ICYMI: Ducey’s free-market approach succeeds in year one

Remaking Arizona: Ducey’s free-market approach succeeds in year one


It would be difficult to imagine a more successful first year for Arizona’s 23rd governor.

Gov. Doug Ducey took office with two severe problems requiring immediate attention: a massive budget deficit and a K-12 funding lawsuit that threatened to drop Arizona even further into the fiscal hole. He set out to find an early resolution to the first and ended his first year by mediating a solution to the second. In the intervening months, he stayed active, putting his conservative, free-market imprimatur on state government.

Since the moment Ducey took the dais for his first State of the State address, the new governor has achieved most of the goals he set for his administration. And, in a departure from the rancor between lawmakers and the executive branch that so often characterized former Gov. Jan Brewer’s administration, he did so with legislative leadership by his side.

With an administration packaged in a slick public relations campaign and slogans like “opportunity for all” and “government at the speed of business,” Ducey set out to remake Arizona.

“Ten out of 10,” was how lobbyist Kurt Davis, a veteran of former Gov. Fife Symington’s administration, characterized Ducey’s first year. “To be able to come in and establish and confront a very difficult budget … and then have to turn around and solve a multiyear education lawsuit and figure out how to pay for that, those are two substantial achievements. And all during that time you’re appointing people to head your agencies and beginning to put your imprimatur on how the government’s going to look.”

A show of unity on the budget

Ducey entered office facing the most severe budget crisis since the dark days of the Great Recession, with a nearly $700 million shortfall for fiscal year 2016 and a deficit in the current year as well. As Brewer learned in 2009, such crises can wreak havoc with a new administration.

When Ducey prepared to unveil his first budget proposal, he stood side by side with Senate President Andy Biggs and House Speaker David Gowan in a show of unity over an issue that could have torn them apart. With a relatively small amount of opposition from GOP lawmakers, Ducey got a $9.1 billion budget through the Legislature in near-record time, putting 2015’s toughest issue to bed just two months after the legislative session began.

Few doubted that Ducey got the benefit of a first-year honeymoon with the Legislature. But after years of acrimony between the Ninth Floor and the Legislature, the relationship between the two branches seemed genuinely improved. Lobbyist Barry Aarons said Ducey did a good job of developing a cooperative relationship with legislative leadership.

“In Biggs and Gowan and the legislative leadership, I think there’s an element of trust with this governor that he’s definitely willing to work with them as opposed to throwing a policy tome do wn there and saying this is what I want and you have to do it and you have to do it my way,” Aarons said.

Within two months, Ducey and lawmakers passed a budget. And the swift budget resolution presaged an early end to the session, with lawmakers adjourning sine die on April 3. The 81-day session was the shortest since 1968.

The K-12 settlement

While the budget won plaudits from conservatives, Ducey and GOP lawmakers were reviled by Democrats and their allies. Universities took $99 million in cuts, while Ducey and lawmakers offset funding increases to K-12 with $117 million in cuts elsewhere in the schools’ budgets, leading hundreds of protesters to denounce his budget while marching at the Capitol.

Perhaps the signature achievement of Ducey’s first year in office came when he helped forge a settlement to Cave Creek v DeWit, a five-year-old lawsuit challenging cuts made to K-12 education during the fiscal catastrophe of 2009-2010.

The Arizona Supreme Court ruled in 2014 that the Legislature had illegally withheld inflation-based funding increases from 2009 onward. In a dispute over exactly how much inflation funding the state owed, a Maricopa County judge sided with the three education groups that brought the lawsuit. The Legislature appealed the judge’s ruling that the state increase funding in fiscal year 2016 by an additional $336 million. Some lawmakers advocated open defiance if the courts ruled against them.

Rather than await the outcome of the case in the Court of Appeals, Ducey in his State of the State address made a plea for the Legislature and the education groups who sued over K-12 funding to settle the case and put the lawsuit behind them. “So I say to you, the Legislature – settle this lawsuit. To the education community: Be reasonable and put this behind us,” he said.

The Court of Appeals ordered mediation in the case, but it did not bring about the resolution Ducey wanted. The effort ultimately fell apart in August, with a settlement seemingly no closer than it had been in January. That’s when Ducey stepped in.

Shortly after the talks ended, Ducey began preparing mediation efforts of his own. Throughout more than a half year of mediation, the two sides never sat face to face. The governor set out to change that.

Led by chief of staff Kirk Adams, the Ducey administration sat down with the education groups and legislative leaders in October to hash out a settlement. In about three weeks, they managed to find a compromise that both sides could live with.

Lawmakers approved the deal in a special session, sending Proposition 123 to the ballot. If approved by the voters in a special election May 17, the measure will formally settle the long-running lawsuit by pumping about $3.5 billion into K-12 schools over the next decade while implementing economic “triggers” allowing the Legislature to suspend or reverse inflation increases during fiscal crises.

The majority of the new funding, about $2.2 billion, will come from a slightly modified version of a plan Ducey unveiled in June to tap the state land trust for K-12 spending. The plan will increase the fund’s 2.5 percent distribution rate to 6.9 percent for 10 years.

