Though the Great Recession may be officially over, all is not well in Arizona. Three years after the collapse of a massive real estate “bubble,” the deepest economic downturn in memory exposed and exacerbated one of the nation’s most profound state fiscal crises, with disturbing implications for Arizona citizens and the state’s long-term economic health.

This brief takes a careful look at the Grand Canyon State’s fiscal situation, examining both Arizona’s serious cyclical budget shortfall—the one resulting from a temporary collapse of revenue due to the recession—as well as the chronic, longer-term, and massive structural imbalances that have developed largely due to policy choices made in better times. This primer employs a unique methodology to estimate the size of the state’s structural deficit and then explores the mix of forces, including the large permanent tax reductions, that created them. It also highlights some of the dramatic impacts these fiscal challenges are having on service-delivery as well as on local governments. The brief suggests some of the steps state policymakers must take to close their budget gaps over the short and longer term. First, it urges better policymaking, and prods leaders to broaden, balance, and diversify the state’s revenue base while looking to assure a long-haul balance of taxing and spending. And second, it recommends that Arizona improve the information-sharing and budgeting processes through which fiscal problems are understood—so they may ultimately be averted.

Arizonans have gained a reputation for their low opinion of government, despite -- or perhaps because of -- the major role played by all governmental levels in residents’ daily lives. This view was reflected in the responses to this segment of the survey, as panelists generally gave low ratings to the government services they were asked to judge. This was especially true of lower-income panelists. But the respondents’ low ratings might not always have been based upon personal experience: Few panelists said they had sought information from government or community agencies. This may be due to the increasing popularity of the Internet as a self-help source, but it could also mean that relatively few residents need the services or know they are available. In any case, more than half of those who did seek information said they were satisfied with the result. Panelists were not dismissive of all collective efforts at social betterment. They expressed high levels of agreement that good community-based programs can prevent many social problems, from drug and alcohol addiction to child abuse and juvenile delinquency. Asked how they themselves would distribute public funds for social problems, most respondents choose programs for children, affordable housing, and health insurance.

States have always administered federal programs. But, states usually have had very little say in how they carried out programs. All states could generally do was follow the rules laid out by federal agencies. But now, devolution is giving states more power over programs. And, in general, Americans have said that they approve of the idea. A 1998 nationwide poll, funded by The W. K. Kellogg Foundation, showed that a majority of Americans perceive devolution to be a positive development for the country.

Arizona Ideas includes notions large and small, homegrown and borrowed, current and historical. From A-Z, every one -- whether originally born here or adapted from elsewhere-- contributes to the state’s competitive position. Arizona Ideas also explores the roots of Arizona’s tradition of self-criticism --some call it a sense of insecurity or inferiority in comparison to other places -- that often surfaces in discussions of public policy. This observation has provoked considerable debate, but few would deny that this perspective exists. It is time to debate this idiosyncrasy out in the open and find better ways of moving the state ahead.