State budget cuts present bioscience interests with serious obstacles

February 6, 2009

By hammersmith

To help close a current-year budget deficit of $1.6 billion, the Arizona Legislature last weekend approved funding cuts totaling $580 million that will impact the bioscience sector dramatically. Virtually all bioscience interests took severe hits in the budget agreement, including Arizona’s public universities, K-12 education, the 21st Century Fund, and brick-and-mortar infrastructure projects.

“This is not a Republican or Democrat problem, it is a problem that all of us must confront with vigor and regardless of partisan affiliation,” said Gov. Jan Brewer in a news release after signing the package of bills for the revised budget Jan. 31. “Additional fixes are very likely to be required for the fiscal year 2009 budget, and even more difficult decisions remain as we confront the realities of a $3.4 billion deficit for fiscal year 2010.”

House Speaker Kirk Adams (R-Mesa) said that the Legislature had erred in not making cuts sooner. “They wouldn’t have been nearly as deep if she had started cutting back in September and not left the cupboards bare,” he said in the Arizona Capitol Times, referring to former Gov. Janet Napolitano.

Democratic legislators, who voted unanimously against the budget, disagreed that such sweeping cuts were necessary, arguing that the state could responsibly anticipate a larger infusion from the federal stimulus package currently under debate in Congress than the $500 million estimated under the budget fix.

“I think we will be judged by future generations by what we did tonight,” Rep. Steve Farley (D-Tucson) said in the Capitol Times.

Sen. Paula Aboud (D-Tucson) specifically lamented the budget’s impact on education, which absorbed roughly half of the cuts. “This bill is devastating to education. This bill is devastating to our students in this state and I cannot tell you what this bill is doing to our schools, to our students, and to the vision that we have for the state,” she said in the Capitol Times.

Budget cuts impacting bio:

Among the $580 million in cuts in the revised budget Gov. Brewer signed are several with detrimental consequences for Arizona’s bioscience sector:

  • A reduction of $142 million for the state’s university system;
  • A reduction of $133 million for K-12 education, including $2 million to strengthen science and math teaching;
  • A funding sweep of all $22.5 million from the 21st Century Fund, which provides funding for the grant programs of Science Foundation Arizona (SFAz);
  • A rollback of $7 million for graduate medical education as part of cuts to the state healthcare program for the indigent;
  • A revision in legislation permitting the Arizona Board of Regents to issue bonds for critical infrastructure improvements at the universities, lowering the total from $1 billion to $800 million.
  • A funding sweep of $34.4 million from resources administered by the Department of Commerce, including $21.7 million designated for workforce development.

One of the few bright spots for the biosciences in the budget revision as signed by Gov. Brewer was the continuation of funding for Alzheimer’s research. Originally targeted for elimination as part of $37 million in cuts to the Department of Health Services, the $2 million research appropriation–which supports the Arizona Alzheimer’s Research Center–was restored at Gov. Brewer’s behest.

Impact on state universities:

“We cannot have the public-university system we need to help Arizona dig out of this economic crisis, and to prosper in the 21st century, with this disproportionate slashing of the universities’ budgets,” the Board of Regents said in a statement released after Gov. Brewer signed the budget.

The Board of Regents has established a panel, the Fiscal Alternative Choices Team, to study options other than further cuts for the 2010 budget. First, though, it must cut roughly $7 million from its budget by June 30, and it must apportion among the three state universities Fiscal Year 2009 cuts totaling $135 million. The university presidents have until Feb. 9 to submit plans to the Regents for how they will achieve those reductions.

Prior to the midyear budget reduction, Arizona State University had already eliminated 200 faculty-associate positions and imposed a hiring freeze for most open positions. As outlined on an ASU website, a furlough program has also been implemented for the current fiscal year, which will end June 30; the furloughs will apply for all non-student employees, ranging from 10 days of mandatory leave without pay for classified staff to 15 days for top-level administrators.

ASU President Michael Crow said in a memo to the ASU community that funding to cover the remainder of the budget cut would be secured by deferring travel, equipment, and supplies expenses, raising fees for transcript requests and orientation programs, and short-term borrowing from non-state funding streams, such as those designated to support research activities and other university programs.

