Fiscal Accountability Committee: interim report

              AUTHORIZATION
The Arizona Fiscal Accountability Committee was established in Laws 2002, Chapter
289.
DUTLES
The Committee is directed to study and to develop a comprehensive report, making
recommendations, complete with implementation strategies on expenditure policies of the
state and local jurisdictions, including counties, municipalities and school districts.
Specific emphasis shall be placed on the following:
- integrating services and eliminating duplicative programs ensuring that government services are provided in an efficient and effective
manner
exploring the realignment or possible privatization of services
The Committee is required to submit a final report of its findings and recom~ nendations
by September 15, 2003.
MEMBERS
Representative Meg Burton Cahill Kerrie Bluff
Representative Gabrielle Giffords Mark D. Chernoff
Representative Laura Knaperek John G. Colton
Representative John Nelson Elliot Hibbs
Senator Tim Bee . Michael Hunter
Senator Jack Brown Dr. Kim S heane
Senator Edward J. Cirillo Martin Schultz
Senator Ruth Solomon
ACTION
The study committee met three times in the interim, dividing into four working groups to
study and receive information on four key elements: .
Privatization
Education Forlnulas . State Shared Revenues
' Organizational Structure
The working groups met separately between the meetings of the full committee, and
reported their findings to the full committee. From the information gathered by the working
groups, the following recommendations were adopted:
+ Requests the Department of Economic Security ( DES), the Department of Corrections
( DOC) and the State Parks Department to submit recomlnendations to the Fiscal
Accountability Committee as to how they intend to use either privatization or
outsourcing as a means to provide more efficient service. This information would then
be used in the final report of the Committee.
Requests a summary of the State of Arizona's outsourcing activities and further requests
that the appropriate work group determine additional opportunities for outsourcing to
maximize savings plus improve service effectiveness of such strategies.
Recommends the establishment of a work group to review, discuss and bring
recommendations back to the Fiscal Accountability Committee regarding retiree health
insurance generally and specifically; rural and urban heath insurance issues; health care
risk pool issues.
Recommends that the Education Formula Working Group investigate the use of a fixed
variable approach to eliminate the need for hold harmless considerations which,
compromise formulas.
Recommends that documents and the work in progress of all the work groups be adopted
into the interim report and forwarded onto the continuation of this Committee.
Recommends a review of the statutes with regard to the drop program and the deferred
compensation program.
Recommends that the Appropriations Committee, as well as the ongoing Fiscal
Accountability Committee, continue to exam full- time equivalency ( FTE) positions with
specific reference to a creating a statutory definition of FTE.
Recommends the creation of a one- stop qualification center to allow the state to better
monitor participants and their qualification criteria in state programs and be charged to
more actively enforce the collection of co- payments and investigate and prosecute
incidences of fraud.
Recommends that the Colorado TABOR example be included in the report for future
consideration.
Requires the interim report to include the recommendation that the Legislature consider
appropriating non- custodial federal monies, the purpose of which must be consistent
with federal law, and to open negotiation with the new Governor's staff on looking at
better ways to have accountability over the total expenditures of the state.
Recommends the consideration of a pilot program for virtual reporting of information
between agencies and asking an existing agency to look for federal dollars to pay for the
pilot program.
ATTACHMENTS
Full Committee - Agendas & Minutes
HB 2178 - Committee Authorization
September 19,2002
October 25,2002
December 18,2002
Conference Engrossed
S t a t e of Arizona FILED
House of Representatives
~ o r t y - f i f t h L e g i s l a t u r e Betsey Bay less
Second Regular Session Secretary of State
2002
G, mm 289
HOUSE BILL 2178
AN ACT
AMENDING SECTION 4 1 - 1 2 7 2 , ARIZONA REVISED STATUTES; RELATING TO TAXES.
( TEXT OF B I L L BEGINS ON NEXT P A G E )
H. E. 2178
Be i t enacted by t h e L e g i s l a t u r e of the State of Arizona:
Section 1. Section 41- 1272, Arlzona Revised S t a t u t e s , i s amended t o
read:
41- 1272. Powers a n d d u t i e s : finances
A. The j o i n t l e g ~ s l a t i v eb udget committee s h a l l :
1 . Ascertain f a c t s a n d make recommendati ons t o the l egl sl ature
relating t o the s t a t e budget, revenues a n d expenditures of the s t a t e , future
f i s c a l needs, the organization a n d functions of s t a t e agencies or t h e i r
divisions a n d such other matters incident t o the above functions as may be
provided for by rules of the j o i n t l e g i s l a t i v e budget committee.
2 . Implement a system of f i s c a l notes to apply t o those b i l l s
introduced in the l e g i s l a t u r e t h a t have a f i s c a l impact. These f ~ s c a l notes
s h a l l a l s o r e f l e c t the f i s c a l impact of l e g i s l a t i o n on c i t i e s , countles and
a l l other p o l i t i c a l subdivisions of the s t a t e .
3. Implement a system of f i s c a l notes for any rule as defined by
section 41- 1001 which has a f i s c a l impact.
4 . ANALYZE THE STATE TAX STRUCTURE, TAX BURDENS ON INDIVIDUALS AND
BUSINESSES AND TAX INCENTIVES FOR EXISTING AND PROSPECTIVE BUSINESSES. THE
ANALYSES SHALL INCLUDE:
( a ) PROJECTION OF THE IMPACT OF INDUSTRY SPECIFIC TAX INCENTIVE
PROPOSALS ON THE STATE R E V E N U E BASE.
( b ) COMPARISON AMONG STATES OF RELATIVE TAX BURDENS ON EXISTING AND
PROSPECTIVE BUSINESSES.
( c ) DETERMINATION OF RELIANCE AND INCIDENCE ASPECTS OF THE TAX
STRUCTURE OF THIS STATE.
5. IMPLEMENT A SYSTEM OF FISCAL ANALYSIS THAT APPLIES TO THOSE BILLS
INTRODUCED 1N THE LEGISLATURE THAT INVOLVE ONE OR MORE P R O P O S E D CHANGES IN
THE TAX LAWS. UNLESS I T IS UNREASONABLE TO DO SO, THE FISCAL ANALYSIS SHALL
BE BASED ON ASSUMPTIONS THAT ESTIMATE THE P R O B A B L E BEHAVIORAL RESPONSE OF
T A X P A Y E R S , BUSINESSES AND O T H E R CITIZENS AND SHALL INCLUDE WITHIN THE
ANALYSIS A STATEMENT IDENTIFYING THOSE ASSUMPTIONS.
Q; 6 . Adopt r u l e s .
B . The j o i n t l e g i s l a t i v e budget committee may:
1. Make s t u d l e s , conduct inqul r i e s and i n v e s t ~ g a t i o n s a n d hold
heari ngs.
2. Meet and conduct i t s business any place within the s t a t e during the
sessions of the l e g ~ s l a t u r e or any recess of the l e g i s l a t u r e a n d in the
period when the l e g i s l a t u r e i s n o t in s e s s i o n .
3. Establish subcomm~ ttees from the membership of the l e g i s l a t u r e and
assign t o such subcommi t t e e any study, inqui r y , investigation or hearing with
the r ~ g h tt o c a l l witnesses which the joint l e g i s l a t i v e budget committee has
authority t o undertake.
C. The j o i n t l e g i s l a t ~ v e budget committee shall have the powers
conferred by 1 aw upon 1 eg1 sl a t i ve comrni t t e e s .
H . B . 2178
D. Members of the j o i n t l e g i s l a t i v e budget committee shall be
reimbursed by t h e i r respective houses in the same manner as i s provided by
l a w for a member of the l e g i s l a t u r e who attends a duly called meeting of a
standing committee.
Sec. 2 . J o i n t l e q i s l a t i v e budqet committee: f i s c a l analysis
report
By October 31, 2002, the s t a f f of the j o i n t l e g i s l a t i v e budget
committee shall report on the progress of implementation of the f i s c a l
analysis prescribed by section 41- 1272, subsection A , paragraph 5 , Arizona
Revised S t a t u t e s , to the president of the s e n a t e , t h e speaker of the house
of r e p r e s e n t a t i v e s , the chairperson of t h e s e n a t e a p p r o p r i a t i o n s committee,
the chairperson of the senate finance committee, the chairperson of the house
of representatives appropriations committee and the chairperson of the house
of r e p r e s e n t a t i v e s ways a n d means committee.
Sec. 3. T a x reform for Arizona c i t i z e n s commi t t e e ; membership:
d u t i e s : i n i t i a l r e p o r t ; f i n a l report
A . The tax reform f o r Arizona c i t i z e n s committee i s established
c o n s i s t i n g of the following members:
1. Four members of t h e s e n a t e who are appointed by t h e p r e s i d e n t of
the s e n a t e , not more t h a n two of whom are members of the same p o l i t i c a l
p a r t y , including the chairperson of the finance committee.
2. Four members of the house of r e p r e s e n t a t i v e s who are appointed by
the speaker of the house of r e p r e s e n t a t i v e s , not more than two of whom are
members of the same p o l i t i c a l p a r t y , including the chairperson of the ways
a n d means committee.
3. One person who represents incorporated c i t i e s or towns a n d who i s
appointed by the president of the s e n a t e .
4. One person who r e p r e s e n t s c o u n t i e s a n d who i s appointed by the
speaker of the house of r e p r e s e n t a t i v e s .
5. One person who represents school d i s t r i c t s a n d who i s appointed by
t h e p r e s i d e n t of t h e s e n a t e .
6. One person who represents a statewide taxpayer organization a n d who
i s appointed by the president of t h e s e n a t e .
7 . One person who represents the general public and who i s appointed
by the speaker of the house of r e p r e s e n t a t i v e s .
8. Two people who represent the business community. one who i s
appointed by the president of t h e s e n a t e a n d one who i s appointed by the
speaker of the house of r e p r e s e n t a t i v e s .
B . The chairperson of the ways and means committee i n t h e house of
representatives shall call the f i r s t meeting and the members of the committee
shall choose a chairperson from the committee membership.
C . The committee s h a l l :
1. Study and make recommendations on the f i s c a l policy and laws of
t h i s s t a t e , including s p e c i f i c consideration of expansion of s t a t e resources
a n d economic development s t r a t e g i e s .
H. B. 2178
2 . Study a n d make recommendations on the tax p o l i c i e s of t h i s s t a t e
and local j u r i s d i c t i o n s , including counties, municipalities, school d i s t r i c t s
a n d special taxing d i s t r i c t s , t o assure t h a t the p o l i c i e s are adequate,
e q u i t a b l e , competitive a n d consistent with economic development s t r a t e g i e s .
3. Develop a comprehensive report a n d recommendations, including
recommendations concerning the appropriate tax s t r u c t u r e for t h i s s t a t e a n d
local j u r i s d i c t i o n s a n d a s t r a t e g y f o r t r a n s i t i o n to the appropriate t a x
s t r u c t u r e .
D . Members of the committee are not e l i g i b l e t o receive compensation
or reimbursement of expenses. The committee chairperson may a p p o i n t advisory
committees as necessary. The governor's o f f i c e of s t r a t e g i c p l a n n i n g a n d
budgeting, the department of revenue, the j o i n t 1 egi sl a t i ve budget committee
a n d the l e g i s l a t i v e council shall provide technical a s s i s t a n c e t o the
commi t t e e .
E . The committee shall submit a s t a t u s report to the president of the
senate, the speaker, of the house of representatives a n d the governor by
December 31, 2002. The committee shall provide a copy of the report to the
d i r e c t o r of the Arizona s t a t e l i b r a r y , archives and public records.
F. The committee shall make a report of i t s f i n a l findings and
recommendations t o the president of the s e n a t e , t h e speaker of the house of
representatives a n d the governor by September 15, 2003. The committee shall
provide a copy of t h i s report to the secretary of s t a t e a n d the d i r e c t o r of
the Arizona s t a t e l i b r a r y , archives and public records.
Sec. 4. Arizona f i s c a l accountability committee: membership:
d u t i e s ; i n i t i a l r e p o r t ; f i n a l report
A . The Arizona f i s c a l accountabi 1 i ty commi t t e e i s established
consisting of the following members:
1. Four members of the senate who are appointed by the president of
t h e s e n a t e , n o t more t h a n two of whom are members of the same p o l i t i c a l
party. including the chai rperson of t h e a p p r o p r i a t i o n s commi t t e e .
2 . Four members of the house of represen. tatives who are appointed by
the speaker of the house of r e p r e s e n t a t i v e s , not more t h a n two of whom are
members of the same p o l i t i c a l party. including the chairperson of the
appropri ations committee.
3. One person who represents school d i s t r i c t s a n d who i s appointed by
the president of the senate.
4 . One person who represents community colleges and who i s appointed
by the speaker of the house of r e p r e s e n t a t i v e s .
5. One person who represents a major s t a t e agency and who i s appointed
by the president of the senate.
6 . One person who represents a statewide taxpayer organization and who
i s appointed by t h e p r e s i d e n t of t h e s e n a t e .
7 . One person who represents the general public a n d who i s appointed
by the speaker of the house of r e p r e s e n t a t i v e s .
8. Two people who represent the business community, one who i s
appointed by the president of the senate and one who i s appointed by the
speaker of the house of r e p r e s e n t a t i v e s .
B . The chairperson of the appropriations committee in the senate shall
c a l l the f i r s t meeting and the members of the committee shall choose a
chairperson from the committee membership.
C . The committee s h a l l :
1. Study and make recommendations on the expenditure policies of t h i s
s t a t e , including s p e c i f i c consideration t o i n t e g r a t i n g s e r v i c e s a n d
eliminating d u p l i c a t i v e programs.
