GOP budget proposal raises taxes on homeowners

The Arizona Guardian
Monday, June 8, 2009
Dennis Welch

A late addition to budget bills rushed through the Legislature last week would ease the tax burden on businesses by shifting it on to homeowners.

The proposal drew no discussion during committees or floor debates and some lawmakers are just now realizing the full impact of the measure.

Under the provision, secondary property tax rates for businesses would be cut by more than half for any bonds or overrides passed after June 30.

Tax rates for homeowners would stay the same. But the proposed change would end up costing them more out of pocket to make up the difference left by the cut in business taxes.

Forcing local companies to pay higher property taxes is unfair and deters out-of-state companies from moving to Arizona, supporters of the plan say.

But opponents are calling it a "back-door" tax increase on homeowners that threatens to hurt cities and towns as well as funding for K-12 and higher education.

Specifically, the proposal, which is tucked away in SB 1036, would slash secondary property rates for businesses from the current rate of 22 percent to 10 percent.

The homeowners' rate stays at 10 percent. But because businesses would be paying considerably less they do now, homeowners will make up the difference.

Kevin McCarthy, president of the Arizona Tax Research Association, says he was surprised to find the idea in the $8.2 billion state budget passed last week by the GOP-led Legislature, but supports it nonetheless.

McCarthy says the plan doesn't constitute an immediate tax increase because it only affects bonds passed by voters in future elections. But homeowners will be paying more for the bonds they do approve, he says.

The organization has been pushing for more transparency in taxes and McCarthy says this goes a long way toward reaching that goal.

Taxpayers, McCarthy says, don't realize the full impact of what they're voting on because the measures are being "subsidized" by businesses.

"Voters are insulated by a system that protects them from the real costs," McCarthy said.

He says he sees the political benefits for lawmakers to keep taxes as low as possible for homeowners. But, he said, it's done on the backs of businesses, which stops job-producing companies from setting up in Arizona.

"It's good politics," says McCarthy. "But it makes for crappy policy."

The increase to the homeowner will most likely depend on where they live. Homeowners in areas with few businesses will see a smaller increase. Those living in places with a lot of companies will see the biggest increases.

Sen. Sylvia Allen, a Republican from Snowflake, says the reductions are necessary to help businesses weather the tough economy and provide more jobs.

But groups that depend on bonding to fund infrastructure and construction projects say the measure would cripple their ability to secure the money at the ballot.

Voters will be less willing to support a measure if they have to pay a larger portion, according to education officials and representatives for local cities and towns.

These two groups in particular depend on voter-approved bonds to pay for capital improvement projects such as school construction and infrastructure needs.

"This would just be devastating for education," said Sam Polito, a longtime lobbyist who represents school districts in southern Arizona.

Polito says there are a number of districts throughout the state that are still growing, and those districts will need the voters' support. Many of these schools will need bond money to expand campuses and provide students with necessary materials.

The effects on local municipalities could be even worse, said Ken Strobeck, executive director of the League of Arizona Cities and Towns.

Local governments could be forced to stop issuing building permits because they can't get the money to build the infrastructure needed to accommodate those buildings.

"How can we sell bonds in an environment like this?" said Strobeck. "This won't help us get bonds and sell them at an attractive rate."

Efforts to lower the property tax rates for business, which is among the highest in the country, have been ongoing for years.

Since the early 1990s, groups such as the Arizona Tax Research Association have been fighting to reduce the rates and bring them in line with homeowners.

In 2004, the Legislature passed a measure that would cut the rate for both primary and secondary property taxes to 20 percent from 25 percent, by shaving a point off every year.

Even Democrats agree that reducing the rate would be good for business. In their budget proposal released last month, Democrats called for gradually reducing the business property rate to 18 percent.

Rep. Kyrsten Sinema says she wants to ease the burden on business, but the current Republican plan is the wrong way to do it. The Phoenix Democratic says any reduction in business property tax needs to be part of a comprehensive tax reform package. That, she said, would protect the homeowner from taking a bigger hit.

Sinema called the proposal a "boondoggle" for business and an effort by fiscal conservatives to keep voters from approving additional taxes -- especially for school bonds.

Even conservative Republican Sen. Russell Pearce said he will be hesitant to stick with the proposal if it saddles homeowners with higher taxes.

Pearce, who is the chairman of the Senate Appropriations Committee, said the measure was a last-minute addition to the budget. "With record numbers of foreclosures, I'm not about to burden anyone with more taxes," said Pearce. "If we have to, we go back and fix it."