Lawmakers must restore higher education cuts to remain eligible for federal stimulus money

  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 dollars.

  Draft rules by the U.S. Department of Education require states to use their allocations to help restore public support to the higher of what was being spent either this budget year or the prior 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 2010-2011 budget year. That bars the state from restoring money now and taking it back to balance next year's budget.

  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 did not go below what is was in 2006.

  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.

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

  Lawmakers cut $141 million from the university system in January to deal with a $1.6 billion deficit this fiscal year. And that cut came on top of $50 million in university-wide cuts imposed by lawmakers at the beginning of this budget year from last year's funding levels.

  Those January cuts also included a $9 million hit to funding for community colleges.

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

  The regulations appear not to affect K-12 financing.

  Lawmakers did impose $133 million in cuts in January. But most of that was in a separate "soft capital'' account not part of basic state aid to education. And a constitutional requirement which mandates that basic state aid go up at least 2 percent a year likely offsets the latest cuts.

  But compliance with the K-12 side may be irrelevant: The rules say the state has to maintain its effort for each element of education - meaning that failure to comply with even just the university portion endangers the entire education aid package.

  State lawmakers are counting on $832 million in education "stabilization'' funds, cash that the Legislature has to use for education purposes. It is 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 anywhere from $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 is 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 is possible the Department of Education could relent and not impose the requirement. In the alternative, he said, Arizona could try to get a waiver based on the state's dire financial condition.

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

  "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 cannot count on the cash being there - and cannot use it for anything that cannot be reversed.

  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 are eligible. That change, the federal agency contends, appears to violate a provision in the stimulus law barring states from changing eligibility standards.

  But Gov. Brewer contends Arizona did nothing to violate the law and should not lose the $1.7 billion in aid for health care programs for the poor.