November 23,
2007
Republicans are preparing a major push next year to keep in place a property tax relief program that, without legislative action, would expire in 2009.
The move will potentially set up a showdown with a minority caucus and a governor who may be unwilling to extend the tax cut at a time when agencies could be required to slice their budget allocations to address a looming fiscal deficit.
Already, a bill has been pre-filed to make the state equalization rate — set at zero for three years starting in 2006 — permanent.
The measure is co-sponsored by top Republicans in the Senate and the House and has been declared priority legislation by Senate President Tim Bee.
The Legislature will push it “very hard” this upcoming session, Bee recently told a gathering of fiscal conservatives.
“We’ve had it suspended for three years. Next year is the last year of that suspension, and we would like to see that made permanent so there is some certainty for our businesses and residents of our state,” Bee said.
The suspension, if not made permanent, will result in a $250-million tax increase, an added burden to homeowners already suffering from rising property taxes, Republicans said.
But one Democrat said it cannot be called a tax increase since it was merely suspended; rates were not raised.
The debate provides glimpses of the ideological divide between Republicans, who favor tax cuts, and Democrats, who view taxes as funding state needs. While not yet taking a position on the pre-filed measure, a minority leader said she views continuing the tax suspension or repealing the county equalization property tax rate law as a “new tax cut.”
In 2006, when the property tax relief was enacted, state coffers were flush with cash. In fact, lawmakers were deliberating what to do with a revenue surplus that eventually ended up at about $1.5 billion. That fiscal year, the Legislature also reduced income taxes by 10 percent over two years. The reductions were estimated at $155.5 million in fiscal year 2007 and $333.6 million in fiscal year 2008.
Today, however, the state is facing up to a $1 billion budget deficit, and one Republican senator said that could grow to $1.5 billion in fiscal year 2009 if revenues continue to slide.
“If you refuse to vote for this bill, if the governor refuses to sign it, you are basically signing on for approximately $250 million in a tax increase for Arizonans in 2009. There is no other way to look at it than that,” said Sen. Jim Waring, R-7. Waring, head of the Senate Finance Committee, has pre-filed S1002, which repeals the state equalization tax rate and thereby makes its suspension permanent.
Waring also filed a similar bill last session, when the Legislature accelerated the reduction in business property taxes to six years instead of the original 10 years.
“I believe ultimately, if nothing else, political pressure will force the governor to sign this bill ultimately either this year — or I’m told we could run it next year,” Waring said.
“For people who would say, well, you are in a tough budget time, yeah, I understand that argument. But we have increased spending by over $4 billion. If you are saying we cannot turn around, and give $250 million back to Arizonans, to taxpayers, when they are already hurting with property tax increases,” he said, “realistically, to say that we are going to go ahead and make things worse, I don’t think that’s acceptable.”
For Waring, letting the suspension expire is a tax increase.
To which Assistant Senate Minority Leader Jorge Luis Garcia replied, “I hear the argument. I don’t buy the argument.
“The agreement that was made between leadership back then and the governor was to suspend the tax for three years — to suspend it. When it comes back, it is not a tax increase, because you (merely) suspended it. We are not raising anybody’s tax, we are not raising the rate, we are not raising anything,” he said.
This was in lieu of what Gov. Janet Napolitano had wanted, which was a rebate, Garcia said.
In an e-mail to the Arizona Capitol Times, Garcia wrote, “It is apparent that some of the Republicans continue to want more ‘pork’ when there isn’t enough to feed the pig.”
Asked to explain further, he said, “The perception here in Arizona is that the Republicans consistently want to reduce taxes without regard to the needs of the state. And that is their ‘pork.’ And that’s why I use the word ‘pork’,” Garcia said.
Senate Minority Leader Marsha Arzberger said the “special waiver from normal taxes” was part of a prior budget agreement.
“We felt we could do that at the time,” she said, but added that what they had in mind was that state revenues are unpredictable.
“Knowing how unpredictable state revenues are, I think we have to be very, very cautious when doing anything permanent in the way of tax cuts,” she said.
Arzberger said it’s too early to take a position on the pending legislation, but added that she views it as a “new tax cut, essentially.”
Arzberger, who, together with Bee, is credited for a successful budget negotiation last session, said she believes that in times of plenty, it is proper to return some money to taxpayers. She prefers a rebate, but had agreed to the “tax waiver.”
“I just think it’s ill-advised to do something that is going to carry into the far future,” she said.
Republicans warned that homeowners would be hit hard if the tax suspension were not made permanent.
“You got a lot of folks that are out there that have already seen their property taxes go up just from the valuations, and I just have a hard time thinking we are going to add another $250 million to that,” said Senate Majority Leader Thayer Verschoor.
“We have a housing market that is in trouble. We have people who are losing their homes to foreclosures in record numbers and a lot of people are on the margin, just hanging onto their homes,” Verschoor said.
A legislative estimate puts the county equalization rate at $0.419 per $100 of assessed value in fiscal year 2007.
Sen. Robert Burns, R-7, chairman of the Senate Appropriations Committee, is worried about its impact on the large retirement community in his district, where people have typically sold their former homes, paid cash to buy houses here, and have seen their taxes go up while their income has remained the same. Tax increases therefore directly reduce the money they can spend, he said.
“I think that it’s important to people to have to understand that when it comes to the taxpaying community and the tax using community,” he said, “this is a host-parasite relationship. I mean some people probably think that that’s a little crude but it is the model that we deal with.”
He added: “If we don’t have a healthy host, which we do not right now, our host is in stress, we are having a problem. I mean revenue is way off and so the other side of the equation that lives off of the host suffers as well, but if we are not careful how we treat the host, we end up in worse condition.”
Kevin McCarthy, president of the Arizona Tax Research Association, said the failures of budget overrides and bond issues clearly point to taxpayer unrest.
The reason why the equalization rate was reduced was to offset the anticipated valuation increases, he said. McCarthy said those who are viewing the tax suspension as a revenue loss and are willing to see its expiration in 2009 have to consider the anti-tax initiatives. If they passed, they would cost the state more money than the suspension of the equalization rate would.
“I would hope that the Legislature in general would show some leadership on this issue and not usher back in huge tax increases, which really would play into the hands of the Prop 13 Arizona and the Arizona Tax Revolt initiatives,” he said, referring to the ballot measures that seek to roll back property values and place caps on property taxes.