman said it’s also hard on her son, who has little, if any, contact with other children.

“When he is around kids — because he hasn’t been around kids — he acts crazy. He’s hitting and stuff,” Herron said. “It is just me and him.”

Associated Press writers Jennifer Sinco Kelleher in Honolulu, Tim Martin in Lansing, Mich., and Gary Robertson in Raleigh, N.C., contributed to this report

Copyright © 2012 The Associated Press. All rights reserved.