2. Study and make recommendations on the expenditure policies of t h i s
s t a t e and local j u r i s d i c t i o n s , including c o u n t i e s , municipalities a n d school
d i s t r i c t s to ensure t h a t government services are provided in an e f f i c i e n t a n d
e f f e c t i v e manner. This study shall explore whether savings can be achieved
through the p r i v a t i z a t i o n of s e r v i c e s , t h e r e a l i g n i n g of services between
s t a t e a n d p o l i t i c a l subdivisions a n d the elimination o r streamlining of
d u p l i c a t i v e programs a t the s t a t e l e v e l .
3. Develop a comprehensive report and recommendations, including
recommendations concerning the a p p r o p r i a t e p o l i c y adjustments r e l a t e d to
s t a t e expenditures for t h i s s t a t e a n d a s t r a t e g y f o r implementation.
D . Members of the committee are not e l i g i b l e f o r compensation or
reimbursement of expenses. The committee chairperson may appoint advisory
committees as necessary. The governor's o f f i c e of s t r a t e g i c planning a n d
budgeting. t h e a u d i t o r g e n e r a l , the j o i n t l e g i s l a t i v e budget committee and
the l e g i s l a t i v e council shall provide technical a s s i s t a n c e to the committee.
E . The committee shall submit a s t a t u s report to the president of the
s e n a t e , the speaker of the house of r e p r e s e n t a t i v e s and the governor by
December 31, 2002. The committee shall provide a copy of the report to the
d i r e c t o r of the Arizona s t a t e l i b r a r y , archives and public records.
F. The committee shall make a report of i t s f i n a l findings and
recommendations t o t h e p r e s i d e n t of the s e n a t e . t h e speaker of the house of
representatives and the governor by September 15, 2003. The committee shall
provide a copy of t h i s report to the s e c r e t a r y of s t a t e a n d the d i r e c t o r of
the Arizona s t a t e l i b r a r y , archives a n d public records.
Sec. 5. P a r t i c i o a t i o n in m u l t i s t a t e d i s c u s s i o n s ; d e f i n i t i o n s
A . Delegates appointed pursuant to subsection B s h a l l e n t e r i n t o
m u l t i s t a t e discussions on behalf of t h i s s t a t e t o consider whether t h i s s t a t e
should e n t e r i n t o a n agreement with one or more other s t a t e s t o :
1. Simp1 i f y and moderni ze t a x administration in order to substantially
reduce the burden of tax compliance for s e l l e r s and for a l l types of
commerce.
2 . E s t a b l i s h s t a n d a r d s f o r tax compliance software and service
providers .
3. Establish performance standards f o r m u l t i s t a t e s e l l e r s .
H . B . 2178
B . For the purposes of t h i s s e c t i o n , delegates shall be appointed as
follows:
1. One d e l e g a t e s h a l l be a member of the house of representatives who
i s appointed by the speaker of the house of r e p r e s e n t a t i v e s .
2 . One delegate s h a l l be a member of t h e s e n a t e who i s appointed by
the president of t h e s e n a t e .
3. Two delegates s h a l l be appointed by the governor, one of whom shall
be the d i r e c t o r or a deputy or a s s i s t a n t d i r e c t o r of the department of
revenue a n d one of whom shall be a voting member of the municipal tax code
commi ss i on.
C . After meeting with s i m i l a r d e l e g a t i o n s from other s t a t e s , the
delegates shall make recommendations to the l e g i s l a t u r e regarding t h e i s s u e s
the delegates are required to consider under subsection A and any other i s s u e
the l e g i s l a t u r e may require the delegates to consider.
D . If the delegates determine t h a t t h i s s t a t e should e n t e r i n t o a n
agreement with one or more other s t a t e s , the d e l e g a t e s s h a l l recommend the
preparation of l e g i s l a t i o n to bring t h i s s t a t e i n t o s u b s t a n t i a l compliance
with the agreement as a r e s u l t of the m u l t i s t a t e discussions required by t h i s
s e c t i o n .
E . In t h i s s e c t i o n , unless the c o n t e x t o t h e r w i s e r e q u i r e s :
I . " Agreement" means a n i n t e r s t a t e agreement f o r s i m p l i f i c a t i o n and
uniformity of t a x a t i o n among member s t a t e s in order to reduce the burden of
tax compliance f o r s e l l e r s and f o r a l l types of commerce.
2. " S e l l e r " means an i n d i v i d u a l . t r u s t , e s t a t e , f i d u c i a r y .
p a r t n e r s h i p , l i m i t e d l i a b i l i t y company, limited l i a b i l i t y p a r t n e r s h i p .
corporation o r any other s i m i l a r legal e n t i t y t h a t s e l l s , leases or rents
t a n g i b l e personal property o r a s e r v i c e .
3. " State" means a s t a t e of the United S t a t e s a n d the D i s t r i c t of
Col umbi a.
4. " Tax" or " taxes" means transaction p r i v i l e g e and use taxes imposed
pursuant to t i t l e 42, chapter 5 , Arizona Revised S t a t u t e s , or a similar tax
imposed by a p o l i t i c a l subdivision of t h i s s t a t e .
Sec. 6 . Delayed repeal
A . The following are repealed from and a f t e r December 31, 2003:
1. Section 2 of t h i s a c t , r e l a t i n g to the j o i n t l e g i s l a t i v e budget
committee f i s c a l a n a l y s i s r e p o r t .
2. Section 3 of t h i s a c t , r e l a t i n g to t h e t a x reform f o r Arizona
c i t i z e n s commi t t e e .
3. Section 4 of t h i s a c t , r e l a t i n g to the Arizona f i s c a l
accountabi 1 i ty commi t t e e .
8 . Section 5 of t h i s a c t , r e l a t i n g t o p a r t i c i p a t i o n in m u l t i s t a t e
d i s c u s s i o n s . i s repealed from a n d a f t e r June 30, 2004.
ARIZONA STATE LEGISLATURE
ARIZONA FISCAL ACCOUNTABILITY COMMITTEE
Minutes of the Meeting
September 19,2002
2: 30 p. m. Senate Appropriations Hearing Room 109
Members Present:
Senator Tim Bee Representative Meg Burton Cahill
Senator Jack Brown Representative Gabrielle Giffords
Senator Edward J. Cirillo Representative Laura Knaperek
Senator Ruth Solomon Representative John Nelson
Kerrie Bluff Michael Hunter
Mark D. Chernoff Elliot Hibbs
Members Absent:
John G. Colton
Kim Sheane
Martin Shultz
Staff:
Debbie Johnston, Senate Research Analyst
Brandy Martin, Senate Research Assistant
Joy Hicks, House Research Analyst
Senator Solomon called the meeting to order at 3: 05 p. m. and attendance was noted.
For additional attendees, see Sign- in Sheet ( Attachment A).
Charge of Committee
Brandy Martin, Senate Research Assistant, distributed a handout of the charge of the
Committee from the Conference Engrossed version of HB 2178 and the resumes of the
non- legislative members of the Committee ( Attachment B.) Her testimony came directly
frorn page 4, line 7 of the handout.
Senator Cirillo commented that he was pleased that the second part of the charge of the
Committee includes the study of expenditure policies of different levels of government to
ensure services are provided in an efficient and effective manner and that duplicative
programs can be identified. He stated that he has tried for three years to have the
functions of government at all levels reviewed. He stated that to determine how
revenue should be shared, the first thing that must be determined is at what level of
government programs are being administered currently and the associated costs. Once
this has been accomplished, a system for sharing revenues can be developed. He
remarked that this Committee has an excellent opportunity to strategically plan.
Arizona Fiscal Responsibility Committee
September 19,2002
Page 1
Selection of Chairperson
Senator Solomon nominated Representative Knaperek as the
Chairperson of the Arizona Fiscal Accountability Committee.
Without objection, the motion CARRIED by unanimous voice vote.
Public Testimony
Representative Cooiey, representing himself, commented that as a small business
owner he has dealt with workers compensation insurance for a number of years. He
noted that he has had a relationship with the State Compensation Fund also. He stated
that there was a rumor that privatizing the State Compensation Fund may be a subject
discussed to address State budgeting problems. He stated that he knows from
personal experience the importance of the State Compensation Fund to the small
business owners in Arizona. He noted that workers compensation insurance is
mandated by the State. He remarked that private insurance carriers only come to the
State when there is a profit to be made. He stated that when profitability no longer
exists, many of these insurance companies do not remain in the State. He noted that
the State Compensation Fund has a policy of excepting all employers and will write
policies and become a safety net for the mandatory insurance that is required. He
stated that Arizona had presented its workers compensation plan as a model for other
states, and he opined that it is well run and well structured. He stated that other states
have established state compensation funds because when private insurers choose to
not insure a business, that business and any others not chosen for coverage, they are
placed in a risk pool and have to pay a premium above what is the standard rate. This
rate is filtered down to the small business owner to pay. He stated that the State
Compensation Fund acts as a safety net and provides mandatory insurance for every
company. He stated that keeping this program is essential to small businesses.
Senator Cirillo commented that a recent report issued by the Goldwater Institute
included a recommendation to end the corporate income tax and unemployment
insurance fund. He asked for Representative Cooley's opinion on discontinuing the
unemployment insurance fund. Representative Cooley stated that the premium is very
small for unemployment insurance and opined that this is not onerous on small
business owners. He stated that it does provide a pool of funds to help unemployed
people and as an employer, he supported this program.
Overview of Potential Items for Committee Consideration and Discussion
Representative Knaperek listed several items from the strategic program area reviews
( SPAR) that were set aside in the 2002 legislative session so that staff and members
could focus on the budget crisis. She stated at this time, members should feel free to
discuss any conceptual issues for further study. She stated that the scope of the
Committee is very large and very broad and opined that if the Committee attempts to do
everything, nothing would be accomplished. Drawing from the SPAR list, she suggested
that privatization and the sale of state assets would be one place to start. She noted
Arizona Fiscal Responsibility Committee
September 19,2002
Page 2
that the Health and Welfare SPAR Committee was looking at the delivery of children's
services system, specifically focusing on developmental disability services. She stated
that issues such as licensing and contracting could be reviewed. ' she noted that the
Education and Natural Resources SPAR Committee focused on special education and
the Criminal Justice and Transportation SPAR Committee looked at county assistance.
She stated that she would send copies of the SPAR items to members to review for
suggestions at the next meeting.
Senator Solomon suggested that because of the projected reduction in state shared
revenues with regard to what counties and cities can anticipate next year and in the
2004 budget, a review of what commitments have already been made to the cities and
counties needs to be done.
Senator Cirillo commented that he would like to broaden the review of the different
levels of government; state, county and city into approximately six categories, such as
health, judiciary and public safety to look for duplication of services and study what the
three levels of government should be doing with revenue sharing. He stated that a
comprehensive review may demonstrate a way to obtaining a better balance.
Representative Knaperek suggested that Senator Cirillo spearhead a working group
with any volunteers from the committee. Senator Bee, Representative Burton- Cahill
and Mr. Hunter volunteered to be a part of the working group. Senator Cirillo
commented that the workgroup would report back to the Committee in approximately
four weeks.
Representative Giffords remarked that having tangible goals and timelines would be
beneficial to have before session begins in January. Representative Knaperek stated
that this is a very good point. She opined that this particular issue will take longer to
review than what the Committee is set up for. She suggested that there may be
something the committee could review in the remaining time, such as the state agency
licensing and contracting issue, on which a lot of work has already been done.
Mr. Elliott suggested obtaining data regarding other states organizational structures,
much along the lines that Senator Cirillo was discussing, in addition to state government
operations. He stated that some states consolidate all of their boards and commissions
under one administrative wing, rather than having every board and commission have
those kinds of expenditures. He stated that there must be other areas of state
government that can be identified, which may help the Committee to focus attention
quickly on issues that could have immediate value to them. Another issue he noted of
concern was telecommunications within the State. He noted that this issue cuts across
all levels of government. He opined that if the State could learn how to integrate and
leverage those expenditures much more effectively, the State could do a better job of
building and expanding rural telecommunication capabilities. He stated that there is
some opportunity there for consolidation and perhaps some savings, but there is also
an opportunity to expand or improve the service delivery in rural areas.
Arizona Fiscal Responsibility Committee
September 19, 2002
Page 3
Representative Knaperek agreed with the idea of the 90110 consolidations and opined
that this issue is one that could get done quickly, which will give the Committee some
short and long- term goals. She opined that telecommunications is a way to consolidate
and integrate some of the states systems and save money for the universities, school
districts, state agencies, counties, cities and other entities. She opined that the
Committee needs to focus on these two things immediately as well.
Senator Solomon noted that the National Conference of State Legislators ( NCSL) has
always been wonderful with proving data about what states are doing in specific areas.
She recommended staff contact NCSL for information and possible presentations that
could be made to the Committee.
Representative Knaperek suggested Richard Stavneak from the Joint Legislative
Budget Committee provide the research with NCSL.
Mr. Hunter remarked that in addition to the focus of the Cirillo workgroup, there are
many areas within K- 12 finance, as well as other areas of funding, that are dependent
upon formulas. He stated that a major component of these formulas is how to count
the people that the funding is being generated for. Arizona has a national reputation for
having a very complicated K- 12 funding formula and Mr. Hunter opined that certain
components of the formula " count ghosts." For example, there is a $ 48 million
discrepancy between two transportation formulas, depending on how students are
counted for transportation services. He noted that this affects the State General Fund
as well as local taxpayers. He opined that the State should decide which formula will be
used. He suggested that this issue be reviewed by the Committee not only for the
current budget difficulties, but also for future fiscal accountability.
