Economists: Arizona is recovering, albeit slowly

PHOENIX (AP) -- Economists who advise Arizona's independent legislative budget analysts said Thursday that residents who have hunkered down through years of tough economic times may finally have reason to be a little more perky this year, but the economy won't meet Gov. Jan Brewer's expectations.

The state's housing market is on the upswing and job growth has returned, and that means more revenue for the state. That will provide slightly more money for Brewer to spend on priorities like education and adding Child Protective Services workers, but not nearly what she expects, said economists who serve on the Finance Advisory Committee.

Brewer's budget, released last week, projected about $261 million more revenue for the 2013-14 budget year than what the staff of the Joint Legislative Budget Committee expects. The difference troubles some top lawmakers who are charged with coming with a deal on Brewer's proposed $8.9 billion spending plan for the budget year that starts July 1.

Both lawmakers and Brewer look out three years to project how things will shape up, and they take into account expectations about the economy, and revenue and spending changes.

But they're far apart: Brewer's plan anticipates the state will spend down reserves during those three years and end up about even, while the JLBC staff expects the state could be $263 million in the red by the third year. And that doesn't include $250 million needed if the state Supreme Court upholds a recent ruling that said lawmakers illegally cut the amount they are required to add to school funding each year to adjust for inflation.

For average Arizonans, the budget battles that will shape up in coming weeks are but a sideshow. But the message from the economists who advise the Legislature on state revenue forecasts held out hope Thursday that things are getting better. The gains are agonizingly slow, however, compared to previous recoveries from recessions.

"The average Arizonan has been cautious and gotten his financial house in much better shape that it has been, is likely to continue to be cautions and pay down debt, or at least not take on a lot of debt, and really is in much better shape," said Elliott Pollack, a Scottsdale economist who runs a private advisory firm and serves on the Finance Advisory Committee. "They will feel better when the housing price goes up more, when they actually believe they have equity in their home that's marketable."

The same could be said for Arizona's finances, he said.

After a huge dip in revenue forced deep spending cuts, revenue is now steadily growing, although still not back at the $9.6 billion peak in 2007. Revenue also will take a hit when a temporary sales tax that brought in nearly $1 billion a year expires in May, and when new business tax breaks kick in.

The state also faces risks including federal spending cuts or another recession, so lawmakers have signaled they'll be choosy on raising spending this coming year.