Howard Fischer

Capitol Media Services

Douglas Dispatch

November 26, 2005

 

PHOENIX - A potential $600 million or more state surplus is creating a schism in the business community about what to do with the extra funds.

Some industry lobbyists think the excess revenues should be used for tax breaks. But there is no consensus, with priorities divided between cutting income and property taxes.

Others contend the top priority should be taking the cash and correcting the bookkeeping "gimmicks'' used in prior years to balance the budget.

And still others think the state's financial situation provides an opportunity to invest in education.

"The money is there,'' said Marty Shultz, lobbyist for Arizona Public Service. He has a first hand look: He sits on the finance advisory board of the Joint Legislative Budget Committee.

That presents an opportunity for lawmakers who just last session adopted tax cuts aimed at business.

One reduces the assessment ratio on commercial property - the figure used to compute property taxes - by 20 percent over the next decade. A second revamps the formula multi-state corporations can use to compute what percentage of their worldwide income is attributable to - and taxable in - Arizona.

"What we said to them is 'Thank you,' '' said Shultz.

"We're not seeking new tax cuts,'' he continued. "We think we should be investing in education.''

That's also the assessment of a business coalition which launched a campaign earlier this month to spend more money on early childhood development.

The group, operating under the United Way organizations from around the state, wants lawmakers to make programs for preschoolers a priority. Dave Howell, spokesman for Partners for

Arizona's Children, said studies show that every dollar invested now will save $17 in future costs on remedial education, incarceration and support services.

"It's convincing the state - and that includes the Legislature - that it's important to make that investment now to recognize that return down the way,'' said Howell, who works for Wells Fargo Bank.

But Senate President Ken Bennett said it's "a bit delusional'' to say Arizona has extra money. He said the state Arizona balanced its budget in the last few years with "tricks and gimmicks'' that now should be corrected.

For example, the state is supposed to make monthly state aid payments to schools. But lawmakers several years ago voted to delay the June payment until July - the first month of the new fiscal year - a move that "saved'' the state $190 million.

And while that provided only one-time help, it would cost that much to put the books back the way they were.

The same is true of another one-time fix which requires businesses to not only make their regular sales tax payments in June - the last month of the state budget year - but also estimated payments for July. Meanwhile, the affected firms still have to find the extra cash each June.

"Put that 13th payment back where it belongs,'' said Michelle Bolton, state director of the National Federation of Independent Business, of the extra payment that her members have to make in June.

Farrell Quinlan, spokesman for the Arizona Chamber of Commerce and Industry, said lawmakers used other budget-balancing tactics.

He said legislators "swept'' money from special funds, such as those for highway construction and repair, environmental cleanup and economic development, and put those dollars into running the day-to-day operations of state government.

Those funds, said Quinlan, "are very important to the future of the state.''

"We hope that the first dollars which are available would go toward replenishing the swept funds for those critical programs,'' he said.

Kevin McCarthy, director of the Arizona Tax Research Association, also believes lawmakers should not discuss tax cuts until they really balance the budget, that "ongoing revenues meet ongoing spending'' rather than depending on budgetary maneuvers to cover expenditures.

But once that happens, he said the highest priority is cutting property taxes across the board.

The problem, said McCarthy, is not higher tax rates but the inflation of real estate values - and the tax assessments which go with that. That means a homeowner will have to pay more in taxes even if tax rates remain stable.

One option being discussed is a limit on how much assessed values can increase each year. McCarthy sees that as artificial.

Instead, he wants the state to adjust the education tax rate downward, with some sort of limit that prevents local jurisdictions from rushing into the vacuum with higher rates of their own.

Not everyone shares that priority.

Bolton said NFIB members think extra funds should translate into income tax cuts, and not just for corporations. Bolton said most small businesses are organized so that any profits are passed on to - and paid on - individual tax returns.

Another priority for NFIB is tax credits for insurers to offer health coverage for the "working poor,'' those earning too much to qualify for state-paid care but not enough to afford their own insurance.

Quinlan said the chamber's priorities for tax cuts will depend on what's really available.

One issue, said Quinlan, is whether the state will continue collecting tax revenues at this rate, or whether this is a one-time windfall. "It's kind of a wait-and-see position we're in right now,'' he said.

Quinlan said his organization believes some money should be used for further changes in the state's tax code.

For example, the chamber wants to accelerate that decline in property tax assessment ratios so it doesn't take a decade for that 20 percent reduction. And the group also supports extending - and expanding - existing tax credits for research and development.