Representative Knaperek suggested that another working group be formed with Mr.
Hunter spearheading the group to review this education issue. In addition, Senator
Brown, Ms. Bluff, and Mr. Shultz will be in the group.
In response to Representative Knaperek, Mr. Chernoff stated as an attorney, he
represents the business community. He stated that the most common complaint from
his business clients is the difficulty they have with finding the appropriate entity to assist
them with solving their problems. He remarked that it is generally felt that if the same
job were being done through private organizations, more responsiveness would be
evident.
Representative Knaperek suggested that Mr. Chernoff lead a working group on
privatization issues with Senator Bee, Representative Giffords and Mr. Colton.
Additionally, she suggested that the issue of the selling of assets be researched by staff
to be presented at a future committee meeting. Later, it was decided that Senator Bee
would lead this working group.
Senator Bee commented that another study committee was established at the same
time as this one, to study and make recommendations on the tax policies of the State.
Arizona Fiscal Responsibility Committee
September 19,2002
Page 4
Representative Knaperek suggested that at the next meeting a report of both study
committees should be given.
Representative Knaperek commented that she would head the working group to discuss
the issues brought up by Mr. Hibbs and stated that the members will be notified of all
the various working group meetings and encouraged any of the members to join in any
of the workgroups. She announced the next Committee meeting will be Friday, October
25 from 10: OO am to 2: 00 p. m. She stated that the remainder of the meetings would be
held the day after the JLBC and JCCR Committee meetings.
Without objection, the meeting was adjourned at 350 p. m.
Respectfully submitted,
Tracey Moulton
Committee Secretary
( Tapes and attachments on file in the Secretary of the Senate's Office/ Resource
Center, Room 11 5.)
Arizona Fiscal Responsibility Committee
September 19,2002
Page 5
l? EPRESENrI'INT; DILL, NO.
ARIZONA STATE LEGISLATURE
Interim Meeting Notice
Open to the Public
ARIZONA FISCAL ACCOUNTABILITY COMMITTEE
DATE: Friday, October 25, 2002
TIME: 10: OO a. m
PLACE: House Hearing Room 4
AGENDA
1. Call to Order
2. Reports from working groups:
A. Privatization
B. Revenue Sharing
C. Education
D. Organizational structure of government
3. Public Testimony
4. Discussion
5. Adjourn
MEMBERS:
Senator Bee
Senator Brown
Senator Cirillo
Senator Solomon
Kerrie Bluff
Mark D. Chernoff
John Colton
Elliott Hibbs
Representative Knaperek, Chair
Representative Burton Cahill
Representative Giffords
Representative Nelson
Michael Hunter
Dr. Kim Sheane
Martin Shultz
People with disabilities may request reasonable accommodations such as interpreters,
alternative formats, or assistance with physical accessibility. If you require
accommodations, please contact the Chief Clerk's Office at ( 602) 542- 3032,
( TDD) 542- 6241.
ARIZONA STATE LEGISLATURE
Members Present:
Senator Bee
Senator Brown
Senator Cirillo
~ e r r i eB luff
Mark. D. Chernoff
John Colton
Elliott Hibbs
Dr. Kim Sheane
ARIZONA FISCAL ACCOUNTABILITY COMMITTEE
Minutes of the Meeting
Friday, October 25, 2002
10: OO a. m., House Hearing Room 4
Members Absent:
Senator Solomon
Michael Hunter
Martin Shultz
Representative Knaperek, Chair
Representative Burton Cahill
Representative Giffords
Representative Nelson
Staff:
Debbie Johnston, Research Staff Director
Joy Hicks, House Research Analyst
Representative Knaperek called the meeting to order at 10: lO a. m. and attendance was
noted.
Representative Knaperek stated that the working groups would report their comments
and recommendations.
Privatization
Senator Bee reported that the Privatization working group had met once, with the
majority of the time spent on a presentation from the Joint Legislative Budget
Committee ( JLBC) and the Department of Corrections ( DOC). The working group will
continue to help DOC in their efforts to pursue privatization. He stated that there is
quite a bit of money being spent on the Foster Care and Adoption programs and there
will be a presentation next month from the Department of Economic Security ( DES)
explaining where the funds are being spent. The State Parks will also be making a
Arizona Fiscal Accountability Committee
October 25, 2002
Page 1
presentation next month. Finally, the working group is looking at the privatization of the
Historical Society.
Mark D. Chernoff commented that they addressed the issue of duplication of services
across departments which could save funds by subcontracting to private entities. He
also suggested that the working group look at areas in the State that are at a high risk of
coming in over budget.
Representative Knaperek asked whether the State would be released from liability if it
subcontracted a service. Mr. Elliott Hibbs answered that each case would have to be
evaluated individually, but in many cases subcontracting does not remove the State
from liability as subcontractors are considered agents of the State.
In response to Representative Knaperek, Richard Stavneak, Director, JLBC,
commented that the University of Arizona Medical School staff and hospital policy was
carved out by JLBC to create a relationship that limits the amount of liability the State
has with certain functions at the hospital.
Senator Cirillo suggested that concerning privatization, areas of competition should be
looked at to get a fixed price contract.
Mr. Hibbs suggested that the working group contact the agencies to see what
information on privatization is already available.
Revenue Sharing
Senator Cirillo stated that the Revenue Sharing working group had met once and had a
subsequent meeting with the counties and cities. He presented a handout entitled " FY
2002 Actual General Fund ~ x~ enditureasnd Revenues" ( Attachment A). He stated that
the group is looking at duplications between the levels of government and if the services
are being provided in the most efficient manner. He further stated that the handout
would be filled out by both the cities and the counties, with JLBC filling out the portion
for the State. The objective will be to determine who is doing what, how effective it is
being done and how the money is divided.
In response to Representative Knaperek, Senator Cirillo stated that other members of
the group are Senator Bee, Michael Hunter, Representative Nelson and Representative
Burton Cahill.
Organizational Structure of Government
Representative Knaperek stated that the Arizona Department of Administration ( ADOA)
and ClSCO discussed possible savings opportunities through the investment in a new
Arizona Fiscal Accountability Committee
October 25,2002
Page 2
voice/ lP telecommunications system. She further stated that the Auditor General has
the technology and is currently saving money.
Mr. Hibbs stated that there is duplication of telecommunication services in the State
agencies, which could be consolidated in a centralized service provider for significant
savings. The ADOA is in the process of doing an audit to study this program and a
report will be out on November 1.
Representative Knaperek further commented on the Arizona State Retirement Savings
Contribution Rates. She stated that the following three questions would be answered
by the next meeting: Can rate adjustments be phased in; Is it constitutional; and What
is the impact of further generations of the phase in?
She further commented that the Office of the Auditor General ( OAG) stated that the only
mandated full- time student equivalent ( FTSE) count is for community colleges. She
stated that starting in FY 2003, the OAG will begin to audit dual enrollment.
Representative Knaperek commented that the working group discussed if the
Department of Education ( DOE) can calculate the net flow of students from public to
charter schools, because students are currently being double counted, and thus double
funded. She stated that language needs to be adopted for sampling or random count to
prevent this problem.
Representative Knaperek commented that the OAG does not currently audit university
enrollment. The group is asking the Arizona Board of Regents if they do audits or
random counts. She stated that the funding formula is 22: l students to faculty member.
As this formula is not mandated, the State does not have to fund at this level.
Representative Knaperek commented that Arizona Health Care Cost Containment
System ( AHCCCS) utilizes independent auditors. The OAG is now conducting a
performance audit for the first time in 16 years. The report should be out next year.
Education
Senator Cirillo stated that Michael Hunter is the chairman of this group. Their charge is
to study formulas that are used for allocating funding. He presented a handout entitled
" Fiscal Accountability Formula Issues" ( Attachment B). His testimony came directly
from the handout.
Representative Knaperek commented that she would like to see compatible laws and
compatible formulas added to the criteria for all of the working groups.
Representative Knaperek asked the group to look at the Qualifying Tax Rate ( QTR)
issue under the guise of equitability. She further asked each working group to come up
Arizona Fiscal Accountability Committee
October 25, 2002
Page 3
with a short- term list and a long- term list for recommendations that will have effects on
the FY 2003 and the FY 2004 budget and forward.
Representative Knaperek announced that the next meeting will be held on November
21, 2002.
There being no further business, the meeting was adjourned at 10: 50 a. m.
Respectfully submitted,
Debbee Kennedy u
Committee Secretary
( Tapes and attachments on file in the Secretary of the Senate's OfficeIResource Center, Room 11 5.)
Arizona Fiscal Accountability Committee
October 25,2002
Page 4
ARIZONA STATE LEGISLATURE
Interim Meeting Notice
Open to the Public
ARIZONA FISCAL ACCOUNTABILITY COMMITTEE
DATE: Wednesday, December 18, 2002
TIME: 11: OO a. m.
PLACE: House Hearing Room 1
AGENDA
1. Call To Order
2. Reports and Recommendations from Working Groups:
A. Privatization
B. Revenue Sharing
C. Education
D. Organizational structure of government
3. JLBC Presentation on State Shared Revenues
4. Public Testimony
5. Discussion
6. Final Recommendations
7. Adjourn
MEMBERS:
Senator Bee
Senator Brown
Senator Cirillo
Senator Solomon
Kerrie Bluff
Mark D. Chernoff
John Colton
Elliott Hibbs
Representative Knaperek, Chair
Representative Burton Cahill
Representative Giffords
Representative Nelson
Michael Hunter
Dr. Kim Sheane
Martin Shultz
People with disabilities may request reasonable accommodations such as interpreters,
alternative formats, or assistance with physical accessibility. If you require
accommodations, please contact the Chief Clerk's Office at ( 602) 542- 3032,
( TDD) 542- 6241.
ARIZONA STATE LEGISLATURE
ARIZONA FISCAL ACCOUNTABILITY COMMITTEE
Minutes of the Meeting
December 18, 2002
11 : 00 a. m. House Hearing Room I
Members Present:
Representative Laura Knaperek, Chair Senator Jack Brown
Representative Meg Burton Cahill Senator Edward J. Cirillo
Representative Gabrielle Giffords Senator Ruth Solomon
Representative John Nelson Kerrie Bluff
John G. Colton Elliot Hibbs
Michael Hunter Martin Shultz
Members Absent:
Senator Tim Bee
Mark D. Chernoff
Dr. Kim Sheane
Staff:
Joy Hicks, House Research Analyst
Debbie Johnston, Senate Research Analyst
Katy Proctor, House Assistant Research Analyst
Brandy Martin, Senate Assistant Research Analyst
Representative Knaperek called the meeting to order at 1 1 : 15 a. m. and attendance was
noted. For additional attendees, see Sign- in Sheet ( Attachment A).
Reports and Recommendations from Working Groups
Privatization Work Group
Representative Giffords stated that the privatization work group met once and
information relating to the Department of Economic Security ( DES) and State Parks was
presented. She stated that no further discussion was held and no recommendations
were made.
Joy Hicks, House Research Analyst, explained that State Parks gave a preliminary
review of their privatization report that is due in December. She stated that in addition,
Stefan Shepherd from the Joint Legislative Budget Committee ( JLBC) and a
representative from DES presented information regarding privatization issues within
DES based on ways other states have researched, specifically on foster care. She
stated that it was noted that a comparison of states is difficult. The final topic that was
discussed was regarding the privatization of prisons or improving the utilization of other
Arizona Fiscal Responsibility Committee
December 18,2002
Page I
options for the Department of Corrections ( DOC). Brad Regens, from JLBC as well as
Mr. Smith from DOC talked about considerations they needed in terms of language and
statutory changes that would help enable them to further privatize some of their
facilities.
Representative Knaperek requested Senator Bee and Ms. Hicks work with staff to
develop language to be placed within the Committee's report.
In response to Senator Solomon, Ms. Hicks stated that an example that the work group
reviewed was that of Kansas and how they privatized their foster care adoption service.
She deferred further explanation to Mr. Shepherd.
Mr. Shepherd stated that Kansas has privatized their case management, which is
something that other states have not done and in the brief review given to the working
group, it was noted that this is one area that DES has not privatized in Arizona. He
stated that although there are nostate operated orphanages, the case management of
these cases is done through DES. He remarked that Kansas privatized its case
management and at the same time, it added a lot of new money into the system as a
whole, which made it impossible to determine if privatization cost or saved Kansas any
money.
Senator Solomon asked if the privatization of Kansas case management was a benefit
to children and families. Mr. Shepherd stated that most of the information that he had
reviewed on the Kansas experience spoke about privatization, but the problem was that
there was so much new money added into the system, that privatization itself was not
the focus of the reviews. He stated that it was difficult to distinguish if the children lives
were better because more money was placed in the system or if the State's case
management of child welfare cases was better than private, not for profit, entities case
management of kids in the system. He remarked that several states have privatized
child support programs, including Arizona where a couple of counties have their case
management privatized, as opposed to child welfare.
Senator Solomon remarked that there is a lot more of this issue to review and
expressed her hope that the Committee report reflects the need for further study, given
the circumstances and the need, and possible legislation to that effect.
Senator Cirillo commented that a word of caution regarding privatization should be in
the Committee report as well. He opined that privatization is not going to be effective
unless there are competitive sources involved. He opined that this should be a point of
criteria for the establishment of privatization.
Representative Nelson concurred with Senator Cirillo and noted that the City of Phoenix
has seen with the privatization of sanitation and a number of janitorial services, the
need for a bid program and has set criteria for an effective cross comparison of the
bidders and services that would be rendered.
