Ducey, GOP leaders reach state budget accord

Republican leaders in the Legislature have reached a budget agreement with Gov. Doug Ducey that includes steeper cuts to higher education than originally proposed, holds the line on taxes and spares K-12 education new cuts.

The tentative deal presumes significantly more economic growth this year than Ducey did, would take less from the rainy-day fund and would leave the state with a smaller-than-expected surplus after fiscal 2016.

The $9.1 billion budget for fiscal 2016 would scale back and delay for a year a private-prison contract Ducey sought.

To succeed, the deal, brokered as usual behind closed doors and without input from Democrats, must gain the support of Republicans in the House of Representatives and Senate. Some GOP members, however, were uncomfortable with important aspects of the agreement, such as the cuts to higher education and the lack of local control over K-12 spending.

As of Wednesday evening, not all of the 13 budget bills had been drafted and lawmakers were staying late to get the budget process started. Public hearings on the spending plan are tentatively expected to open late Thursday afternoon, with GOP leaders projecting a final budget vote on Friday.

In remarks to reporters, Ducey said the agreement achieves "99 percent" of what he sought when he proposed his budget plan for the remainder of this fiscal year as well as fiscal 2016. He noted it reflected "tough decisions" as well as his campaign theme of "opportunity for all."

"Before you can have prosperity, everyone needs to live within their means," Ducey told The Arizona Republic. "This idea of spending money that you don't have is just irresponsible. So when you're talking about opportunity for all, you want to provide that across the board for our citizens. This budget reflects our values as Arizonans — it protects the Department of Child Safety, it protects the most vulnerable. And we're asking some folks to tighten their belt."

8 things to know about the Arizona budget deal

The plan comes as critics of Ducey's budget have grown more vocal in recent days. Hundreds of protesters circled the square between the House and Senate last week, and Michael Crow, president of Arizona State University, published a blistering analysis of a plan that would now drain even more from ASU. Another education rally is scheduled for 4 p.m. Thursday.

"This budget deal is nothing more than Republican hypocrisy shining in its finest hour," Arizona Democrats said in a statement.

Other critics, including the Children's Action Alliance, an advocacy group, also ripped the latest spending plan.

"We're going to hurt the poorest of the poor while we restore tourism?" asked an incredulous Dana Wolfe Naimark, CEO of the alliance. The budget would restore $4.5 million to the state's tourism budget while reducing from two years to one the lifetime benefit for cash assistance to poor families raising children.

Some of Ducey's concessions to GOP leaders include the loss of increases to vehicle registration fees and elimination of the cap on homeowner rebates. The growth in the state's prisons budget would slow.

Ducey inherited a budget shortfall of about $1.5 billion for fiscal 2015, and next year. The agreement would seem to make good on his campaign pledge not to raise taxes.

But the budget plan includes several notable changes.

Among them:

-- Overall K-12 funding would rise $102 million rather than the $24 million net cut under Ducey's proposed budget, according to an analysis by the nonpartisan Joint Legislative Budget Committee. But Democrats note the figure is misleading, because its increases are primarily driven by higher student enrollment and inflation, part of the state's annual obligation. They contend the budget deal equals a $98 million cut to K-12 in the budget year starting July 1.

-- The state's three public universities would lose $104 million, a 14 percent reduction, and more than the net $78 million cut initially proposed.

-- The state would seek deeper rate cuts to health-care providers for its Medicaid program. Ducey wanted to ask Washington for a 3 percent rate cut; now the plan would call for a net 5 percent cut. That would trim about $37 million in state spending, not counting a three-fold loss of matching federal funds, a move that could spur service cuts by hospitals, an industry representative warned.

-- Community colleges in Maricopa, Pima and Pinal counties would lose all $19 million in state funding, rather than the $10 million initially proposed.

-- The state child-safety agency would face a net loss of $5 million rather than the net gain of $5 million Ducey had proposed.