Northern Arizona University President John Haeger stated in a memo to the NAU community that achieving his university’s portion of the cuts would require a mix of one-time fund sweeps and permanent reductions. All vice presidential areas will institute 5 percent cuts; unfilled positions will be held open; two new health-professions programs in development will be halted; tuition collections from enrollment growth normally designated for hiring faculty will be repurposed to meet the budget cut; and auxiliary accounts–in such areas as dining services and residence life–will be swept.

Fiscal year 2010, which begins July 1, will require more painful action, Dr. Haeger said in the memo. “We will not have the same one-time funds to draw upon for FY10. It is important to note that furloughs must be implemented in FY10, and the university also must look at layoffs in FY10 to meet the budgetary challenges ahead. At the same time, we will study potential tuition and fee increases next year.”

Some months ago, in anticipation of the budget cuts, the University of Arizona already instituted a hiring freeze that encompassed even vacant top-level administrative positions. Now, additional money-saving steps are on the horizon. UA announced that to achieve its share of the cuts, up to 600 positions at the university would be eliminated; all academic and administrative units would face 5 percent cuts; and several facilities open to the public, including the UA Science Center and several museums, would close or reduce hours.

Beginning in the fall, UA President Robert Shelton said in a memo to the UA community, the university would be forced to begin cutting course offerings, eliminating degree programs, and merging departments.

Impact on K-12 education:

The state budget reduction of $133 million for K-12 schools will include $98 million in cuts for operations budgets, and $21 million for “soft capital” expenditures like books, desks, and computers. Districts with fewer than 600 students will be exempt from the cuts.

“It’s going to be disastrous,” said Andrew Morrill, vice president of the Arizona Education Association, in the East Valley Tribune. “It’s just an indication of the underinvestment we are making to education and in our students and in the future of the economy in Arizona.”

Many school districts have implemented capital-spending and hiring freezes, and are planning for layoffs and increased class sizes. Districts are estimating cuts for Fiscal Year 2010 ranging anywhere from 3 to 13 percent.

“The days of the 20 (kids in a classroom), I think, are gone,” said Denise Birdwell, interim superintendent for Gilbert Unified School District, in the Arizona Republic. “We’ll rely heavily on parent volunteers in the classroom.”

Included in the K-12 cut is elimination of the $2 million Math or Science Initiatives program, designed to boost student performance in math and science by providing supplemental funding for innovative math and science programs throughout the state. In part established to help schools meet recently elevated state standards for math and science education, the grants were to have been targeted particularly for schools reporting low scores on the math and science portions of the state AIMS test.

Impact on 21st Century Fund:

The appropriation for the 21st Century Fund, which is administered by the Department of Commerce and supplies funding for the grants issued by the nonprofit Science Foundation Arizona (SFAz), proved to be one of the most contentious elements in resolving the budget deficit. Ultimately, after private and public disputes, the entire fund was swept. The viability of that sweep, though, is now in question for legal reasons.

“I don’t think anybody asked the right questions, and I think even when the right questions were asked, I don’t think they got good answers from staff,” said Sen. Debbie McCune Davis (D-Phoenix), in the Capitol Times. “I think they were anxious to adopt the bill, and I think there was very little attention to detail.”

In its budget plan, the state House recommended a reduction of $7.5 million from the Fund’s original $22.5 million budget for Fiscal Year 2009. The state Senate recommended a larger reduction, of $15 million. Seven Republican members of the House objected to either option, though, refusing to vote for the budget unless the Fund was eliminated.

Rep. Sam Crump (R-Anthem), who led the group opposing any appropriation for the 21st Century Fund, said he could not support the Fund if education and health programs were being cut. “How can we defend those cuts if we’re giving out corporate handouts?” he said in the Capitol Times.

Other elected officials understood the purpose and operational limitations of the Fund differently. For example, the grants issued by SFAz to strengthen scientific research in Arizona cannot go to for-profit entities. Additionally, in order to draw dollars from the Fund, SFAz must leverage outside matching dollars, in effect doubling the impact of the Legislature’s appropriation to the Fund. And many grants that SFAz issues in fact require private-sector matches, stretching even further the Legislature’s appropriation.

In establishing a program like SFAz, built on collaboration between the private and public sector, with funding drawn from multiple sources, Arizona was ahead of the curve, explained Don Budinger, chairman of the Rodel Charitable Foundation and president of the SFAz board of directors.

“Arizona was the first state to step forward and be willing to reinvent itself into a 21st century economy,” Budinger said in the Arizona Daily Star.