Arizona Fiscal Responsibility Committee
December 18,2002
Page 2
Mr. Shultz commented that there is some outsourcing occurring within the State in the
business sector. He noted that this is an alternative to privatization and is an efficient
means of reducing certain costs. He remarked that Mr. Hibbs might have further
information on this issue.
Mr. Hibbs stated that there is a long list of outsourcing being investigated by the
Department of Administration ( ADOA) for outsourcing and privatization in State
government for all of State agencies. He stated that the Office of Excellence in
Government has compiled information for the last few years about the growth of
outsourcing and privatization. He remarked that approximately 60% of the money that
is spent is paid to outside organizations to provide service or function such as some
ADOA custodial services and some of the Departments telecommunication and data
center services are outsourced. Additionally, many other areas have partial outsourcing
or privatization occurring.
Revenue Sharing Work Group
Senator Cirillo distributed a handout entitled FY 2001 Actual Expenditures and
Revenues ( Attachment B). He explained that the revenue sharing work group's project
was to review state, county and municipality functions to identify what
programslservices each of the levels is providing and if there is any duplication of
programs/ services. Additionally, the work group was to review the way revenue is split
up among the governmental levels and examine whether the revenues match their
expenditures. He remarked that surprisingly the total revenues and total expenditures
are not far out of balance. He stated that this is a great starting point for the Committee
to continue with and that this document can be used as a template. He opined that next
year, each of the line item expenditures, starting with economic development should be
reviewed individually. This review should answer the following questions: 1 ) what is the
service being provided, 2) what does each of the governmental levels do in the area of
economic development and 3) is there any ability to save money, coordinate effort or
consolidate. He stated that this should be applied to all the areas of expenditure.
In response to Representative Knaperak, Senator Cirillo explained that the data in this
document came from the County Supervisors Association, counties and cities, and the
League of Cities and Towns. He noted that information was obtained from all the
counties and from municipalities of over 100,000 people.
Representative Giffords requested that the revenuelexpenditure information be
separated by county.
Representative Nelson requested information from smaller cities and towns that are
impacted by State shared revenues. He opined that this information is important in
order to know whether the cap is valid.
Representative Knaperek commented that this work would need to be directed to staff
to obtain.
Arizona Fiscal Responsibility Committee
December 18, 2002
Page 3
Education Formulas Work Group
Mr. Hunter stated that the working group on education funding formulas had
participation from several legislators and citizens on the Committee. He stated that one
of the initial understandings of the Committee was that it would be as comprehensive as
possible in looking at funding formulas. He distributed a handout entitled Arizona Fiscal
Accountability Committee, Working Group on Education Funding Formulas ( Attachment
C).
The following are highlights from his presentation:
Criteria for Reform - avoiding redundancy, accountability, flexibility, predictability,
timely, realistic, divisible, efficient, equitablelfair
Initial Focus : Transportation Revenue Control Limit ( TRCL): Problem and Policy
Options; Career Ladder: Problem and Policy Options; and Community College
Equalization: Problem and Policy Options
Formulaic funding in general
K- 12 and K- 12 Capital( Students First) issues
Community College issues
Arizona State Retirement System ( ASRS): imminent Actuarial increases
Arizona Department of Corrections issues
State and local relationships
Other issues needing analysis
In response to Representative Knaperek, Steve Schimpp, Fiscal Analyst, JLBC,
explained the way the Career Ladder program works is if a district is in the program, the
district can increase their base level by 5.5%) which is not designated for drop out
prevention or anything specific. He stated that parts of the Career Ladder give basic
guidelines as to how the program is supposed to improve instruction. Each district must
have some sort of plan to demonstrate how it intends to use funds to improve
instruction.
Representative Giffords commented that she would like to know what type of
performance studies, if any have been done on this issue.
Mr. Hunter remarked that the only information that he is aware of is from former
members of the advisory committee. He stated that to his knowledge no such study has
been performed.
Senator Solomon asked if the question of supplanting has been discussed with regard
to using Proposition 301 monies. Mr. Schimpp remarked that if there were language
specifically linking the loss of Career Ladder money to the new money, there would be a
stronger argument for saying that supplanting would be involved.
Mr. Hunter remarked that supplanting versus supplementing was discussed in the
working group. He opined that this argument could be used whenever a program has
Arizona Fiscal Responsibility Committee
December 18,2002
Page 4
been capped and is going to be phased out, to keep the program intact. He stated that
is why the work group suggests phasing out the Career Ladder program rather than
having the program phased into Proposition 301. He stated that if not phasing the
program out, an evaluation should be preformed by the Committee to answer the
important questions that are being raised about it. He opined that Proposition 301 does
not take Career Ladder completely off the table.
Senator Cirillo commented that instead of having any entity held harmless, a fixed
variable concept should be used.
Organizational Structure of Government Work Group
Representative Knaperek invited Elliott Hibbs to comment and update the Committee on
the privatization of telecommunication services. He remarked that the Legislature had
required ADOA and the Government Information Technology Agency ( GITA) to examine
the State telecommunication system for efficiencies with a due date of November 1,
2002. The study was completed and other alternatives were reviewed with information
gathered from all of the State agencies that have telecommunication services. Based
on this information, a study was initiated looking at four different alternatives. The first
alternative was to completely de- centralize telecommunication services and allowing
each agency to have their own system. The second alternative was to continue the
type and level of current services, which is 30% centralized and 70% de- centralized.
The third alternative was the consolidation or centralization of all services administered
and operated by ADOA, which operates the current 30% of services. The fourth
alternative is the centralization of services along with privatizing the operation of the
system. Three of the major criteria of study were cost, flexibility, and service
deliverability. The recommendation from GlTA and ADOA is to move toward
privatization of telecommunication services in a centralized context. He stated ADOA
and GITA are moving ahead with the development of a request for a proposal with the
assistance of all the agencies that would be affected by such a move. The anticipated
date for completion of the proposal is March 2003 and there is an objective to have
centralization that is privatized in approximately one year.
In response to Representative Knaperek, Mr. Hibbs stated that statute requires that any
organization that wants to procure telecommunication services go through ADOA. He
opined that this requirement would be continued with the requirement that the
organization clearly demonstrate that there are service capabilities that can not be
provided by the current provider/ contractor, there are specialized needs that can not be
met or there are cost savings that cannot be achieved by the current provider before
ADOA would allow an organization to go outside of a centralized system.
Representative Knaperek noted that another topic of study for her work group had been
contribution rates, and asked staff to make a presentation on the information received
from the Arizona State Retirement System ( ASRS). She noted that representatives
from ASRS were not available at this time.
Arizona Fiscal Responsibility Committee
December 18, 2002
Page 5
Ms. Hicks stated that although she was not present at any of the discussions, she was
aware that the presentation is an explanation of what the contribution rate increase
would be for this year and the general fund impact. She stated that she was present at
a private meeting with staff, Mr. Stephenson and Mr. McGuire prior to Thanksgiving. At
that time it was stated that the 2004 increases, for both employer and employee, would
increase from the current rate of 2.49% to a 5.7% contribution rate. JLBC estimates this
will have a $ 30 million impact on the general fund and an impact of $ 11.3 million on
other funds. She stated that school districts and political subdivisions that participate in
ASRS would also experience an increase in cost.
Representative Knaperek remarked that the increase in costs is a result of changes to
pension benefits as well as changes in the stock market. She distributed a handout
entitled ASRS Informational Bulletin ( Attachment D). She further explained that
another issue was that the State of Arizona's contribution rate is amongst the national
average, but it is a very rich plan. She remarked that there is a difference in some
states' reports that include social security.
Katy Proctor, House Assistant Research Analyst, explained another issue that was
discussed was that Arizona would soon be experiencing an increase in retirees entering
into the system, while other states will not.
Representative Knaperek noted that ASRS would continue to ask for additional staff to
deal with the increased number of retirees that will have an effect on the workload of the
agency.
In response to Representative Knaperek, Ms. Hicks suggested that Mr. McGuire put his
comments and explanation of the Internal Revenue Service ( IRS) issue in writing for
distribution among the Committee members.
Representative Knaperek stated that Mr. McGuire explained that if one state were to
request an exception in a modified plan, the IRS would likely accept it, but apparently
there are many states with similar requests. It was Mr. McGuirels opinion that the IRS
would not accept multiple requests. She stated that her work group would like to
request the Committee to review the drop program and the DC program.
Representative Knaperek remarked that the Director of the School Facilities Board
( SFB), Mr. Boot, gave a presentation and discussed some outstanding issues at her
request. One of the topics was building renewal distribution for FY 2003. She stated
that the law was suspended in the 2003 budget for $ 1 10 million and this issue is in
court. She stated that there was $ 38 million available and the SFB voted 5- 4 to
distribute half of the money in JanuaryIFebruary and the other half in the later part of the
year. She stated that this issue has yet to be resolved and there are separate
interpretations of the intent in the law. Additionally, the Tanque Verde issue remains to
be settled. She stated that if the Legislature chose, the building of the Tanque Verde
could still be stopped, but it would have to be done in the early part of the next
legislative session, with savings of approximately $ 1 5 million.
Arizona Fiscal Responsibility Committee
December 18, 2002
Page 6
Lorenzo Martinez, Fiscal Analyst, JLBC, explained four other cost savings ideas
brought to the working group. The SFB recommended making changes to the building
renewal formula that could potentially generate approximately $ 35 million. The four
components would be treating portable space the same as permanent space. Currently
the formula allocates more money to portable space on the assumption that the life
span of portable space is less than permanent space. SFB states however that the life
span for both are essentially the same. Another component is to not include 15% of the
funding for replacement space when it is being built, because typically 15% is spent on
fixtures, furniture and equipment. The third component addressed any new
construction, and a recommendation to not include 15% of funding to pay for software
and computers. The final component was to limit the age of the buildings to 30 years
because the formula adds more funding the older the building is. However, the logic, is
that within a 30 year span, a significant amount of the building components would have
been replaced, thereby, reducing the age of the building.
Mr. Martinez stated another item discussed was the elimination of a requirement in
statute to have SFB provide project management for new construction programs. He
stated that SFB estimates that this new requirement would cost approximately $ 8
million. Additionally, the SFB suggested eliminating the requirement in statute to take
into account whether construction includes quality products. There is no definition for
quality products and SFB has stated that in their opinion as long as construction is
meeting the minimum guidelines established by the SFB, this would constitute quality
products. Another item that was discussed was requesting the Legislature to reconsider
the requirement that SFB provide an accommodation school if requested by a county.
Mr. Martinez commented another item discussed was possibly developing a process by
which SFB could make sure that schools are using the building renewal monies
appropriately. He remarked that SFB suggested the creation of a graded square foot
formula. Currently, there is one formula that is applied to all new school construction
and SFB suggested creating a scale for schools.
In response to Senator Solomon, Representative Knaperek commented that currently
SFB is statutorily required to inspect schools every five years. If they find that the
school district is not maintaining the school properly, they do not have the ability to
make them do so. This has been a complaint for the last two years and a request has
been made to have legislation created to address this problem.
Representative Knaperek commented that gathering information relating to full time
employee ( FTE) positions in State government has always been difficult to come by.
For example, the Arizona Department of Transportation ( ADOT) FTE census has
different terms and definitions from other State agencies.
Richard Stavneak, Director, JLBC, stated that there is a difference in how seasonal
and temporary FTEs are counted. He remarked that ADOT does not count these
positions, but JLBC is of the belief that an employee who works a total of 2,080 hours in
Arizona Fiscal Responsibility Committee
December 18, 2002
Page 7
a year, represents a FTE position and should be considered in terms of putting a ceiling
on the number of State employees.
Representative Knaperek stated that the House Rules Attorney reviewed the issue and
recommended language. She suggested that rather than use that language, the
Committee should make a recommendation that something be put into statute so that
there is a clear definition of what an FTE is and that the Legislature receive an FTE
census count from every State agency in the next budget.
Representative Knaperek commented that the work group started to investigate audit
counts. She stated that this information has been gathered and no further work needs
to be done at this time.
Representative Knaperek stated that the issue of maximizing federal dollars is another
issue under review. She stated that DES is looking at bringing down federal dollars
from Title 4 for foster kids.
Mr. Hibbs commented that there are a number of State agencies that are looking into
federal dollar maximization in addition to DES and opined that there is a request for
proposal ( RFP) for Arizona Heath Care Cost Containment ( AHCCCS) that other
agencies are trying to join for a massive study as opposed to individual studies.
JLBC Presentation on State Shared Revenues
Michael Stelpstra, Fiscal Analyst, JLBC, distributed a handout entitled State Policy
Reports ( Attachment E) and explained that Arizona is ranked third in the country
providing 45% of the State's general expenditures to local governments. This includes
not only State revenue sharing but also all aid including restricted grants. He said some
of the variables included in the report depends on the mix of State and local
responsibilities. States that assume more responsibility have less aid to local
governments and it also varies based on the authority that local governments have to
raise their own revenues. In states where local governments can raise more revenue
on their own, the State is providing less revenue. He noted that it also varies on
geographic considerations. States that are more centralized and compact can provide
more services at the State level. States, like Arizona, which are large with a dispersed
population, provide more services at the local level. Arizona is also ranked high among
the states for the percentage of local government's revenue that is coming from the
State. According to the study, 39% of the Arizona local government's revenue was
coming from the State in FY 99. He stated that 18% of the aid that Arizona is sending
to local government is unrestricted, which is considered revenue sharing, which places
Arizona 1 ltihn th e country. Referring to page 7 of the handout, he noted that Arizona is
only one of 18 states that actually provides aid in all four of the major areas.
