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The Verde Independent | Cottonwood, Arizona

home : latest news : latest news April 29, 2016

4/25/2014 2:35:00 PM
State lawmakers balance budget - sort of

Howard Fischer
Capitol Media Services

PHOENIX -- Arizona lawmakers finally finished their annual session Thursday morning and can claim they did the one thing the constitution actually requires of them: adopt a balanced budget.

Sort of.

And then they cut taxes.

In fact the actual spending plan approved by the Legislature and signed by Gov. Jan Brewer has close to $9.2 billion in ongoing spending. These are programs that continue from year to year.

Yet actual ongoing revenues -- money the state can count on from various sources year after year -- totaled just $8.7 billion.

The only way the budget was "balanced' was with $53 million taken from other accounts, like gasoline taxes and vehicle registration fees normally earmarked for road construction and maintenance, and a $600 million cash carry-forward, largely money left over after the temporary one-cent sales tax surcharge expired last May 31.

That money is going to be gone by the end of the coming fiscal year.

That, however, did not stop lawmakers from cutting taxes in the name of economic development.

But some economists who closely follow state government think it's a mistake to believe that further reductions in what businesses pay is the key to economic growth.

Jim Rounds of Elliott Pollack & Associates, said the idea that lower taxes lead to economic growth and greater tax revenues only goes so far.

"I think we've done a really good job making ourselves more competitive,' he said. Rounds said any further cuts won't have the same "bang for the buck.'

Economist Dennis Hoffman of the W.P. Carey School of Business at Arizona State University, was more succinct.

"I don't think you're going to get more economic growth with more tax cuts in the state,' he said.

"If tax cuts were the key to prosperity, we would be swimming in a pool of prosperity right now,' Hoffman continued. "We have clearly maximized on the tax-cut train.'

Since Brewer became governor, lawmakers have voted to cut corporate income tax rates by 30 percent. And the full impact of that won't even hit until 2018 when, according to budget analysts, the net loss to the state will be $270 million a year.

Brewer also has pushed through other special tax treatments for corporations, including various tax credits for research and development.

And they continued this year.

Lawmakers at the governor's behest agreed that manufacturers and smelters should not have to pay sales taxes on the electricity and natural gas they purchase. That move alone cuts $18 million a year.

Then there were special tax breaks aimed at the insurance industry and new tax income credits for investors in startups.

Yet economists who advise the Legislature say that by 2016, revenues will still be $221 million below anticipated expenses. And if that red ink is carried forward into the following year, the state will be close to $480 million in the hole.

Brewer, however, is undeterred from her course, rejecting any suggestion that the series of tax cuts she signed are not going to put the state back on sound financial footing.

"I think our revenue projections are in tune with what we have planned,' she said. "So I think everybody in Arizona should be absolutely thrilled with the accomplishments that the Legislature and I have been able to accomplish.'

She's relying on the projections of John Arnold, her own budget analyst. And he said the legislative budget projections are not to be believed.

Arnold contends the state can raise close to $9 billion in taxes this coming year, more than $200 million higher than the numbers in the actual adopted budget. For the following year, he is figuring an extra $326 million above legislative estimates, reaching a $352 million difference the following year -- and black ink for the state.

And Arnold said his projections have been more accurate in the last few years than the more pessimistic projections of the legislative staff.

Hoffman said Arnold and his 5-plus percent year-over-year growth may not be far off.

He said income tax revenues are tied to how the richest Arizonans are doing. And Hoffman said good times in the stock market should help improve those numbers.

Rounds, however, said he sees the legislative numbers are pretty on target.

Brewer has been able to cite landing some high-profile manufacturers and offices, ranging from Apple to State Farm. But it remains to be seen whether the taxes they generate after the changes in the tax code -- and even the employment they produce -- will be enough to put the state back on sound financial footing.

It could take awhile.

At its pre-recession peak, there were 2.69 million Arizonans employed.

That dropped to 2.37 million by September 2010. And the state, with employment growing at only 1.9 percent a year according to the latest figures, has recovered only about 200,000 of the more than 313,000 jobs lost.

And in terms of what it takes to run the state, tax revenues peaked in 2007 at $9.62 billion. But legislative budget analysts figure it will take until 2017 to get back anywhere close to those levels.

Gubernatorial press aide Andrew Wilder said his boss remains wedded to the belief that the tax cuts are the way to market Arizona.

Brewer has the full backing of the Arizona Chamber of Commerce and Industry. Glenn Hamer, the organization's president, said all the cuts have been enacted "in a fiscally responsible way.'

"The budget now is balanced,' he said, sidestepping that question of whether a plan to spend more than anticipated revenues constitutes "balance.'

Taylor Waste

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Reader Comments

Posted: Saturday, April 26, 2014
Article comment by: Mary Heartman

Oh well, if push comes to shove, they can always cut the $32 million Brewer insisted stay allotted for district-sponsored charter schools' double dipping.

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