School, business leaders look toward 'cliff' beyond temporary sales tax hike - Ahwatukee Foothills News: Valley And State

School, business leaders look toward 'cliff' beyond temporary sales tax hike

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Posted: Tuesday, October 18, 2011 5:23 pm | Updated: 3:15 pm, Sat Dec 22, 2012.

A group of business executive and educators is crafting plans to ask voters to accept a new sales tax to keep the state from falling off a financial “cliff” in two years.

Andrew Morrill, president of the Arizona Education Association, said members of the Arizona Business and Education Coalition recognize that the main thing keeping the state’s finances in the black through the recession has been a temporary 1-cent hike in sales taxes. That levy, approved by voters last year, brings in about $900 million annually.

But that tax self-destructs on June 1, 2013. And Richard Stavneak, staff director of the Joint Legislative Budget Committee, told lawmakers on Tuesday that without that extra cash, the budget will be $610 million in the red.

That’s the best-case scenario: Stavneak prepared lawmakers for the possibility that the gap between revenues and anticipated spending could be twice that much.

Morrill said coalition members have been meeting behind closed doors on a plan that would guarantee funding for education and also have some measurements designed to ensure that student performance improves. But he said this is not some academic exercise.

“It is in complete awareness — and in substantial response — to the fact that there’s a funding cliff coming in 2014 if nothing is done,” he said.

At this point, Morrill said there is no specific plan for how to make up the money.

“We’ve been looking at what polling suggests voters are comfortable with,” he said. “We’ve got to be mindful of what folks have indicated they will support.”

If history is any indication, what that likely means — and Morrill will not say — is some sort of extension of the sales tax. That was one reason that Gov. Jan Brewer, who championed the 2010 election, chose that as the option.

Voters apparently agreed, approving the temporary hike by a margin of nearly 2-1.

But things will be different this time.

Brewer, who took a lot of heat from within her own Republican Party for pushing the last levy, will not be leading this fight.

“Proposition 100 will expire after three years,” said gubernatorial press aide Matthew Benson. “Those who wish to extend it will have to return to voters with that proposal.”

Benson said Brewer is aware that the current surplus is just temporary. But he said she is not looking to additional revenues.

“She is focused on budgeting conservatively and fighting Obamacare, which is a major driver behind the state’s projected shortfall in the coming years,” Benson said.

Stavneak acknowledged that the new federal health care law, which takes effect Jan. 1, 2014, will require the state to once again start enrolling childless adults into the program. The state got a waiver to exclude them from the program earlier this year, saving an estimated $190 million a year.

Brewer has joined with officials from other states to challenge the law.

Morrill said the other political hurdle is that it is doubtful lawmakers will be willing to put the issue before voters, as they did last year. That means having to gather more than 173,000 valid signatures to have the issue in the 2012 ballot.

Among the foes is Rep. John Kavanagh, R-Fountain Hills, who chairs the House Appropriations Committee. He said higher taxes would be “counterproductive.”

“It would stall an already stalling economy,” he said. Kavanagh also said the fact Arizona’s economy is improving now, even with the extra 1-cent tax, does not mean it has done no harm.

“I think we would be recovering a lot more had we not increased taxes,” he said. Kavanagh also said that $610 million deficit is not a foregone conclusion.

Kavanagh pointed out that if the economy performs as planned, the state should end this fiscal year with about $416 million unspent. And next year’s surplus would be about $143 million.

He said if lawmakers can resist the urge to spend that money and instead just put it aside, that gives them enough in the bank to cut the deficit two years from now to only about $50 million. And that, said Kavanagh, can be handled easily — without raising taxes.

The figures that Stavneak presented to lawmakers on Tuesday do foretell an improving economy.

Base sales tax revenues — the amount collected on the regular 5.6 percent tax rate, excluding the 1-cent hike — are anticipated to be 4.4 percent higher next year than this year, with another 4.4 percent growth the following year. Nearly half of Arizona’s revenues come from sales taxes.

But that is still below historical averages that have been in the 7 percent range.

Economist Jim Rounds of Pollack and Associates said he thinks the long-term economic outlook for the state is good. But he warned lawmakers against betting on it.

“Don’t spend it until you see it,’’ he said.

One big factor, Rounds said, is going to be consumer psychology. And that, he said, drives whether they’re willing to spend the money that generates sales tax revenues.

“People are going to be a little bit more concerned about the economy for a number of years, just because of the shocks that occurred to them personally over the last two or three,” he said. Rounds said he’s counting on “minimal growth” in the economy for the next several quarters.

“We’re still making stuff and we’re still buying stuff,” he said. “Everything’s growing — just barely.”

Then there’s the real-estate market that Rounds said is making people feel poorer.

He said half of the homes in Arizona where people have mortgages are “under water,” with owners owing more than what is the current market value of their homes. He said, though, that will right itself for most homeowners in three or four years.

But Rounds said someone who bought a home for $400,000 at the peak of the market that should have sold for $200,000 is now finding it is worth only about $150,000. And those houses, he said, won’t be in the black until perhaps 2030.

And then there’s the media.

“It’s not the media’s fault,” Rounds added quickly.

“These are reports that are coming out,’’ he continued, whether it’s the problems in Washington or companies laying off workers.

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