Kim Hohman, Fiscal Analyst, JLBC, distributed a handout entitled State- Shared
Revenue Worksheet ( Attachment F). She explained that the top portion of the handout
demonstrates various scenarios adjusting urban revenue sharing. Currently the
Arizona Fiscal Responsibility Committee
December 18, 2002
Page 8
distribution rate is 14.8. The bottom portion of the handout demonstrates the sales tax
distribution and changing from an immediate distribution to a one or two year lag.
In response to Representative Knaperek, Mr. Stavneak explained that the State shares
with local governments, 14.8% right now. With the alt- fuel problem, the State agreed to
hold the cities and counties harmless because urban revenue sharing is based upon
14.8% of both income and corporate tax collections from two years ago. From that
perspective, when there was a drop in income tax collections due to the claims of
alternative fuel tax credits, the State decided that this would not be factored into how
much the cities would receive in terms of revenue sharing.
Final Recommendations
Senator Solomon moved that the Committee request DES, ADC and
the State Parks Department to submit recommendations to the Fiscal
Accountability Committee as to how they intend to use either
privatization or outsourcing as a means to provide a more efficient
service to be used in the final report of the Committee. The motion
CARRIED by voice vote.
Mr. Shultz moved that the recommendation that the Fiscal
Accountability Committee request a summary of the State of
Arizona's outsourcing activities and further requests that the
appropriate work group be requested to determine additional
opportunities for outsourcing to maximize savings plus improve the
service effectiveness of such strategies. The motion CARRIED by
voice vote.
Senator Cirillo moved to establish a work group to review, discuss
and bring recommendations back to the Fiscal Accountability
Committee regarding retiree health insurance generally and
specifically: rural and urban heath insurance issues and health care
risk pool issues. The motion CARRIED by voice vote.
Senator Cirillo moved that the funding formula working group should
investigate the use of a fixed variable approach to eliminate the need
for hold harmless considerations, which compromise formulas. The
motion CARRIED by voice vote.
Senator Solomon remarked that her first motion, with regard to privatization and
outsourcing, should deal with child support enforcement. She requested that if this is
unclear, that it be included.
Representative Knaperek suggested that the report from her work group regarding the
cost savings suggestions from the SFB be incorporated into the interim report.
Arizona Fiscal Responsibility Committee
December 18,2002
Page 9
Mr. Hunter moved that the documents and the work in progress of all
the work groups be adopted into the interim report and forwarded
onto the continuation of this Committee. The motion CARRIED by
voice vote.
Senator Solomon moved that the interim report include a
recommendation to review the statutes with regard to the drop
program and the deferred compensation program. The motion
CARRIED by voice vote.
Senator Solomon moved that the interim report include a
recommendation that the Appropriations Committee as well as the
ongoing Fiscal Accountability Committee continue to exam FTE with
specific reference to a definition of what an FTE is. The motion
CARRIED by voice vote.
Senator Solomon moved the creation of a one- stop qualification
center to allow the State to better monitor participants and their
qualification criteria in State programs and be charged to more
actively enforce the collection of co- payments and investigate and
prosecute incidences of fraud. The motion CARRIED by voice vote.
Representative Knaperek stated that a bill analogous to the Colorado Taxpayers Bill of
Rights ( TABOR) was introduced last year as HCR 2027 by Representative Pearce.
HCR 2027 would have limited the amount of State revenues appropriated by the
Legislature in FY 2004 and each fiscal year thereafter not to exceed the amount of
State revenues appropriated in the preceding fiscal year adjusted for change in cost of
living. Excess revenues collected would be returned to taxpayers. She explained that
the Colorado TABOR is very similar, with these differences:
the types of capital construction that are exempt for the revenue limit calculation.
court settlements, orders or new programs mandated by the federal government can
also be exempt in the first year, and the legislature has the authority to enact
exemptions, but would require a public vote.
revenue limits are required to be reviewed every ten years and are then adjusted for
population and inflation.
Representative Knaperek commented that both Colorado and Arizona have expenditure
limits of sorts. Arizona is limited to appropriate no more than 7% of personal income of
the State for that FY, while Colorado's limit is 6%. She opined that this should be
included in the Committee's report as a means to be more fiscally accountable.
Senator Cirillo commented that there have been some problems in Colorado. He stated
that he would want to amend the Colorado TABOR so that any excess tax, over the
amount the State should receive by the demographics and cost of living, should be used
before tax reductions are given or should be placed in the rainy day fund.
Arizona Fiscal Responsibility Committee
December 18,2002
Page 10
Senator Solomon asked how another tragic event would effect the Legislature's ability
to provide for those populations.
Representative Knaperek stated that the State would only be allowed to spend what
revenues are coming in. Exceptions would be for court settlements, new programs
mandated by the federal government, or legislative discretion for new programs.
Senator Solomon remarked that she had concerns regarding the language and
questioned the use of rebates versus the wisdom of permanent tax reduction. She
stated that she could not support this recommendation.
Representative Nelson moved that the Colorado TABOR example be
included in the report for future consideration. The motion CARRIED
by voice vote.
Senator Solomon moved that the interim report include the concept
of the Legislature appropriating non- custodial federal monies, the
purpose of which must be consistent with federal law, as good
public policy. The motion CARRIED by voice vote.
Senator Cirillo moved to amend the Solomon motion to: recommend
that the Fiscal Accountability Committee open negotiation with the
new Governor's staff on looking at better ways to have
accountability over the total expenditures of the State. The motion
CARRIED by voice vote.
Representative Knaperek moved to amend the Solomon motion to
include language in the interim report that talks about not only
appropriating federal dollars as an option, but another option could
be a pilot program for virtual reporting of information between
agencies and asking some existing agency to look for federal dollars
to pay for the pilot program. The motion CARRIED by voice vote.
Without objection, the meeting was adjourned at 1 : 25 p. m.
Respectfully submitted,
Tracey Moulton
Committee Secretary
( Tapes and attachments on file in the Secretary of the Senate's Office/ Resource
Center, Room 1 15.)
Arizona Fiscal Responsibility Committee
December 18: 2002
Page I I
Privatization Handouts
Department of Corrections - Prison Privatization
State Parks
Department of Economic Security - AdoptionlFoster Care
Pioneer's Home
Arizona Department of Corrections ( ADC) - Prison Privatization
I. Background:
i. FY 1993 - First appropriation for a private prison in Arizona
ii. FY 1995 - First Arizona private prison opened
iii. First contract for 450 ( 350 male & 100 female) community treatment beds
11. Current Usage of Private Prisons by ADC:
i. FY 2002 - a total of 1,450 beds at 3 private prison facilities ( minimum security beds)
ii. FY 2003 - funding for additional 1,295 private prison beds ( a total of 2,745 at year- end)
111. FY 2001 Cost Comparison - ADC Level 2 Beds ( minimum security) vs. Private Prison:
i. Average ADC Level 2 per capita cost of $ 50.14
. .
11. Average Private Prison per capital cost of $ 44.06
IV. Comparison of Private Prison Usage:
i. Arizona - 9.1% of inmate population in privately- operated facilities ( FY 2003 year- end)
ii. National Average - 6.1 %
iii. Federal Government - 1 1.9%
iv. Highest percentage of inmate population privatized - District of Columbia at 47.1 %
v. Lowest percentage of inmate population privatized - 19 states with no privatization
V. Arizona Privatization Statutes:
i. Allows ADC director to site private prison ( any security level)
ii. Requires public notification and Joint Select Committee on Corrections review
iii. Requires JLBC review of Request for Proposals
iv. Private prison must provide at least the same quality of services as the state at a lower
cost or superior quality of service at the same cost
v. ADC retains task of awarding earned release credits and calculating inmate release dates
vi. Private vendor liable for emergency, public safety or security costs provided by state or
political subdivision
VI. ADC Oversight of Private Prisons
i. Department employed staff on site at each private prison
ii. Annual audits and inspections
iii. Biennially compare private prison services to services in state- operated complexes
iv. Five- year cost comparison study
VII. Future Privatization ( Add New Beds and Private Existing State- Operated Facilities)
i. Add New Beds - Footnote in General Appropriation Act directs ADC to solicit bids to
add 1,000 additional private beds in FY 2004 and to privatize the female population
in FY 2005 C25m - 2?- cb]
ii. Privatize Existing State- Operated Facilities - Some issues to resolve:
- which facilities
- value of facilities
- which prisoners
- what to do with ADC employees
JLBC Staff
10/ 8/ 02
STATUTORY REQUIREMENTS
ARS $ 41- 1609.01
- To be considered for an award, the company
must demonstrate:
The qualifications, operations and management
experience and experienced personnel necessary to
carry out the terliis of the contract
The ability to colnply wit11 applicable con- ectional
standards and any specific court order, if required
A de~ nonstratedh istory of successful operation and
liianagernent of other secure facilities
' a,
Privatization Report
During the 5' Special Session this summer the legislature directed State Parks to " review,
evaluate and make recommendations as to whether this state should enter into an
agreement with a private entity, a university of this state or a political subdivision of this
state for the privatization or operation of one or more Arizona state parks and submit the
report to the joint legislative budget committee on or before December 3 1, 2002."
We were asked to come today to give a status report, and I hope to solicit some input
from the committee as to how this information strikes you.
Why P~ ivatize?
a. Lower costs - by introducing competition
b. Kgher service levels - competition leads to innovation
c. Focus on core mission
Notable recent example: The United States Army. According to recent articles, the
Army is loolung at privatizing 214,000 military and civilian jobs, nearly 1 in 6. They
will attempt to move employees who perform support functions, such as accounting, legal
services and maintenance, to the private sector so that they can focus on what they do
best, their core mission, namely, finding and neutralizing the bad guys.
Arizona State Parks
Where privatization works - Done for decades, enables us to focus on our core mission:
" Managing and conserving Arizorza's natural cultural and recreational resources for
the benefit of tlze people, both in our parks and through our Partners."
I. Concessions - Retail operations - $ 350,000 revenue in FY02
a. Kartchner Caverns - Aramark, $ 250,000 revenue 21- 40% of sales
b. Alamo, Buckslun, Cattail Cove, Lyman, Patagonia, Slide Rock,
Tombstone
2. Service Contracts - public wants face- to- face with rangers
a. Design & Construction
b. Professional Services - Tug maintenanceirepair Kartchner , carpet
cleaning and toilet service, CPA for grant audit, Historic
consultantants for BCAs, historical context studies, M& H for
trademark
3. Municipalities
a. Yuma - Historic Park legislation ( 541.5 1 1.1 1 . c. 1)
b. Fool Hollow - USFS, G& F, City, Electrical Utility
L Tubac, Camp VerdeIFort Verde, FlorenceiMcFarland, Oro
ValleyICatalina, Oracle, PaysoniTonto
4. Tribes
a. Hopi/ Homolovi
5. Universities
a. Boyce Thompson
Where privatization is difficult.
Privatizing an entire park.
1. Legal problems
a. Liability ( State remains the deep pockets)
b. Land issues ( ASP manages 61,000 acres, owr~ sa bout 113)
Costs
a. State Parks are cheap ($ 6.8 mil GF for 30 parks, less that . O1 of 1% of
total GF - less than half of what other states spend)
b. Enhancement Fund vs. agency reliance on GF " cherry piclung"
c. Resources shifted from operating parks ( our core mission), to
accounting and monitoring contracts ( not our core mission)
d. Not what the public, your constituents and neighbors, and our
customers, desire. The vision for Kartchner Caverns is not to present
it to Sen. Bee, but to insure that Sen. Bee's great- great grandchildren
see the cave in the same condition that the cave's discoverers first saw
it. While it's important that we use our resources, fiscal, human and
physical, wisely, we as government are not required to wring evexy
last dime from our properties.
3. Other challenges include the remote location of parks ( Alamo), and the
profitability of park resources.
Questions for Committee
1. Welcome any suggestions for places to look for privatization
opportunities.
Adoption 1 Foster Care Privatization
I . " Budget Reduction Options " porn last session
Proposal: Privatization of Adoption
Savings: $? GF
Brief Description: This option would further privatize the state's adoption system. The
state already uses private entities to help place children who are wards of the state into
adoptive families. This option would transfer more of these responsibilities, particularly
case management, to the private sector. It is unknown at this time how much money
would be saved under this option.
Proposal: Privatize Foster Care
Savings: $? GF
Brief Description: This proposal would further privatize the state's foster care system.
The state already uses private entities for out- of- home placements of children taken into
the foster care. This option would transfer more case management responsibilities to the
private sector. It is unknown at this time how much money would be saved under this
option.
2. Kansas experience
In 1995, Kansas privatized the child welfare system ( family preservation, foster care, and
adoption). At the same time, it put a significant amount of additional money into the
system. For this reason, it is impossible to determine whether privatizing the child
welfare system saved ( or cost) the state money.
3. Other notes
Laws 1998, Chapter 276 mandated DES to contract for a comprehensive actuarial study
to determine the costs of delivering a continuum of services to children and their families
by Child Protective Services. The study looked at the costs of delivering Out- of- Home
Care, Adoption Services ( not subsidies), and case management. There has been no study
of adoption case management by DCYF vs. private providers.
SB 1375 as originally introduced in 1998 would have required DES to develop one flat
rate paid to providers for these types of services. For a number of reasons, JLBC Staff
could not provide a reliable fiscal impact statement at that time.
