Gov. Jan Brewer is defending a more than $17 million tax break for two kinds of companies – and only those two.
Brewer on Friday signed legislation spelling out that firms involved in manufacturing and smelting no longer have to pay the state sales tax on electricity and natural gas they purchase. The change, sought by the governor when she gave her State of the State address in January, takes effect later this summer.
Virtually every other firm and individual, however, remains subject to the 5.6 percent levy which generates about $500 million a year.
Brewer said the new law should help Arizona both retain existing jobs and attract new ones, but the governor said just because this legislation is aimed at only a narrow segment of the business community does not mean she does not care about the others.
“We have worked so diligently and so hard during some difficult times in the state of Arizona for the last 5 1/2 years to make Arizona competitive,” she said. “And we've done that for all businesses.”
Brewer, who has boasted of rescuing the state from a $3 billion deficit when she took office in 2009, said Arizona is considered to be among the Top 10 states in the country for job growth. The latest figures from the Department of Administration show the state added 49,100 private sector jobs between February 2013 and a year later.
Those same figures, however, show manufacturing employment actually down by 1,300 over the same period. Sectors of the economy did show growth include 9,800 jobs in retail trade, 9,200 in health care and social assistance and 8,300 in employees at bars and restaurants.
Steve Macias, president of Pivot Manufacturing, said this particular targeted tax break is important to companies like his. Macias, who also chairs the Arizona Manufacturing Council, said it's not so much what the law means to his firm which does contract manufacturing and milling for others. He pegged his company's savings at only a couple of hundred dollars a year.
But Macias said the tax break means a lot to larger manufacturers, “the General Dynamics of the world, guys who make equipment for the solar industry.”
“So, when they attract those guys, I get excited because, to me, those are all potential customers,” he said.
The legislation allows cities to decide whether to keep imposing their own sales taxes on utilities. Counties, however, appear to be out of luck as they have no such ability to opt out.
Brewer, after signing this bill, vetoed a provision in the state budget to reimburse them the $1.3 million they will lose. The governor said holding local government harmless for state tax policy changes “would have set a policy precedent that would undermine future efforts to improve the competitiveness of Arizona's tax code.”
Brewer said singling out manufacturing makes sense, calling it “smart tax reform that will bolster job creation in Arizona.”
“Until today, Arizona was one of only a handful of states that imposed this tax,” she said.
“Ending it removes one more barrier to business expansion and job creation,” Brewer continued. “Eliminating this tax will boost our competitive edge in attracting and expanding manufacturing in our state.”
Glenn Hamer, president of the Arizona Chamber of Commerce and Industry agreed.
“Other states that don't tax electricity for manufacturers are using this to try to keep jobs out of Arizona that would otherwise come here,” he said.
At this point, the Department of Administration estimates that fewer than 6 percent of all workers are employed at firms considered manufacturers.
The other side of the equation, though, is that every tax break means less money flowing into the state treasury, but Brewer said all the tax breaks she has signed since becoming governor are part of a plan.
“And that plan has worked,” she said. “And it will continue to work as long as it is continued out.”
Brewer said new businesses will drive the economy, creating not just construction jobs but also permanent employment and money.
“So, in the end, everybody's ship rises,” the governor said. And Brewer said she intends to continue “to do right by the business community that are the job creators.”
Brewer has signed a series of measures designed to attract more jobs to the state.
That includes a comprehensive package that cuts corporate income tax rates by 30 percent, reduces business property taxes and provides eligible firms with $3,000 tax credits for each new job created. On top of that are a series of property tax breaks which don't affect the state's bottom line but hit local governments.
Then there are special incentives, including a measure awaiting her signature that is crafted to give Apple up to $5 million in income tax credits for building a plant in Mesa to manufacture the special glass for its phones and tablets.
Brewer said all those are having the desired result, even if the state is not back to its pre-recession economy.
Brewer is estimating it will take until 2016 to bring revenues back to where they were a decade earlier. But she said that's "in tune with what we had planned when we began our plotting and our discussions to get Arizona back.''
“So I think everybody in Arizona should be absolutely thrilled of the accomplishments that the Legislature and I have been able to accomplish,” Brewer said.