Legislative Republicans view the state’s equalization property tax as a ticking time bomb that will go off in 2009, but optimism abounds that Jan Brewer’s pending ascension to the Governor’s Office will help them cut the fuse before the clock reaches zero.
The tax was suspended for three years starting in 2006, eliminating a revenue stream of about $250 million a year. Two efforts to permanently repeal the tax failed during the 2008 legislative session — once when Gov. Janet Napolitano vetoed H2220, and again when a strike-everything amendment was voted down in the Senate Appropriations Committee.
Undaunted, Republican lawmakers have placed a high priority on getting it passed in 2009. And they’re counting on Brewer’s help, or at least tacit approval, to do so.
At least one bill already has been written to repeal the equalization property tax during the upcoming legislative session, which begins Jan. 12. Sen. Jim Waring, chairman of the Senate Finance Committee, said he authored the bill in a way that will allow lawmakers to sign on as co-sponsors before he files it.
“I would expect, frankly, to get a bulk of the Republican caucus, certainly, and possibly a few Democrats. The bill couldn’t have passed without at least a couple Democrats voting for it last time, and they won’t have the governor… so we’ll see if that changes some hearts and minds,” Waring said.
The equalization property tax was a state-imposed, county-collected tax, with the money going to K-12 education. When the tax was zeroed out in 2006, state funding replaced the tax revenue that had been passed through to the schools. If the tax is re-imposed in 2009, it will be collected by the state and used once again for school funding. If the tax is repealed or suspended, that money will come from other state revenue sources
Sen. Jack Harper, a Republican from Surprise, said the tax, if allowed to return, would create a tax boost equal to roughly $39 per $100,000 of assessed value on property.
“So if the county says your assessed valuation is $300,000, that’s about $117 more in taxes for you,” he said.
Waring’s bill might not be the only one to surface. Rep. Russell Pearce, a Republican from Mesa who was elected to the Senate in November and will chair the Appropriations Committee, said he had planned to resurrect a bill he drafted last session to repeal the tax, but opted against it after hearing that other lawmakers had similar plans.
The bill was able to garner enough support to pass in 2008, but it met the same fate as so many other pieces of Republican-sponsored legislation — Napolitano’s veto pen. But Democrat Napolitano has said she will accept a position as Barack Obama’s Homeland Security secretary, and when she goes to Washington, Secretary of State Brewer, a Republican, will take over.
A former state representative, state senator, and Maricopa County supervisor, Brewer has built a reputation as a fiscal conservative who favors lower taxes. Brewer’s transition team has not commented on what kinds of policies and priorities she will embrace as governor, but there is a widespread belief that she will be more amenable to repealing the tax.
Sen.-elect Steve Pierce, R-Prescott, feels Brewer would be receptive to signing a bill to repeal the tax.
“Jan’s a good conservative person, and she’s been through the mill enough times. You bet. I think there’s a real good chance she’d do the right thing and we’d get the tax gone permanently,” said Pierce, who defeated incumbent Republican Sen. Tom O’Halleran in the primaries on an anti-tax, anti-spending platform.
O’Halleran was one of two Republican votes against the failed striker amendment in the Senate Appropriations Committee earlier this year that would have put the property tax repeal on the November ballot.
In her veto message, Napolitano wrote that “permanently repealing a tax that supports such basic needs as schools and education during a time of severe budgetary deficits would be the height of fiscal irresponsibility.” Without a vote on the issue in 2009, the tax would go back into effect, bringing in about $250 million in revenue in 2010 for a state that is facing massive budget shortfalls.
The Governor’s Office did not respond to requests for comment.
But opponents of the tax who supported its three-year suspension in 2006 are quick to point out that they had tried unsuccessfully to make the suspension permanent, and many view the reinstatement of that tax next year as tantamount to a tax hike.
“Part of the deal was the governor would only make it temporary. We had every intention of making it permanent. Everybody knew we had an intention to make it permanent,” Pearce said.
Kevin McCarthy, president of the Arizona Tax Research Association, said the agreement over the tax in 2006 helped head off proposed ballot initiatives on taxes that would have done “huge damage to our overall public finance system and the property tax system directly.”
“When we led the effort to do that, it wasn’t intended to be temporary at all,” he said. “We certainly didn’t like the fact that at the last minute what was negotiated was a three-year temporary suspension as opposed to a more permanent repeal.” What few people realized in 2006, McCarthy said, was that the state would be facing such a massive budget crisis at the time the tax was scheduled to go back into effect. Thanks to the current economic crisis, the fiscal 2009 budget is expected to exceed state revenues by at least $1.2 billion, and the revenues are expected to fall short by more than that next year. Because of that, lawmakers expect to major cuts to be made in budget for fiscal year 2010, which begins next July 1.
Because of the grim economic climate, there is worry among opponents of the equalization property tax that efforts to repeal the tax could be complicated by the budget crisis. Republican Rep. John Kavanagh, who supports a permanent suspension of the tax, said lawmakers will have to wait and see what the budget situation looks like before taking major steps that could have a negative impact on finances.
“We don’t know what the final revenue figures are. We don’t know how far in cuts members are willing to go. We don’t know if there’s going to be any kind of federal aid forthcoming. There are too many question marks to begin committing to specific acts,” Kavanagh said. “There is great, cautious support for this.”
Incoming Senate President Bob Burns has made clear his intention to put other issues on the back-burner until the Legislature passes a fix for the fiscal 2009 and 2010 budgets. The equalization property tax, however, is a high-priority issue, and the decision has not been made whether to tackle it before or concurrently with the fiscal 2010 budget.
“We’ve talked about what we’re going to do as far as timing goes, and that is an issue as to how that will be handled. And we haven’t made that decision yet,” Burns said.
If the tax suspension were allowed to lapse in fiscal 2010, it would provide an estimated $250 million in state revenue, which could reduce the width and depth of cuts that will be needed to get a balanced budget. But opponents of the tax plan to move forward with budget negotiations under the assumption that the revenue will not be there — even though, officially, the revenue is still calculated in the official budget projections used by legislative analysts.
“We’re not counting on it. We’re preparing the budget not counting on that money,” Pearce said.
So, timing will be a factor. But with Napolitano expected to depart for Washington sometime after Obama is inaugurated on Jan. 20 — she said she will not resign until her Cabinet appointment is confirmed by the U.S. Senate — its supporters are willing to wait until Brewer takes over.
The issue, Burns said, will move forward “when we have a clean transition from one governor to another.”