JLBC Staff
10/ 3/ 02
Joint Legislative Budget Committee
Staff Memorandum
1 71 6 West Adanis
Phoerzix, Arizona 85007
Telepl~ o~ l( e6: 0 2) 542- 5491
Facsimile: ( 602) 542- 1 61 6
DATE: October 8, 2002
TO : Senator Tim Bee
FROM: John Malloy, Fiscal Analyst
SUBJECT: PIONEERS' HOME
Background
The Arizona Pioneers' Home was established in 1909 as a way to ensure that those individuals
instrumental to Arizona's development were properly cared for. Criteria for admission to the
Home has been modified to allow individuals that have lived in Arizona for over 30 years to gain
admittance. This change in statute was enacted recognizing the fact that the number of
individuals that played a role in Arizona's development has diminished significantly, making the
current Arizona Pioneers' Home a place for long- term residents rather than true " pioneers."
There are currently 122 residents at the Pioneers' Home with a staff of 116. Alaska and
Wyoming are the only other states with a Pioneers' Home.
Pioneers' Home Funding
The Home is hnded through General Fund ~ noniest, h e Miners' Hospital Fund and the State
Charitable Fund. In FY 03, the Pioneers' Home was appropriated $ 5.5 million - $ 285,300 in
General Fund monies, $ 4.5 million from the Miners' Fund and $ 715,000 from the State
Charitable Fund.
Miners' Hospital Fund
The Miners' Hospital Grant consists of 47,771 acres derived from the 1912 Miners' Hospital for
Disabled Miners' Grant and an additional 47,843 acres from the 1929 Miners' Hospital Grant.
State Trust lands benefit 14 trust beneficiaries in the state of Arizona. In addition to miners, state
trust lands benefit a multitude of recipients including the University of Arizona, military
institutes, agricultural and mechanical colleges, School for the Deaf and Blind, state hospitals,
Department of Corrections as well as legislative, executive and judicial buildings. Common
Schools ( K- 12) are the largest beneficiary, owning 87% of the land and receiving close to 90%
of the revenue.
The 1912 Miners' Hospital grant consists of blocks of grazing lands in seven areas:
11,500 acres near Picacho Peak;
- 2 -
10,000 acres in the Florence Junction and Magma areas of Pinal County;
1,800 acres near Skull Valley in Yavapai County;
3,800 acres near Vail in Pi~ naC ounty;
5,400 acres north of the San Francisco Peaks in Coconino County;
6,200 acres near Bonita in Graham County;
5,100 acres near Gleason in Cochise County
The 1929 grant contains smaller parcels of land scattered throughout all of the counties of
Arizona. According to the Land Department, many of the parcels are valuable and have
development potential, most notably in Case Grande, Mesa, San Luis, Topock, Lake Havasu
City, Buckeye and Mammoth areas. The Trust also owns a partial interest in Colorado River-front
lands at Bullhead City.
Miners' Hospital Fund Acres and Income - Fiscal Year 2001
Acres Income
Expendable Fund:
Surface Leases
Agriculture 13,877 $ 265,000
Co~ n~ nercial 5 94 697,000
Grazing 73,915 3 0,000
Rights- of- way 1,998 13,000
Use Permits 3,053 39,000
Subsurface Leases
Mineral 119 100
Exploration Permit 225 900
Sub- Total 93,781 $ 1,045,000
Penalty and Interest 28,000
Sales Interest 7,000
Treasurer's Distribution 307,000
Grand Total Dispensable $ 1,387,000
Unexpendable Permanent Fund (" Corpus"):
Permanent Fund Receipts 490,000
I
Permanent Fund Balance $ 4,900,000
Resident's Eli~ ibilityf or Federal Rein~ bursen~ ent
A. R. S. 3 41- 923 requires that residents of the Pioneers' Home pay for costs incurred for care, to
the extent that the resident is able to do so, with any residual costs then paid for by the State. In
calculating payment for care, the Home takes into consideration income earned through social
security and pension payments as well as all interest earned on income and assets. The Home
also attempts to seek reimbursement for care provided to individuals qualifying for such
programs as AHCCCS and Supplemental Security Income ( SSI). The AHCCCS Program for
which the Home residents could qualify ( if they met income guidelines) pays Medicare
premiums for the enrollee. It does not provide direct reimbursement to the Home. In addition,
the Home is not licensed and is not eligible for Medicare reimbursetnent. The SSI Program
provides supplemental payments to eligible individuals and also does not provide direct
reirnburseme~ t~ ot the Home.
The Home has recently hrnished information to JLBC Staff indicating that 47 residents qualify
for AHCCCS and 6 for SSI out of a total of 122 residents. Currently, the Home is not able to
receive Arizona Long- Term Care System ( ALTCS) reimbursement monies from the federal
government due to the Home not meeting licensure and regulatory requirements. The Home is
not licensed due to a number of structural issues in the building that do not meet licensure
standards. The ALTCS program is designed to provide reimbursement to nursing facilities. As
such, if the Home were licensed, & TCS would likely pay for the cost of care for some residents
of the Home. The Home does not attempt to determine eligibility for this program, therefore
JLBC Staff is unable to determine how much ALTCS reimbursement would be available if the
Home were able to meet licensure standards.
While there has been no dollar figure associated with the costs of rehrbishing the Horne to meet
federal standards for these reimbursement monies, the Arizona Department of Administration in
1997 indicated the Pioneers' Home required $ 7.9 lnillion in repairs to " make it safe" for
residents. Current maintenance projects have included a $ 1.2 million expenditure to address fire
safety issues as well as $ 1.3 lnillion to overhaul the Home's plumbing system.
Alternatives
The 1997 Auditor General's Report offered alternatives in operation of the Home, which remain
salient recognizing declining revenue sources for capital improvements and ongoing
maintenance needs. The Home could reduce the scope of care provided to residents, offering
personal care only. Those individuals requiring high levels of care could be discharged to a
nursing home facility. Such a shift in scope would reduce staff costs as well.
The report also suggested that a phase- out option for the Home could be utilized, where no new
residents would be accepted with time allowed for current residents to find new living
arrangements and staff new places to work. Such a phase out would eliminate any liability
issues associated with residents living in the Horne.
A third option, not mentioned in the Auditor General report, would be to discontinue state
subsidies for residents who cannot pay the full cost of care. This option would require a
statutory change. A variation of this option would be for the Home to tighten its requirements
regarding residents' assets. Currently, only interest earnings are considered in assessing
residents' ability to pay. This could be changed to be more similar to the ALTCS program to
require assets to be spent down to a prespecified level before the state subsidizes the cost of care.
Alaska and Wyoming, which both operate Pioneers' Homes, require assets to be spent down to a
particular level before the state contributes additional funding.
If you have any questions or require additional information, please contact me at 542- 5491
JM: ck
xc: Richard Stavneak, Director
Deborah Johnston, Director, Senate Research Staff
Education Formulas
Arizona Fiscal
Accountability Committee
Working Group on
Education Funding Formulas
Criteria for Reform
Avoid redundancy Accountable
Flexible Predictable
Timely Realistic
Divisible Efficient
EquitableFair
Initial Focus
TRCL versus TSL
Career ladder
Community college equalization
TRCL: Problem
Transportation Revenue Control Limit ( TRCL)
grows through increases in transportation support
level ( TSL); TRCL never declines
State equalizes DSL ( which includes TSL) or RCL
( which includes TRCL) whichever is less
District budgets are set using RCL, meaning local
property taxes pick up the difference
a Roughly equal in 1980; now a $ 48 million
difference
TRCL: Problem ( continued)
Responsible for high property tax rates in
numerous districts
Approximately $ 10 million in additional state aid
for 35% homeowner rebate
Not required to be spent on transportation;
creates inequities across districts
TRCL: Policy Options
Reduce TRCL by prescribed percentage until
TRCL matches TSL, at which point TRCL is
eliminated
Cap TRCL
Eliminate TRCL
Consolidation and unification of school districts
should be considered and encouraged to
maximize efficiency in pupil transportation
Career Ladder: Problem
Applies to only 28 school districts; capped due to
cost; questions raised about effectiveness
General fund impact approximately $ 35 million
( plus additional state aid for homeowner rebate)
Conflict with Arizona's adopted statewide policy
regarding pay for performance
Career Ladder: Policy Options
Eliminate program
Phase program out
Community College Equalization:
Problem
Formula driven by average NAV in eight " rural"
districts; not related to student population, need,
or tax effort
Valuation growth in Coconino and Yavapai
driving a wedge; four to five districts qualifying
for funding
Created to grandfather EAC into system
Grew about $ 2.9 million ( 35%) between 1997
and 2002 to over $ 1 1 million ( reduced for FY03
to $ 1 0.7 million)
Equalization: Policy Options
Eliminate
Fold specified amount into operating state aid
for most recent qualifying colleges
Fold specified amount into operating state aid
for EAC only
FISCALA CCOUNTABILIFTOYR MULIAS SUES
Version: 1 111 9/ 02
CRITERIA FOR REFORM
Avoid Redundancy:
Accountable:
Flexible:
Predictable:
Timely:
Realis tic:
Divisible:
Efficient:
Counts should not be duplicative or overlapping for a single service.
Key components are understandable and verifiable by appropriators,
taxpayers, and beneficiaries.
Govenlrnent should maintain the ability to adjust appropriations in
accordance with available revenue and changing priorities.
Elements of formula must be able to be both estimated and to have the
actual distribution calculated accurately.
Reflect current activities.
Provisions that recognize both inflation and productivity.
Allocated within the organization to get to the people generating the
money.
Formulas should serve their intended purpose and provide appropriate
levels of funding.
Treats both beneficiaries and taxpayers equitably and fairly.
Formulaic funding in general
Most state spending is driven by statutory and budgetary formulas that provide greater funding
for per capita and inflationary increases.
3 Counts: A main co~ nponenot f most legislative foilnulas is based on who and how we count
persons intended for a particular govemnent service.
3 Inflation factors: Automatic, mandatory inflation adjustments can reduce flexibility.
K- 12
3 Prior year versus current year: Prior- year funding can result in duplication in cases where
students move from one district to another district or charter.
3 Open enrollment versus " refusal by students to attend classes": Open emollment laws
include an exception for desegIOCR districts who can continue to claim students that have
left the district.
3 TRCL versus TSL: $ 48 million discrepancy results in inequitable tax rates and
uncontrolled general fund impact.
3 Additional state aid and unlimited levies: Efforts to refonn excess utilities and desegiOCR
continue to meet with resistance.
3 Group B weights for ELL: Doubling of ELL weights created increased finanacial incentive
to misclassify and over- identify students.
G Career ladder: Available to a limited number of school districts while perfor~ nancep ay has
become a statewide policy since the enactinent of Prop. 301.
? Special Education ESY weights: Financial incentive to misclassify mild special education
cases.
3 Vouchers: School choice grants provide an opportunity to reduce state funding requirements.
? JTEDs: Student couilts between school district and JTED can add up to 1.25 ADM. Who is
checking?
K- 12 Capital ( Students FIRST)
3 Minimum Adequacy Guidelines: Are the standards set too high? Are they dealing with
areas beyond the scope of SFB?
P Building Renewal and New Construction: Are formulas generating appropriate levels of
funding?
3 5% add- on for " rural area": Should new construction and building renewal formulas
automalically add 5% for rural areas? If so, does the statutory definition of rural make
sense?
3 Class I3 bonds and gross square footage: New coilstruction square footage funded by class
B bonds or overrides is invisible to the state in its gross square footage calculations.
3 Inflation indexing: New construction and building renewal formulas are indexed for
inflation.
Community College
3 Dual enrollment: Students in dual enrollment programs continue to be counted by both the
high school and the college for the same " seat time" as if it were two students.
3 Hold harmless: Operating state aid for colleges increases through student growth, but never
decreases for declining student counts.
3 Equalization assistance: State aid going to 4- 5 rural districts, driven by assessed value
growth in Yavapai and Coconino. No relation to college need or student growth.
ASRS: Imminent actuarial increases
3 Increases in benefits over last 5 years affecting future budget years: Increases authorized
in 2001 are impacting 2004. Decreases in the stock market are exacerbating the problem.
Pre- funding benefit increases would add accountability.
Dept. of Corrections
" r Alternatives to new beds
State & Local Relationships
3 Budgetllevy oversight ( PTOC, County BOS)
3 Revenue sharing
3 1% cap implications
Other issues needing analysis
3 Transportation issues
3 Business property taxes
3 Health care inflationary increases
3 University formulas and tuition
State Shared Revenues
State- Shared Revenue Worksheet
Urban Revenue Sharing
FY 2002 Individual lncome Tax: $ 2,086,648,700
FY 2002 Corporate Income Tax: $ 346,280,400
Subtotal: $ 2.432.929.100
FY 2002 BSF Alt- fuel Transfer: $ 33,277,654
Total: $ 2,466,206,754
~ rnountRl educed FY 2004 1
I I
(*) Assumes cities are " held harmless" for FY 2002 BSF alt- fuel transfer - distributed @ 15%.
Percentage Distributed in FY 2004 Distributed
14.8% $ 365,065,155
State Sales Tax
Distribution
Cities Counties Total
FY 2002 Actual Distribution: $ 31 1,693,101 $ 505,067,501 $ 816,760,602
Projected FY 2003 Distribution: $ 31 5,610,900 $ 513,434,000 $ 829,044,900
( based on 0.7% baseline growth)
Projected FY 2004 Distribution: $ 323,417,100 $ 526,133,000 $ 849,550,100
( based on 2.5% baseline growth)
Reduced FY 2004 Distribution
State- Shared Sales Tax Reduction
One- Year Lag:
( distribute FY 2003 amount in FY 2004)
Two- Year Lag:
( distribute FY 2002 amount in FY 2004)
state- shared worksheet. xls
12/ 7 1/ 02
Cities Counties
$ ( 7,806,200) $ ( 12,699,000)
$ ( 1 1,723,999) $ ( 21,065,499)
Total
$ ( 20,505,200)
$ ( 32,789,498)
Copyright: Federal Funds Information for
States. Reproduction without permission
of the publisher is prohibited.
