Stimulus money hangs in balance  
Capitol Media Services
March  27, 2009



Lawmakers must reverse cuts to universities or lose $800M

By Howard Fischer And Evan Pellegrino

Tucson, Arizona | Published:

PHOENIX State lawmakers will have to restore at least $150 million in cuts they just made to higher education to keep Arizona from losing more than $800 million in federal education stimulus funds.

Draft rules by the U.S. Department of Education require states to use their allocations to help restore public support to the higher figure of what was being spent either this budget year or the previous one.

And it can't just be a one-shot deal: Documents from the federal agency obtained by Capitol Media Services show that the state must assure it will maintain the same level of support for education through the 2010-11 budget year. That bars the state from restoring money now and taking it back next year.

The regulations came as a surprise to lawmakers who, just last month, were told that they were free to cut education as long as the funding didn't go below 2006 levels.

But Rep. John Kavanagh, R-Fountain Hills, who chairs the House Appropriations Committee, said unless the final rules differ substantially or Arizona can get a waiver the state will have no choice but to restore the cash to the universities.

"I'm certainly not going to give up the stimulus money," he said, saying the amount Arizona will get far exceeds any obligations to provide more funds for higher education.

"It's fairly clear we need to give the money back" to the universities, Senate President Bob Burns, R-Peoria, agreed.

While some GOP lawmakers are upset about the federal rules and the need to give money back to universities Gov. Jan Brewer is not, her press aide said.

"This governor views this as a good opportunity to restore some critical funding to universities," Paul Senseman said. He said Brewer realizes, though, that makes it more "challenging" to produce a balanced budget.

Lawmakers cut nearly $142 million from the university system in January to deal with a $1.6 billion deficit this fiscal year. That came on top of $50 million in cuts already imposed at the beginning of this budget year.

Officials at the University of Arizona said that it's too soon to determine how the situation will affect cuts already in progress and that they're awaiting clarification from U.S. officials.

The UA was responsible for about $56 of the nearly $142 million in budget cuts, after already trimming $20 million during the earlier round of cuts.

Cuts from the UA included:

A 5 percent budget reduction to all departments across campus, expected to save $20 million.

Cuts to excess tuition and merit aid awards that the UA collected but never spent, which saved $15 million.

Cuts to one-time cash operating reserves, which saved $12 million.

Cuts in contingency funds that came from a hiring freeze and other measures, expected to save $6 million.

Renegotiating a contract with a gas utility, which saved $3 million.

The issue with the federal funds doesn't appear to affect K-12 financing. It will impact community colleges because the January cuts from the state also included a $9 million hit to those institutions.

Sen. Russell Pearce, R-Mesa, said figures from legislative budget analysts say a total of about $160 million must be restored to higher education to comply with the draft rules.

State lawmakers are counting on $832 million in education "stabilization" funds, cash that the Legislature has to use for education purposes. It's up to the state to decide how much of that to use this budget year and how much to save for next year.

The federal rules further complicate efforts by lawmakers to produce a balanced budget.

Despite the $1.6 billion fix, Republican legislative leaders say the state still is $250 million to $450 million in the financial hole for the current budget year.

That's because tax collections have continued to fall short of expectations. Figures for the first seven months of the fiscal year show revenues at close to $4.8 billion. That's already $82 million less than anticipated when legislators adopted the revised budget in January.

At the same time, GOP leaders are trying to craft a budget for the coming year, one that already has a $3 billion gap between anticipated revenues and expenses.

Burns said it's possible the Department of Education could relent and not impose the requirement. Or, he said, Arizona could try to get a waiver based on its dire financial condition.

But the state can't count on either scenario, Burns said. The budgets both for the balance of this year and next need to be prepared assuming the funds cut from higher education have to be restored, he said.

"It drives us towards the solution where we put in 'placeholders' in the budget," he said. That means preparing spending plans on the assumption that the universities and community colleges get the cash.

If, it turns out, the state can keep the funds, then the budget would be adjusted accordingly.

That, however, creates potential problems for the universities. It means they can't count on the cash being there and can't use it for anything irreversible.

This isn't the first problem Arizona has incurred in trying to comply with federal regulations to secure its share of the $789 billion federal stimulus package.

The U.S. Department of Health and Human Services is questioning a change in state laws governing the Arizona Health Care Cost Containment System about how often those who get free care from the state have to prove they're eligible.

That change, the federal agency contends, appears to violate a provision in the stimulus law barring states from changing eligibility standards. But Brewer contends Arizona did nothing to violate the law and shouldn't lose the $1.7 billion in aid for health-care programs for the poor.