Sales tax vote critical to schools, state

InMaricopa.com
April 16, 2010
Michael K. Rich

On May 18, voters across the state will have the option to either reject or accept a 20 percent increase to Arizona’s portion of the sales tax.

Pass, and a predicted $1 billion will be raised annually for three years to help fund education, health care and public safety.

Fail, and state lawmakers have already crafted a plan to cut nearly $1 billion from the trio of public services.

“If this does not pass, the amount of additional cuts school districts across the state are going to make will be tragic,” said Maricopa Unified School District Superintendent Jeff Kleck. “I think we will see many school closures.”

This coming budget year, MUSD is already reeling with cutting more than $5 million from its budget due to dwindling income and cuts at the state level. The failure of the sales tax would result in an additional $3 million in cuts from the district’s roughly $35 million budget.

Some solutions that have been proposed to assimilate those cuts include the closing of a school and the dismissal of nearly 50 teachers. However, the fear of additional cuts to school districts’ budgets is just what Byron Schlomach, economist for the Goldwater Institute, believes those behind the tax are using to help push the initiative.

“This initiative is essentially being built on fear mongering,” he said.

The verbiage behind proposition 100, which would raise the state sales tax rate from 5.6 percent to 6.6 percent, states that two-thirds of the funds generated would be directed toward public education, and the other third would go to health services and public safety.

Yet, Sclomach said this is not the reality if the tax passes. “They say $600 million will go to education, but the number in the bill is $400 million,” he said.

Other items scheduled for funding, but not in the voter pamphlets, include money for the Arizona Department of Agriculture, the commission on the arts and the state department of insurance. “I wouldn’t have as much of an issue with the tax if those behind it were being honest about where the funds were going,” Schlomach said.

Schlomach added his organization opposes any new tax, and there is plenty of wasteful spending that could be cut instead of asking Arizona residents to foot the bill. “This is lawmakers' easy solution to the problem,” he said.

Some of the wasteful spending Schlomach references includes $5 million a year spent on outside lobbyists, nearly a million a year on county fair betterment and another million a year to remodel shooting ranges.

“When you can go in and find those specific examples with a quick look at the budget, then there are plenty of other areas that could be cut,” he said. “Lawmakers need to prioritize what they want to fund, make a list of those things and work from the top down. When money runs out, you stop funding.”

Schlomach isn’t alone in his view that the sales tax isn’t the best method to balance Arizona’s budget.

Arizona Senator Rebecca Rios said there is $9.1 billion in tax exemptions handed out by the state each year that could be corralled to avoid asking citizens to pay more for their purchases.

“If we could just pull in a fraction of these credits, it would make the sales tax irrelevant,” she said.

When legislators originally voted to send the measure to the citizens, Rios said she was against it. But now that all the money has been tied to education, it makes taking a stance difficult, she said.

One thing that makes the decision more difficult for Rios is a current bill being worked through the legislature known as the ‘jobs bill,’ which is aimed at stimulating job growth by handing out long-term business tax cuts to promote economic growth.

The legislature's nonpartisan budget staff projected lost revenue in the first three years at $270 million, down from $1.1 billion in the bill's original version. After starting at $60.3 million in the first fiscal year, the cost at full implementation would grow to $647.8 million in the fiscal year beginning July 1, 2017.

To put that amount in perspective, the state budget for the fiscal year beginning July 1 includes $8.5 billion in spending.

“If this jobs bill doesn’t pass, I am going to support the tax, but I can’t justify voting on a tax when we are preparing to hand out more money,” Rios said.

While the tax will bring cuts to education if not passed, its potential impact on business has divided opinions.

“Anytime you are trying to tax people in a struggling economy it is going to have a negative effect,” said Maricopa Ace co-owner Frank Polimene.

Polimene’s concerns echo those of the National Federation of Independent Business, which represents about 7,500 businesses in Arizona.

“Times are tough, governments have to economize like everyone else,” said the organization's director Farrell Quinlan. "A lot of businesses have had to lay off workers, cut back hours and change their benefit plans, not in some greedy attempt to wring out more profits but just to survive."

A study commissioned by the Goldwater Institute and conducted by the Beacon Hill Institute in Boston nearly a year ago predicted passage of Proposition 100 would cost the state about 14,400 private-sector jobs because it would reduce the consumer spending that supports retail jobs.

Polimene said he believes this to be true. “People in Maricopa are already just buying what they need,” Polimene said. “This is going to make people put off those things that need to get done even longer and possible dissuade others from starting bigger projects.”

However, others like Glenn Hammer, president and CEO of the Arizona Chamber of Commerce and Kevin McCarthy of the Arizona Tax Research Association both believe the tax to be a necessity.

"You generally don't see business organizations supporting tax increases, but I think in this case the near-term budget situation is deemed serious enough that some sort of temporary revenue enhancement was needed to prevent further (budget) cuts," Hammer said.

McCarthy added it is impossible to make an argument the tax won't impact retail spending, but the real question of how much of an impact it would make is arguable.

“If the tax passes, lawmakers need to continue to work to ensure there is no longer a structural deficit come 2014 when the measure is scheduled to go away,” he said.

A conflicting study by the Economic and Business Research Center at the University of Arizona backs the need for the tax, saying its passage would save 13,000 jobs and preserve more than $442 million in federal matching funds because much of the estimated $918 million in increased revenues the state would receive would be spent on products and services provided by private companies.

If the temporary tax passes, it would not be the first in Arizona history. In 1983, lawmakers boosted the state sales tax to 5 cents on the dollar from 4 cents to help balance a budget battered by a recession. They intended for the tax to expire in June 1984.

But before that deadline, then-governor Bruce Babbitt proposed a budget that included the permanent continuation of the 5-cent rate, and lawmakers approved the plan.

That rate remained untouched for 16 years, until then-governor Jane Hull championed a ballot measure that raised the sales tax by 0.6 cent on the dollar to pay for education.

Right now Chicago has the highest big-city rate,10.25 percent. But in a move forced by Cook County lawmakers, the rate is scheduled to drop on July 1 to 9.75 percent, matching that of Los Angeles. In New York City the total bite is 8.875 percent. Other high big-city rates include San Francisco and Seattle (9.5 percent), New Orleans (9 percent), Houston, Dallas and Charlotte (8.25 percent), Las Vegas (8.1 percent) and Philadelphia and Atlanta (8 percent).

If the measure is approved, the tax in Maricopa would jump to 9.7 percent.