In This Issue
State- Local Relations 2
It is often observed that, " Local governments are creatures of
the state." This can be a good thing or a bad thing, depending
on which state is calling the shots. Variation in the degree to
which states help- or don't help- their local governments is
enormous and may change even more if the economy remains
in a slump.
State Aid to Local Governments 2
Local Requirements 9
What's Driving Auto Insurance Rates? 12
To what degree should states regulate the auto insurance
industry? The current situation ranges from near- deregulation
to almost total regulation. Advocates of both approaches use
state experiences to defend their positions.
Greasing the Squeaky Wheel 17
It's hard to h o w if Medicaid spending pressure is a cause or
an effect of economic problems in the states, but one thing is
certain: when Medicaid costs are out of whack, the rest of the
state budget is too. No wonder, then, that Medicaid figures
prominently in the stimulus proposals that state organizations
sent to Capitol Hill.
Technical Notes 23
October 2001
Sta te - Loc al The fiscal outlook for state governments is deteriorating. In recent months, states have lowered revenue estimates, reduced budgets and confronted
Relations simificant expenditure pressures. Taxpayers, accustomed to years of
consecutive tax cuts, will likely resist large tax increases. At the same time,
the outlook for federal aid to states is uncertain. While Cong- ress will
approve sizeable funds for an economic stimulus package, the president's
education priorities and defense spending, other areas- such as health and
human service programs- may bear the brunt.
If states are hard pressed to maintain funding for current state programs, it
follows that state aid to local governments will likely suffer in the coming
legislative sessions. Many states may even decide to shift some of the costs
of providing services to counties and localities-- either through reduced aid
or unfunded mandates. In fact, counties in two states- California and
Kansas- already have suffered budget cuts this year.
The most recent data detailing the financial relationship between state and
local governments was released by the Census Bureau in September. It
provides information on intergovernmental transfers between state and
local governments for fiscal year ( FY) 1999.
State Aid to Aid to local government is the largest component of state expenditures.
Local State governments provided local governments with $ 301 billion in FY
1999. This accounts for approximately 34% of total state expenditures. The
GovernmentS table on the next page shows payments to local governments as a percent
of total state expenditures.
State aid to local governments takes many forms, such as direct grants- in-aid
( transfers of funds on a formula basis, such as for education), shared
taxes ( distributing a portion or all of the revenue from a specific state tax
or taxes) and reimbursement by states for the costs of certain programs
carried out by localities ( such as tax collection, care of prisoners and
hospital care for the needy).
Under the Census Bureau's definition, state aid must involve the actual
payment of money to local governments. So if a state assumes
responsibility for a function, it does not count as state aid. The treatment of
property tax relief varies by the type of relief provided. If a state provides
funds to localities to pay for property tax exemptions or credits, the Census
Bureau counts this as aid. If, however, property tax relief is provided
directly to taxpayers ( such as through refund checks), this is not counted as
aid.
State Policy Reports Vol. 19, Issue 19
State Aid to Locals as a Percent of State General Expenditures
Fiscal Year 1999
Rank State Percent Rank State Percent
1 California 49% 26 Colorado 30%
. .
2 gar^ 4 6 27 Nebraska 3 0
' 3 Arizona 4 5 28 Washington 30
4 Wisconsin 43 29 Missouri 2 9
Nevada
New York
Minnesota
Kansas
Wyoming
Ohio
Indiana
North Carolina
United States
Florida
Mississippi
Oklahoma
Idaho
New Mexico
Arkansas
Oregon
Illinois
Georgia
Virginia
Texas
New Jersey
Iowa
Vermont
Pennsylvania
Tennessee
Alabama
South Carolina
Maryland
Massachusetts
Louisiana
Utah
West Virginia
Kentucky
North Dakota
Montana
South Dakota
Connecticut
Delaware
Maine
Alaska
Rhode Island
New Hampshire
Hawaii
State aid to local governments as a percent of state expenditures ranges
from 49% in California to 3% in Hawaii. Fourteen states spend more than
one- third of their budgets on local aid while four states- Alaska, Rhode
Island, New Hampshire and Hawaii- spend less than 20%.
The amount of money states give to local governments varies widely
among states due to variations in the mix of state and local responsibilities,
local revenue- raising powers and geographic differences. States assuming
greater responsibility for services eliminate the need to fund programs
through local governments. Hawaii (# 50), for example, funds almost all of
K- 12 spending at the state level.
States that provide local govemments with greater ability to raise revenue
tend to have a smaller percentage of their expenditures going to local
govemments. Local income taxes are widely used in Pennsylvania (# 31)
and Maryland (# 35). Louisiana (# 37) allows New Orleans to levy a 5%
local sales tax rate on top of the 4% state rate.
Srate Policy Reports Vol. 19, Issue 19
Generally speaking, smaller states tend to be fiscally centralized and thus
fund many programs that local governments handle in larger states. This
helps to explain why nine of the 10 bottom- ranking states are among the 10
lowest states in population. In contrast, states with large populations tend
to be fiscally decentralized. California (# I) and New York (# 6) are
examples of this. Physically large and sparsely populated states, such as # 3
Arizona, # 4 Wisconsin and # 5 Nevada, also rank at the top. These states
must provide services across a wide area and, thus, are unable to take
advantage of economies of scale. For example, they tend to have many
school districts even though they have relatively few students.
The next table shows the percentage of local government revenue that
comes from state governments. For the most part, states receive similar
rankings on both tables. The most interesting states are those that rank high
on one table but not on the other.
For example, Delaware, Kentucky and West Virginia provide a small
amount of state aid to local governments but that aid makes up a large
portion of local government revenue. These states limit the ability of local
governments to levy their own taxes.
Percentage of Local Revenue from State Governments
Fiscal Year 1999
Rank State Percent
1 Vermont 5 7%
2 New Mexico 5 0
3 Michigan 48
4 Delaware 4 7
5 Wisconsin 4 5
6 California 4 5
7 West Virginia 44
8 Minnesota 4 1
9 Arkansas 4 1
10 Mississippi 4 0
1 1 Idaho 4 0
12 North Carolina 19
- 13 Arizona 3 9
14 Massachusetts 39
Nevada
Kentucky
~ iabama
Oregon
Washington
Iowa
Kansas
Wyoming
Pennsylvania
Utah
Oklahoma
Indiana
Rank State Percent
United States 35%
Louisiana
Ohio
Alaska
North Dakota
Montana
Virginia
South Carolina
New York
Missouri
Georgia
Tennessee
Illinois
Connecticut
New Jersey
Maine
Florida
Nebraska
Maryland
Texas
Rhode Island
South Dakota
Colorado
New Hampshire
Hawaii
Stale Policy Reports - 4 - Vol. 19, Issue 19
At the other end, New York, Florida, Texas and Colorado provide a large
amount of state aid but that aid is a relatively small percentage of local
govenlment revenue. Local governments in these states raise a significant
portion of their total revenue. For example, localities in New York raise
more than half of the total state and local revenue in the state.
Trends in State The table below shows the trends in state aid to local governments. State
Aid aid accounted for approximately 60% of state expenditures in 1980 but
dropped to 35% in 1985. The reduction had more to do with a substantial
increase in state expenditures than a change in aid to locals. General state
expenditures grew from $ 144 billion in 1980 to $ 345 billion in 1985, an
increase of more than 140%. The 198 1- 1983 recession resulted in large
increases in state spending for AFDC ( the welfare program in place at that
time) and Medicaid. States also increased spending on education as a result
of political pressure to reduce local property taxes and a flood of legal
challenges. Since 1985, payments to local government have remained at an
almost- constant percentage of total state expenditures.
State Aid to Locals as a Percent of General Expenditures
( Dollars in millions)
Fiscal Year State Aid State Expenditures Percent
1980 $ 84,504 $ 143,718 59%
Composition of State aid to local governments is divided into two categories- restricted or
State Aid categorical aid and unrestricted or general purpose aid. Restricted aid
includes revenues that must be spent on a specific area while unrestricted
aid has no requirements as to how it is spent.
Approxin~ ately 93% of state aid to local governments is restricted. The
next table provides a breakdown of restricted state aid to local
gover~ unents for the four major spending categories- education, public
welfare, highways and health. By far, the majority of aid to local
governments is for education. In 1999, education expenditures accounted
for approximately 69% of aid to local governments, followed by public
welfare ( which includes Medicaid) at 13%. Highways and health made up
about 4% and 5%, respectively. The other category includes items such as
government support, housing and comn~ unity development, libraries,
corrections, hospitals and airports.
State Policy Reports Vol. 19, Issue 19
State Aid to Locals by Category
Public
State Total Educatiorl welfare Highways Health Other
Alabama 100% 89% 0% 5% 0% 5%
Alaska 100 7 3 0 3 6 18
Arizona 100 5 7 22 10 5 7
Arkansas 100 S S 0 5 0 6
California 100 5 S 27 3 7 4
Colorado 100 64 19 8 1 8
Connecticut 100 7 0 7 1 5 16
Delaware 100 87 0 1 1 11
Florida 100 89 0 2 0 8
Hawaii 100 0 0 0 44 56
Idaho 100 S7 0 10 1 2
Illinois 100 6 9 12 6 1 12
Indiana 100 6 1 4 12 1 2 1
Iowa 100 76 0 14 4 6
Kansas 100 87 0 5 3 4
Kentucky 100 8 3 2 3 4 8
Louisiana 100 S 3 2 2 0 13
Maine 100 S 9 1 3 0 7
Maryland 100 70 0 10 7 13
Massachusetts 100 6 6 2 4 0 27
Michigan 100 7 2 2 8 12 5
Minnesota 100 7 0 10 8 2 10
Mississippi 100 78 7 7 2 6
Missouri 100 S 3 1 6 0 10
Montana 100 S 1 1 3 2 13
Nebraska 100 6 6 0 11 10 12
Nevada 100 9 1 2 4 0 3
New Hampshire 100 53 2 1 6 6 14
New Jersey 100 7 6 13 4 0 7
New Mexico 100 9 6 0 1 0 3
New York 100 4- 1 3 5 0 6 15
North Carolina 100 S 4 5 1 6 4
North Dakota 100 7 3 0 11 2 13
Oklahoma 100
Oregon I00
Pennsylvania 100
Rhode Island 100
South Carolina 100 85 0 4 3 8
South Dakota 100 SO 0 6 0 14
Tennessee 100 7 2 10 8 0 10
Texas 100 S5 5 0 4 6
Utah I00 95 1 1 2 1
Vermont 100 93 0 5 0 2
Virginia I00 7 2 7 3 3 15
Washington I00 79 0 8 2 11
West Virginia 100 9 4 0 0 1 5
Wisconsin 100 75 4 7 6 8
Wyoming 100 S 7 0 1 4 12
United States loo'%, 6 9 '>:, 13% 4% 5% 9 O/ O
Stale Policy Reports - 6- Vol. 19, Issue 19
The national averages mask the situation in individual states. Six states-
Nevada, New Mexico, Rhode Island, Utah, Vermont and West
Virginia- spend more than 90% of their state aid on education while New
York spends less than 50%.
An unusually high proportion of state aid in Arizona, California,
Colorado, New Hampshire, New York and Pennsylvania is spent on
welfare because local governments in these states have greater
responsibilities for such services than in other states. In some cases, local
goven~ lnentsa ctually administer welfare or assistance programs directly.
Hawaii, in contrast, provides most state and local services at the state
level, so local governments don't receive funds for education, public
welfare or highways.
Unrestricted Aid Unrestricted aid is given to local governments with no stipulations or
specification as to how it is spent. Zn other words, local governments may
spend the aid according to their own priorities. General local government
support has decreased slightly as a proportion of total state aid, from 8% in
1993 to 7% in 1999. States that provide larger amounts of unrestricted aid
instead of restricted aid generally give more control to local units. The next
table sliows unrestricted aid as a percentage of total aid to local
goven~ ments.
Unrestricted Aid as a Percentage of Total Aid to Locals
Fiscal Year 1999
Stale Policy Reporls
Rank State Percent
1 Hawaii 74%
2 Nevada 3 1
3 New Mexico 26
4 Wisconsin 2 3
5 Massachusetts 23
6 South Carolina 2 1
7 New Jersey 2 0
8 Florida 19
9 Mississippi 19
10 Wvornin~ 18
11 Arizona 18
12 Minnesota 16
13 Illinois 1 1
1 J Maine 1 1
I5 Indiana 10
16 New Hampshire 9
17 North Dakota 9
IS Michigan 9
19 Tennessee 9
20 ldaho 8
2 1 Rl~ ode Island 7
21 North Carolina 7
23 Montana 7
United States 7
24 California 6
25 Iowa 5
- 7 -
Rank State Percent
26 Arkansas 5%
27 Louisiana 4
2 8 Kansas 4
29 Connecticut 4
3 0 Oregon 3
3 1 Alabama 3
3 2 South Dakota 3
33 New York 2
3 4 Alaska 2
35 Nebraska 2
36 Washington 2
3 7 Oklahoma 2
3 8 Pennsylvania 2
39 West Virginia 1
40 Maryland 1
4 1 Vermont 1
42 Virginia 1
43 Texas 0
44 Colorado 0
45 Missouri 0
4 6 Ohio 0
47 Delaware 0
47 Georgia 0
4 7 Kentucky 0
4 7 Utah 0
Vol. 19, Issue 19
On average, unrestricted aid accounts for 7% of total aid to local
governments. The percentage of unrestricted aid ranges from 74% in
Hawaii to approximately 0% in eight states- Texas, Colorado, Missouri,
Ohio, Delaware, Georgia, Kentucky and Utah. Hawaii provides a large
percentage of unrestricted aid but the amount is insignificant; local
govenlments received $ 102 million in unrestricted aid and $ 139 million in
total aid in FY 1999. In contrast, other states with large percentages, such
as # 2 Nevada, # 3 New Mexico and # 4 Wisconsin, provide substantial aid
to local governments.