SFAz grants this year have included:

  • $8.8 million to the three state universities to fund 100 graduate-research fellowships in science and mathematics; grant funds for the two year-old program, already the largest of its kind in the United States, are matched by the universities.
  • $9 million to the Tucson-based Critical Path Institute, which seeks to make pharmaceuticals safer and cheaper by reforming the drug-development process; grant funds are matched by Oro Valley’s Ventana Medical Systems Inc.
  • $8.7 million to UA to establish the Institute for Mineral Resources, intended to promote responsible discovery, production, and sustainable development of mineral resource; grant funds are matched by more than a dozen mining firms.
  • $1.5 million to UA’s B2 Institute, to reconstitute the Biosphere 2 research facility as a center for training K-12 teachers in science, technology, engineering, and mathematics (STEM) disciplines; grant funds are matched by a grant from the Philecology Foundation.

Along with such grants that build the scientific infrastructure for a broader knowledge-based economy, SFAz also issues grants to support individual scientists or small teams of university researchers working to develop promising concepts. Should such concepts achieve commercial viability, all of Arizona can benefit.

“The inventor might be a professor, and the Foundation supports his work and hooks him up with a company or hospital,” Budinger explained in the Daily Star. “It benefits the community and the university and it accelerates the work’s commercial process, which justifies the manufacture of that product in Arizona and employment of people in Arizona.”

“As a political move, to go in and strip off that fund without knowing what the impact was moves us backward,” McCune Davis said in the Capitol Times. “I looked at it as them damaging our future and damaging our economy.”

For his action to sweep the 21st Century Fund, Crump nearly incurred disciplinary action from the House leadership. Prior to the budget passing, Gov. Brewer met privately with Crump and other opponents of the Fund to urge them to change their position. They refused, and the budget eliminating the Fund was passed. Speaker Adams then announced his intention to remove Crump from his position as chair of the House Government Committee. After the two later spoke, Adams rescinded that decision Feb. 4.

“Committee Chairmen have a heightened responsibility to the caucus and must be mindful of the objectives of the House as a whole,” Adams said in a news release. “I was concerned that Representative Crump exceeded proper decorum during the budget debates.”

Since the budget’s passage, though, complications with the sweep of the 21st Century Fund have emerged. Some funds that have already been distributed via Fiscal Year 2009 SFAz grants may not legally be recoverable to help close the budget deficit.

“What may not be understood completely is that the state of Arizona has a contract with Science Foundation Arizona, the honoring of which is required for the state to maintain its integrity,” Budinger said in the Daily Star.

State Senate President Bob Burns (R-Peoria) acknowledged that as little as $5 million of the 21st Century Fund may be recoverable. “There is some gray area about the obligated and the unobligated money in that fund,” he said in the Capitol Times. “If there are services that have been rendered and people haven’t been paid, I don’t see how you pull that money out of there.”

“As a good conservative, we do need to respect those contracts,” Senate Majority Whip Pamela Gorman (R-Anthem) added in the Capitol Times.

Crump disagreed that the state should be obligated to fulfill contracts into which SFAz has entered. “My response is, So what?” he said in the Republic. “Essentially, all of these are gifts from the state. . . . You don’t use taxpayers’ money to do this.”

Private-sector SFAz backers said that despite the budget cut to the 21st Century Fund, they will continue supporting what they believe is a vital project for the state’s future. Three state business groups–Greater Phoenix Leadership (GPL), the Southern Arizona Leadership Council, and Flagstaff 40–jointly fund SFAz’s operating costs, a total of about $2 million per year, at no cost to the state.

“We are behind the mission, and we will continue to meet our obligation to Science Foundation,” said Tom Franz, president and CEO of GPL, in the Daily Star.

Impact on Graduate Medical Education:

One of the major cuts in the budget reduction was sustained by the Arizona Health Care Cost Containment System (AHCCCS), the state’s Medicaid program, which lost $40 million. Included in that amount was a $7 million rollback of funding for graduate medical education; cutting that $7 million, though, actually means an additional loss of $14 million in federal matching funds.

That $21 million would have gone to teaching hospitals around the state to provide clinical training for medical residents. Without it, those hospitals may not be able to provide training slots to those new physicians, a critical problem as the UA College of Medicine enlarges its enrollment and grants more M.D. degrees to try to keep up with the state’s growing population. The loss of training slots–which would compel newly minted doctors to complete residencies in other states–is particularly detrimental because of the tendency for physicians to establish their long-term careers in the regions and states where they complete their residencies.

