Estimates of the Budget Surplus or Deficit, Arizona State Government General Fund
Since revenues go up and down with the economic cycle and since the need to spend on public health and welfare programs fluctuates countercyclically, Arizona’s general fund experiences large surpluses during periods of strong economic growth and large deficits during and just after an economic recession. A cyclical surplus of $1.7 billion in fiscal year (FY) 2007 became a cyclical deficit of the same magnitude three years later. It began to shrink in FY 2011 and should narrow further in FY 2012.
In addition to the large cyclical deficit present since FY 2008, the general fund has a very large structural deficit. Numerous and large reductions in tax rates and tax bases since the early 1990s have resulted in a loss of nearly $3 billion in revenues. Relative to the size of the Arizona economy, expenditures also fell through FY 2008, but not by as much as revenues, leaving a structural deficit of a just more than $2 billion. In order to balance the budget, very large spending reductions have occurred since FY 2008. In the chart, these recent reductions are assumed not to be permanent. If they prove to be permanent, then the structural deficit has largely been eliminated.