Public Finance

Public finance — taxes and other revenues collected by government and the expenditure of those revenues — has become a prominent public issue due to the need to resolve the deficits that afflict state government and most county and municipal governments in Arizona.

The deficits in part are the result of the recent severe and prolonged economic downturn. Revenues have begun to grow as the economy recovers from the recession. However, a structural deficit also was created over the last 15 years as taxes were permanently reduced during years of temporarily high revenues without a commensurate decrease in expenditures.

Any examination of state and local government finance requires a selection among various levels of aggregation:

• Combined State and Local Governments. The most comprehensive aggregation is the combination of revenues and expenditures of all state and local (counties, municipalities, school districts, and special districts) governments, as reported by the U.S. Census Bureau. Comparisons to other states need to be made at this level of aggregation, since a particular government function may be provided by the state government in one state but by local governments in another state.

• State Government, Total Authorized Spending. The most comprehensive aggregation reported by the Arizona Joint Legislative Budget Committee for state government is “total authorized spending.” This figure includes monies received from the federal government and from other sources that flow through state government. Total authorized spending by state government is about 60 percent of the total of combined state and local governments. Total authorized spending is rarely used since it is intermediate between the more comprehensive state and local government data reported by the Census Bureau and the data that are specific to the revenues raised directly by state government (and the appropriation of those revenues).

• State Government, Total Appropriations. A third level of aggregation is the total of appropriations made from all of the numerous state government funds. Most of these funds are relatively small, have dedicated funding sources, and are used for specific purposes. Total appropriations from all funds make up less than half of the total authorized spending and less than 30 percent of the total expenditures of combined state and local governments.

• State Government, General Fund. The state government general fund is of considerable interest despite its relatively small size: less than 40 percent of total authorized spending by state government and less than 25 percent of total expenditures by all state and local governments. Revenues deposited in the state government general fund are appropriated by the Arizona Legislature for a variety of purposes, most notably education, corrections, and public health and welfare programs. The general fund accounts for three-fourths of the total appropriations of the state government. The Legislature has more discretion over the general fund than other funds and the general fund is the primary source of funding for elementary and secondary education. The general fund also receives considerable attention because of its frequently large annual surpluses and deficits.