“Getting that education lawsuit resolved I think was a huge win,” Aarons said. “And quite frankly I think that if you’re looking for who was the focal point of that resolution, I think it was the governor.”

Ducey’s education agenda wasn’t limited to the K-12 settlement. He urged the State Board of Education to overhaul Common Core education standards, known in the state as Arizona’s College and Career Ready Standards. And he assembled his Classrooms First Initiative Council with the goal of revamping K-12 funding formulas, though the plan has yet to bear fruit. And the first bill Ducey signed created a new requirement that high school students pass a civics test in order to graduate. Ducey touted Arizona as the first state to implement the American Civics Act, a nationwide initiative.

One of his premier agenda items, the Arizona Public School Achievement District, which aims to help high-performing charter and district schools expand capacity and “fully fund the wait lists,” largely ended up on the back burner as the governor tackled the K-12 settlement. The Legislature approved funding for the plan in the budget, and the Ducey administration promises more details when the new session opens.

A businessman for most of his career, Ducey, the former CEO of Cold Stone Creamery, looked to improve Arizona’s economic climate with a series of conservative reforms. And those reforms were perhaps most visible in his support for the “sharing economy.”

Ducey proudly trumpeted his support for ride-hailing services like Uber and Lyft, lifting restrictions that Brewer had imposed. He signed legislation allowing greater production by microbreweries such as Four Peaks, touting the brewery as a success story when it sold to Anheuser-Busch later in the year. And he signed a bill permitting Arizonans to get medical tests from companies such as Theranos without a doctor’s orders.

‘Defining himself as an activist governor’

When Ducey was inaugurated on Jan. 5, his first order of business was renewing the moratorium on new regulations that Brewer had long imposed. Hindered by the budget deficit from taking substantive action on his campaign pledge to lower taxes every year of his administration, Ducey still found room for a minor cut when he pushed through legislation to index income tax rates to inflation, eliminating what he called a “hidden tax increase” on Arizonans.

Ducey sought reforms within government as well. He disbanded the Department of Weights and Measures, divvying up its duties between the Department of Agriculture and Department of Transportation. He combined the Department of Racing and Department of Gaming. And he set the stage for a 2016 push to eliminate some of Arizona’s 200-plus boards and commissions.

He also made a push for an issue near and dear to conservatives’ hearts when he asked the U.S. Centers for Medicare and Medicaid Services to approve his proposal for co-payments and work requirements for some Medicaid patients in Arizona.

“He’s clearly defining himself as an activist governor,” Davis said.

Controversies and ideas that fell flat

Not everything went exactly as planned for Arizona’s first-year governor.

Ducey’s proposal to create an executive-level inspector general to root out waste in state government, a major initiative he announced in his State of the State address, fell flat in the Legislature. Lawmakers, wary of the new position and heeding the opposition of Attorney General Mark Brnovich, who viewed it as infringing on his authority, scuttled the plan.

Parts of Ducey’s first year were marked by battles with fellow statewide officials. In February, after Ducey intervened to reverse state Superintendent of Public Instruction Diane Douglas’ firing of two State Board of Education employees, Douglas unleashed a tirade of criticism against the governor, castigating him for surrounding himself with a “shadow faction” of charter school advocates and supporters of the controversial Common Core K-12 education standards.

Tensions eased between Douglas and Ducey, but the governor found a new nemesis in Jeff DeWit, who succeeded him as state treasurer. DeWit’s vociferous opposition to Ducey’s land trust plan kicked off months of tit-for-tat feuding between the past and present treasurers.

Highlighting Ducey’s victories

And Ducey ended the year under increasing pressure to fire Department of Child Safety Director Greg McKay. Supporters of former director Charles Flanagan were dismayed when he was ousted by Ducey and replaced with what the governor promoted as an all-star team of administrators led by McKay. But the many problems facing Arizona’s newest agency, which succeeded the old Child Protective Services in 2014, have gotten no better. Lawmakers recently gave McKay a vote of no-confidence as a result. Nonetheless, Ducey is standing by his director.

The Governor’s Office hasn’t been shy in portraying 2015 as a year of great success for Ducey. A massive “annual report” on the governor’s website proclaims Ducey’s victories in everything from the budget and K-12 settlement to the downsizing of government to his newly formed border strike force.

Ducey spokesman Daniel Scarpinato said the governor has plenty to be happy about as he ends his first year.

“We sit here today in a completely different situation than where we were a year ago. I think if I had told you a year ago that we’d be sitting here with a cash carry-forward of more than $300 million, you would have said I was crazy,” he said. “When you look at all the other things that have been done to dust off government and update it for the 21st century on the sharing economy, on the economy in general, on agency reforms, on regulatory reform, on setting kind of a new tone in government, and a new approach with how government interacts with the citizenry, I think it’s been a very successful year.”

As Ducey prepares to begin his second year, Scarpinato said the governor is eager to build on the successes of his first.

“We’re moving definitely in the right direction. But I don’t think he’s going to be satisfied until we’ve continued to see more businesses come here, existing businesses grow, small businesses grow, more jobs, less people unemployed. So those are, I think, areas you’re going to see him focused on as we enter 2016,” Scarpinato said.

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