Impact on Workforce Development:

Early in deliberations over the budget fix, the state Department of Commerce was targeted for complete elimination. In the budget reduction Gov. Brewer signed, $875,000 was cut from Commerce’s appropriated budget, and another $34.4 million was swept from accounts that the department administers, including $21.7 million for job training. The department’s purview includes attraction of bioscience companies and efforts to ensure that qualified workers are available for those firms when they arrive.

In initial deliberation Feb. 3 over the 2010 budget, Commerce staff representatives met with the Senate Committee on Commerce and Economic Development and sought to explain the importance of restoring those funds in the 2010 budget. Some legislators remained skeptical about the department’s merit.

“Isn’t that the job of the city councils and chambers of commerce, to attract jobs?” questioned Senate Majority Leader Thayer Verschoor (R-Gilbert), in the Capitol Times.

But Commerce staffers found support among other committee members. “This isn’t a time to be moving backward when everyone else out there is trying to attract these jobs,” said Sen. Barbara Leff (R-Paradise Valley), the committee’s chair, in the Capitol Times.

Sen. McCune Davis noted in the Capitol Times that much of the job-training funding swept in the Fiscal Year 2009 budget cuts was money voluntarily provided by employers. She argued that refusing to distribute the funds for job-development amounted to “broken promises” that could make businesses reluctant to locate in Arizona, for fear of unpredictable support from the state.

Impact on Infrastructure Improvements:

Last year, the Legislature passed the Stimulus Plan for Economic and Education Development (SPEED), which gave authority to the Arizona Board of Regents to issue bonds of up to $1 billion to fund deferred maintenance, renovation, and new construction on the three university campuses. A major portion of the SPEED money would go towards build-out of the downtown Phoenix Biomedical Campus, with a designated price tag of $470 million.

In conjunction with the budget reduction, the Legislature passed a revision to the SPEED legislation. The Board of Regents will now be permitted to issue bonds of only $800 million, and the limit for the Biomedical Campus has been reduced to $376 million. That funding will have to be stretched to cover the Campus’s two key projects: the Health Sciences Education Building and the Arizona Biomedical Collaborative 2, both of which will be necessary to accommodate the entire complement of students who will attend the UA College of Medicine – in partnership with ASU when its enrollment is fully ramped up.

An additional restriction on the SPEED funding dictates that only those infrastructure improvements at the three universities that were submitted for approval to the Legislature’s Joint Committee on Capital Review (JCCR) in October can be funded through bond sales this fiscal year. Those projects, which the universities presented first because they are most crucial to sustaining current operations, carry a $167 million price tag.

Bio advocates work to sustain efforts:

Even as bioscience advocates begin preparing for the next set of hurdles–deliberations over the Fiscal Year 2010 budget–they are keeping one eye on the current budget, which may not yet be put to rest. Uncertainty remains about contractual obligations in targeted appropriations like the 21st Century Fund, and state lawmakers are still waiting to learn the size of Arizona’s allotment from the federal stimulus package now under consideration in the U.S. Senate.

With respect to the 2010 budget and beyond, advocates remain focused on supporting the critical initiatives, programs, and state agencies that have helped the biosciences grow so dramatically over the past several years. Proponents continue to argue that the bioscience sector, with its high salaries, strong record and long-term potential for job growth, and resilience during economic downturns, is essential to helping Arizona avoid future fiscal crises.

For more information:

Commerce Dept. touts role in attracting businesses,” Arizona Capitol Times, 02/06/2009

State drives away high-tech jobs; integrity at risk,” Arizona Daily Star, 02/06/2009

Science group forges on amid shrinking funds,” Arizona Republic, 02/06/2009

Fund sweeps might require revise of 2009 budget,” Arizona Capitol Times, 02/04/2009

Gilbert, Higley schools brace for big cuts,” Arizona Republic, 02/04/2009

Q.C. schools face hard budget choices,” East Valley Tribune, 02/03/2009

Education cut options studied,” Arizona Republic, 02/03/2009

Crump stripped of chairmanship over budget dispute,” Arizona Capitol Times, 02/03/2009

Gov. Brewer signs GOP budget after late-night passage by lawmakers,” Arizona Capitol Times, 01/31/2009

Preliminary Budget Summary, Joint Legislative Budget Committee, 01/29/2009