Solutions Through Higher Education

Sales tax hike anchors state budget fix

Arizona Daily Sun
Feb. 2, 2010

PHOENIX -- With some Democratic support assured this time, Republican legislative leaders are going to make one last effort to put the question of higher sales taxes to Arizona voters.

Legislation set for a vote today would put the question of a temporary one-cent hike before voters at a special election May 18. If approved, the statewide levy would go to 6.6 cents on every dollar of taxable items purchased and last for 36 months.

Other key elements of the plan, which have bipartisan support, include:

-- Borrowing $450 million against future proceeds from a revamped Arizona Lottery;

-- Deferring $350 million in payments due to Arizona public schools this budget year until later this summer, on top of more than $600 million now in delayed payments.

-- A similar delay of paying $100 million due to public universities which already are going to have to wait for another $100 million owed to them.

-- Selling off another $300 million in state buildings on top of $735 million marketed last month, and then leasing them back.

-- Changing tax laws to reduce the "standard deduction' that can be taken when part-year residents file their Arizona tax returns, generating $22 million.

But it turns out that even if lawmakers send the tax hike to the ballot -- and even if voters approve -- it would do virtually nothing to plug the $1.4 billion gap between revenues and expenses for the fiscal year that runs through June 30. That's because the extra levy would not kick in before June 1. And retailers would not forward what they collect to the state until the following month.

Despite that, leaders of both parties say the tax hike is a crucial part of the package.

Economists estimate that the recession caused deficit, which has cut state tax collections, will continue into 2014, if not beyond. That temporary tax hike could bring in at least $900 million extra a year to help bridge make up the difference.

A similar measure cleared the Arizona House last year but fell two votes short in the Senate as several Republicans balked. Now, however, Democrats are willing to provide the necessary votes.

What's different?

"I think the time has come to where it's become 'push to shove,'" Senate Minority Leader Jorge Garcia, D-Tucson, said Monday. He said while some Democrats are unhappy with hiking sales taxes, which they believe unfairly hits the poor and middle income families, the alternative is far worse: Having to cut $900 million a year in state services.

"I think we're at the 'shove' now," he said.

Those Democrat votes will be more important than ever: Some Senate Republicans who supported sending the issue to the ballot last year are now opposed.

"I'm not voting for a tax today, I'm not voting for a tax tomorrow," said Sen. Russell Pearce, R Mesa. And he said he doubts voters would approve it even if they get a chance.

Pearce said he supported the referral last year because it was part of a package that included future cuts in taxes, many of those aimed at business. "It was a net gain, any way you looked at it," he said.

The other problem for some Republicans is there is nothing in the package to actually reduce state spending. In fact, Pearce said the plan makes the situation worse in the future by obligating the state to repay what it is borrowing now, with interest.

That includes the complex plan to borrow against future Lottery proceeds, something that first means creating an entirely new Lottery.

Voters approved state run gambling in 1980, reauthorizing it in 2002.

But Senate President Bob Burns, R-Peoria, said simply keeping the existing Lottery alive doesn't help. That's because the law spells out where the money goes.

For example, cities get a share for local transportation projects. There is cash for various programs run by the Arizona Department of Health Services. And some money goes to the Heritage Fund for everything from environmental education to open space and historic preservation.

And when voters last reauthorized the Lottery in 2002, that formula became off limits to legislative tinkering.

By contrast, if an entirely new Lottery is started one authorized not by voters but by lawmakers -- then the Legislature gets to divide up the cash. And Burns said this new game will be crafted so the first funds collected go to paying off that $450 million.

Legislative staffers estimate the first year debt service could be as high as $35 million.

But House Minority Whip Chad Campbell, D-Phoenix, said there's a negative side to the plan: He said it means every group that now gets a share of the profits would get less.

Campbell noted that lawmakers are looking for ways to reopen state parks that are scheduled to be closed later this month. Campbell said taking money from the Heritage Fund, which provides funding for the parks system, just makes that more difficult.