States that provide very little in total aid to local governments as well as no
unrestricted aid include Utah, Kentucky and Delaware. Ohio and
hlissouri give local governments a significant amount of aid but all of the
aid is for specific purposes.
Recent Changes The National Association of State Budget Officers ( NASBO) tracks
changes in state aid to local government in The Fiscal Suwey of States. A
few major changes have taken place in recent years. West Virginia began
distributing approximately 10% of its oil and gas severance tax revenue to
local governments in the form of revenue sharing. Michigan capped its
state revenue- sharing program- which distributes state- collected sales tax
as unrestricted revenue to local governments- at the rate of inflation.
Connecticut increased aid to local governments by 10% in FY 1999.
Indiana removed the support for selected welfare costs from local property
taxes and transferred the costs to the state. New Hampshire and Vermont
dranlatically increased state funding for local education costs. Virginia
now uses all lottery proceeds for local public education.
More than half the states enacted changes in aid to local governments in
FY 2001. Four states- Florida, Kansas, Louisiana and New Mexico-reduced
aid to local governments. In Florida, local governments are
expected to lose $ 7 million due to various new sales tax exemptions.
Moreo\ le~- t, h e dollar amount of county revenue sharing was reduced by
$ 43 m~ llion, or 12.4%. Local government aid in Kansas was reduced by
approxi~ llately$ 50 million. Louisiana reduced the tobacco tax distribution
by $ 12 million.
Many states increased aid to education and provided property tax relief.
Montana, for example, increased aid to local governments by $ 42 million
to offsct the effects of a statewide property tax reduction.
Stale Policy Reports Vol. 19, Issue 19
Local While states provide local governments with a considerable amount of aid,
local govelllments are required to provide financial and administrative Requirements support for many state programs. III some cases, the state requires locals to
contribute all or a portion of the state matching requirements for federal
funds. Other times, states place conditional requirements that local
governments must meet if they want to participate in optional programs or
receive aid. And in some instances, local governments are required to fund
and administer a program.
Typically, local officials consider these requirements to be state mandates
on local governments. Although there are valid arguments for and against
these requirements, states have the upper hand and most are in a position to
impose luandates on local governments without providing the funds to pay
for them.
Local governments in 33 states provide some degree of financial support
for health and human service programs, according to the National
Associ~~ tioonf Counties ( NACo). Some local governments are required to
provide aid ( for example, providing a portion of the Medicaid match) while
others have chosen to do so. ( For example, providing general assistance is
a county option in many states.) The table on the next page shows county
participation in each state for the major programs.
The extent of financial requirements varies widely among states. Certain
states require local govemments to bear a greater burden of funding
services than other states do. Local governments in seven states-
Califol- nia, Colorado, Indiana, Montana, New York, North Carolina
and Ohio- provide significant hnding for health and human service
programs. Counties in a few of these states- most notably Colorado, New
York and Ohio- actually administer some of the programs. There are costs
and benefits to this. While most agree that local service provision is
generally more responsive to the needs of residents and often less costly,
local officials argue that states either fail to provide adequate fiscal
assista~ iceo r place restrictions on the ability of local governments to raise
the revenue they need to run the programs.
In contrast, some states have minimal county involvement. Counties in
Idaho and Georgia, for example, do not run TANF or child welfare
programs, but they do have general assistance programs that cover services
such as housing, rent, utilities and transportation. Counties in Utah and
New hlexico contribute to Medicaid only. Utah requires counties to
providc: 20% of the state's Medicaid matching rate. Similarly, counties in
New Ivlexico contribute about 7% of the total Medicaid budget. Counties in
Kansas and Missouri administer the child support enforcement program
only.
Stale Policy Repor- is Vol. 19, Issue 19
County Participation in States' Health and Human Services Costs
Medicaid TANF Child
Statc Medicaid Admin. TANF Adrnin Foster Care Support Other
Alabama
Alaska
Arizona
Arkansas
California X X X X X
Colorado X X X X X X
Connecticut
Dela\ vare
Florida X X
Geoi. gia X
Hawaii
Idaho
Illinois
Indiana
Iowa X X
Kansas X
Kentucky
Louisiana
Maine
Mar! land X X
Massachusetts
Micli igan
Minnesota
Mississippi
Missouri X
Monlana X X X X X
Neb1 asks X
Nevada X X X X
New Hampshire X X
New Jersey X X X X
New Mexico X
New York X X X X X
Nortll Carolina X X X X X X
Nortli Dakota X X X X
Oliio X X X X X
Ol< la!~ o~ na
Orego11
Pennjylvania X X X
Rhotle Island
Soutii Carolina X X X
Soutli Dakota X X
Tennessee X X
Texas X X
Utali X
Verniont
Virgiiiia X X X X
Wasliington
West Vlrginia
Lliisconsin X X X X
Wvo~ ning
Totn I 15 10 11 12 10 19 22
Slate Policy Reports - 10- Vol. 19, Issue 19
Medicaid The Mcdicaid program provides federal matching funds to states to pay for
medical services for poor, elderly and disabled recipients. For program
administration costs, the federal government contributes 50% for each
state. For illedical services, the federal matching rate varies among states
based on per capita personal income. Most states contribute general fund
appropl- iations as their Medicaid match, although some states also require
local governments to contribute a portion.
Local govenlments in 22 states provide matching funds for Medicaid.
Seven states require a contribution for administrative costs only, 12 states
require county contribution for vendor payments only and three states-
Indiana, Nevada and North Carolina- require both. In Nevada, for
example, counties pay all of the administrative costs and a portion of the
vendor payments.
The dcgree of local contributions varies considerably among states.
Counties in California are required to contribute a relatively small portion
of adm~ nistrative costs while counties in Arizona pay almost all of the
non- fetleral share for long- term care for the elderly and disabled and fund a
portion of acute care. Localities in six states contribute 50% or more of the
costs for at least some services while five localities pay 50% or more for
adilllll~ strativec osts.
TANF The 1996 welfare reform law changed the welfare program from an open-ended
entitlement program to a block grant- the Temporary Assistance to
Needy Families ( TANF) program. While states no longer provide matching
funds, tl- iey nlust maintain certain spending levels.
Local governments in 14 states provide funds for TANF. Indiana and New
Hampshire require counties to contribute to program costs and
Minnesota, New Jersey and Virginia mandate local support for
admillistrative costs. In addition, local governments in nine states provide
funds Ior both program and administrative costs: California, Colorado,
Rtal- yl: ind, Montana, New York, North Carolina, North Dakota, Ohio
and Miisconsin.
A few counties administer TANF rather than provide financial support to
the state. In Colorado, counties administer TAhF, foster care, child
welfarc and child support enforcement. Local governments in North
Dakot;~ a dnlinister and pay a portion of the TANF program.
Other Human Many ! ocal governments provide funds for foster care, child support and
other 1. iuman service programs, such as general assistance and support
Service Programs s e ~ ~ i c eLro. c al governments in 10 states provide support for foster care
costs. For example, counties in California pay 60% of the state match for
both n? nintenance and administration.
State Policy Reports Vol. 19, Issue 19
Of all the health and human service programs, child support receives the
most assistance from local governments. Ln many cases, child support is
administered at the county level through the courts.
Future
Outlook
States are free to choose how they set up the delivery of public services. Ln
general, states pay for and administer most programs for which there are
unifonn statewide benefits and eligibility. However, some states look to
local govenlnlents to administer programs and to provide financial support.
This is espec~ allytr ue during times of fiscal stress.
There already is growing evidence that states are shifting some of the costs
of pro\ ing services to locals- through reduced aid, unfunded mandates or
both. AI- izona's governor plans to ask the legislature at its November 13
special budget reduction session to cut state revenue sharing with cities and
countlcs by $ 50 million. A proposal in Iowa would reduce the amount of
funds set aside for local property tax replacement programs. This would
force local governments to scale back property tax credits or cut spending.
Counties in New York recently asked the state to cap the local share of
Medicaid expenses.
States frequently battle with federal lawmakers over unfunded mandates or
reduced aid for grant programs. Yet, at the same time, many states do the
salne to local governments. As state policymakers lobby the federal
government for increased support during difficult times, they will hear
more about mandates- both existing and proposed- from local
governments. Existing requirements likely will become even more
burdellsome to local governments as local revenue sources diminish and
expend~ ture pressures grow. And new mandates will face even greater
opposit~ onb y local lawmakers. Still, local governments are creatures of the
states and will always be subject to federal and state politics and policies.
Technical Notes State- Local Relations. The Census Bureau in the U. S. Department of
Commcl- ce collects data on intergovernmental transfers as part of its series
011 state and local finance ( www. census. org). State rankings are based on
actual ~ iumbersra ther than the rounded amounts shown on the table.
Count), l~ al- ticipationin states' health and human services costs is from the
Nationnl Association of Counties. It is based on information provided by
state associations of counties in March 1995. The information has not been
updated. Infonl~ ation on recent proposals comes from www. stateline. org.
Auto I nsul- ance. The data on auto insurance premiums and traffic density
is fi- o~? it he National Association of Insurance Commissioners. More
infonn,~ tion can be found at w\ w. naic. org. The testimony of AEI-Brookiilgs
is available at www. aei. brookings. org. Additional information
on ins~ irance regulation in California can be found on the Consumer
Stale Policy Reports - 1 2 - Vol. 19, Issue 19
- -
Federalion of America's website at www. consumerfed. org.
htedic: iid Rtatching Rates. The NCSL proposal was included in a letter
sent to President Bush ( www. ncsl. ora). The NGA proposal is on its
website at \ vww. nga. org. The report, " Federal Aid to State Medicaid
Programs is Falling while the Economy is Weakening," by the CBPP, is
available online at www. cbpp. org.
Copies of State Fact Finder 2001 Available
Reports subscribers can buy copies of the 2001 edition of State Fact
Finder for $ 45 per copy, plus shipping and handling. This CQ Press
publicarlon is a gold mine of state rankings. It includes rankings on
demogl- aphic and economic measures, as well as fiscal data relating to
taxes, employment and federal spending. It also highlights state rankings
in health care, welfare, education, transportation and criminal justice.
There ai- e more than 200 tables in all.
To order your copy, call Carol Ryder at 2021624- 5849 or send an e- mail
-- --
State I'ulicji Reports ( ISSN # 8750- 6637) is published twice a month by
Federal Funds Information for States ( FFIS) at an annual subscription rate
of $ 460 ( or $ 420 without State Fact Finder). Editor: Marcia Howard, 444
N. Capitol Street, NW, Suite 642, Washington, DC 20001 ( phone:
2021624- 5848, fax: 2021624- 7745, e- mail: mhoward@ ffis. org, website:
www. ffis. orc). For ordering and subscription services, contact Carol
Ryder at FFIS ( phone: 2021624- 5849, e- mail: cryder@ ffis. org).
State Policy Reports
C/ O Federal Funds Information for States
444 North Capitol Street, Suite 642
Washington, DC 20001
State Policy Reports Vol. 19, Issue 19
FY 1980 State and Local
Sales Tax Distributions
City Gen. Fund
17% 1
County Gen.
counties- state/
Shared
Shared
9%
State:
State Gen. Fund
Cities- State Shared
Counties- State Shared
State Total
Counties:
County Gen. Funds
Counties- Other
Counties Total
Cities:
City Gen. Fund
Total
Source: Arizona Department of Revenue; Arizona Tax Research Association
Y
ee F - C - F
City Gen.
Ct ~ nrl
Counties-
Other -
7%
County Gen.
Funds -
I Yo
FY 2000 State and Local
Sales Tax Distributions
State Shared
9%
Cities- State
Shared
State Gen.
Fund
53%
State:
State Gen. Fund
Cities- State Shared
Counties- State Shared
State Total
Counties:
County Gen. Funds
Counties- Other
Counties Total
Cities:
City Gen. Fund $ 1,251,435,566
Total $ 57 6 29 8 89 0 5
Source: Arizona Department of Revenue; Arizona Tax Research Association
FY 1990 Personal Income
Tax Distribution
Urban Re~ nue
Sharing
Other
0%
ieneral
t und
85%
State General Fund $ 845,224,634
Urban Revenue Sharing 150,622,581
Other 558,470
FY 1990 Total $ 996,405,685
NOTE: Cities and towns receive a percentage of both
personal and corporate income tax revenue based on the net
income tax collections two years earlier. The money
distributed for FY 1990 was based on collections in FY 88.
/'---\
Source: Arizona Department of Revenue; Arizona Tax Research Association
Urban
Sh
1
FY 2000 Personal Income
Tax Distribution
Revenue Other
ener
State General Fund $ 1,911,617,809
Urban Revenue Sharing 377,710,988
Other 2,553,642
FY 2000 Total $ 2,291,882,439
NOTE: Cities and towns receive a percentage of both ' a 1 personal and corporate income tax revenue based on the
Fund
84%
net income tax collections two years earlier. The
money distributed for FY 2000 was based on collections
in FY 98.
Source: Arizona Department of Revenue; Arizona Tax Research Association
Organizational Structure
School Facilities Board
Contribution Rates
Governor ofArizona
Jane Dee Hull
interim Executive Director
Edward E. Boot
Legislative Review Meeting of December 18, 2002
SFB Topics of Disc