One of Governor Janet Napolitano’s first actions, upon taking office early in 2003, was to set up extensive “Efficiency Reviews” of several state agencies. The reviews were based on a process implemented by Ann Richards in Texas in the early 1990s. Napolitano had predicted some $300 million in efficiency savings in the first year alone.
When it was finally concluded, the management review demonstrated two things. One was that there were real savings to be made by searching for the waste in programs; the other was that the savings were much smaller than anti-waste crusaders had been expecting. Proof of the first point can be found in the fact that Arizona was able to shrink its vehicle fleet by 257 and save money in the Parks Department by asking staff members to camp out rather than stay in hotels during site visits. Proof of the second point is found in the cold numbers. In December 2003, the governor announced that the state would be saving only $38 million that year — although she continued to predict $843 million in savings over five years.
Even without huge efficiency savings, Arizona’s fiscal picture is improving faster than many had predicted. Rebounding tourism dollars and healthy population increases have helped a great deal. But all those new residents put pressure on the state’s finances. Arizona is facing cost increases in education and health care even beyond what most states are experiencing. A new all-day kindergarten program will add another $200 million to $300 million a year over the next five years to expenses that policy makers have little idea how to fund.
If it hasn’t figured out just what to do about the long-term cost explosion, Arizona at least is acknowledging it. Last year, after the state had spent down its rainy day fund during the most recent budget crunch, lawmakers approved a new funding mechanism for replenishing reserves. Part of the plan stipulates that during the first six months of a new fiscal year, half of any surplus revenues are automatically funneled to the reserve account.
With the rapid growth of new private-sector jobs, the state has had trouble retaining employees. More than 11 percent of Arizona’s workforce left voluntarily in fiscal 2003, the second-highest rate in the country. A year ago, the state implemented a new Web-based human resources information system. The second phase of that roll-out, which the state hopes to have in place by this coming July, will address recruitment obstacles and speed up hiring. “In the past, we have done scanning of résumés and getting the hard copies,” says Human Resources Director Kathy Peckardt. “It has been a lot of paper pushing.” With the new system, all job postings, applications, and résumés will be handled electronically. The process has already been put in place at a few state agencies, with promising results: Hiring time at the Department of Corrections dropped from nearly two months down to 19 days.
Population growth also has put a strain on the state’s infrastructure. While Arizona is working to build roads and facilities to accommodate new residents, it has let maintenance of its existing facilities slide. For the past four years, maintenance has been underfunded by more than 50 percent. With total infrastructure assets valued at $5.2 billion, the state allocated just $5.1 million to maintenance in the 2004 budget.
There’s no statewide strategic plan in Arizona. The governor’s budget office analyzes agency plans to ensure that they are in line with the governor’s policy priorities, and then tries to hold them to the plans. “I always tell agencies, ‘If an issue is in your strategic plan, it might be funded,’ ” says David Jankofsky, director of the Office of Strategic Planning and Budgeting.
“ ‘If it’s not in your plan, I can almost guarantee it won’t get funded.’ ”
Sometimes, however, it doesn’t matter a great deal what the governor’s priorities are; the legislature likes to develop its own budget from the ground up. “It is rare that you see the governor’s budget a week after it’s submitted,” says Kevin McCarthy, president of the Arizona Tax Research Association, a fiscal think tank.