-- The plan would add $52 million in revenues, about half what Ducey originally expected. It doesn't include two plans that would have raised or saved the state money. One was a plan to cap the homeowners rebate on property taxes; the other was an $7 increase in motor-vehicle registration fees, as Ducey had sought.

The budget still would sidestep the pricey settlement of a lawsuit educators won against the state for underfunding public education for years.It includes $74 million to make up for inflation payments not made during the recession years. The figure is significantly below what the schools maintain they're owed.

The rainy-day fund would lose $102 million, compared with the $126 million Ducey proposed. That could free up more cash for any settlement of the schools case; settlement talks are ongoing.

The latest plan assumes the state will lose about $112 million in fiscal 2016 from the continued phase-in of tax cuts largely benefiting corporations that passed in 2011.

It would erase the $90 million Ducey had planned to cut from the state employee health fund. That fund, however, would stand to lose $100 million in 2017 under the new plan.

The state's attorney general would lose $15 million this year in unspent funds from a 2012 mortgage settlement fund and $16 million in next year's budget from a recent settlement with Standard & Poor's Financial Services over its ratings heading into the subprime-lending crisis.

Other cuts got deeper in the latest budget plan and could force local governments to scramble for more money. They would need to pick up $21 million as part of cost-sharing with the Department of Revenue instead of the $14 million originally sought by Ducey. More of the cost of juvenile corrections would move to the counties, and aid to Mohave, Pinal and Yavapai counties would be eliminated.

The Department of Corrections would still see its budget rise, but only by $34 million instead of Ducey's plan for $52 million.

The movement on the budget comes as Ducey's proposal faced increasingly visible opposition, something that is expected to continue with protests by educators expected Thursday even before the deal was announced. By moving quickly, there may be less time for that criticism to mount, and less time for moderate Republicans to block the spending proposal, political observers said.

"One of the basic ploys in politics is to get your business done before the opposition can gather their forces enough to be a factor in what ultimately gets done," said Barry Dill, a Democratic consultant and former political adviser to former Gov. Janet Napolitano.

"The quicker they can nip that in the bud, then the easier it's going to be for them to gather the votes and get what they want done quicker."

Dill said there is "clearly a palpable love affair, or honeymoon … still underway between the rank and file, more conservative members of the Legislature and the new governor."

Dill said one danger in the way the legislative leadership and governor are proceeding is "they might not necessarily have all their votes counted yet."

"There is a danger, I would think, particularly in the Senate, where the margins are less — do they have 16 votes wrapped up," he asked, referring to what it takes to pass a bill in the Senate.

George Cunningham, the budget director for Napolitano, said the longer the budget process lingered, the longer the criticism would fester.

"When the budget you're advocating for and you want to enact has nothing but bad news for everybody, you want to get out of Dodge as quickly as possible," he said. "As time advances, and the criticism of the budget gets louder and the constituencies get more and more aggravated and angry and organized, the prospects of them peeling off some members that may at this point may be willing to vote for it ... grows."

Arizona Board of Regents Chairman Mark Killian said the latest budget proposal, which would mean a combined loss of $500 million since 2008, leaves the state's universities groveling.

"I feel like the little boy in (the movie) 'Oliver' — 'Please, sir, can I have some more?' — begging for the scraps," he said.

Killian said the regents figured they could manage the cuts Ducey proposed in January, but the latest proposal "stinks."

"The real issue is there's no future planning going on," he said. "It seems to me the legislative leaders are so wrapped up in balancing the budget and making cuts, the larger policy at hand — the partnership that the state has always had with parents and students — is being ignored."

If the latest proposed cuts stand, an Arizona hospital group says, consumers can expect to see cuts as hospitals evaluate whether to keep less-profitable health services such as birthing centers and emergency rooms.

"Our view," said Greg Vigdor, CEO of the Arizona Hospital and Healthcare Association, "is it is unworkable."

Republic reporters Ken Alltucker and Anne Ryman contributed to this article.