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Financial Bind 

While lawmakers bicker over the budget, the state's money problems worsen

State Rep. David Bradley of midtown Tucson enjoyed an unusual success in a recent committee hearing.

Bradley had put together a package of bills to address the state's dire financial straits. One would repeal the $500 million in income-tax cuts that lawmakers passed two years ago; one would create a statewide property tax to fund school construction; and the third would revamp the state's sales tax, eliminating a variety of exemptions but also lowering the overall percentage.

Bradley, who held no illusions about the possibility of his bills becoming law, says he wanted to put a focus on tax reform with the package.

Two of the three bills were killed in the House Appropriations Committee, but the repeal of the income-tax cuts made it out with an unusual vote from Republican lawmakers, who kept it alive but tagged it with a do-not-pass recommendation.

"No one had heard of this happening in the recent past," says Bradley, who had voted against the income-tax cut because he was concerned that the state would eventually face a financial downturn. "Everyone was kind of befuddled."

Bradley figures that the Republicans who kept the bill alive--even though they opposed it--wanted it to get to the floor to score political points. Either Democrats will have to vote to repeal a tax break--setting themselves up for later attacks on the campaign trail--or they will have to vote against the repeal, which will demonstrate that they don't want to raise taxes to solve the state's budget problems.

While rank-and-file lawmakers continue to play political games, those budget problems continue to vex legislative leaders as they attempt to bridge a $1.2 billion shortfall in the current fiscal year--and an anticipated $1.7 billion shortfall in the upcoming year.

"We are making some progress," says Rep. Phil Lopes of Tucson, the House minority leader who is part of the discussion.

Lopes says that negotiators are getting closer to an agreement on a package that will include draining the state's rainy-day fund, cutting programs, borrowing money to build schools and "sweeping" various state accounts that are not part of the general fund.

But Republican and Democratic leaders were still trying to find common ground on how much the state should borrow, and how much they should cut.

As the budget talks continued, the state's budget wizards released the latest round of gloomy financial numbers, which suggest that the state's financial problems may be worsening. In January, tax revenues were $226 million below projections, and a depressing 16 percent below January 2007. That puts the state about $619.2 million behind forecast for the first seven months of the fiscal year, according the Joint Legislative Budget Committee.

The state hasn't seen a year-to-year revenue drop of 16 percent since April 2002, when the economy was still sputtering in the wake of the Sept. 11 terror attacks.

All three of the big revenue sources--sales taxes, income taxes and corporate income taxes--were down compared to the previous January.

The biggest year-to-year drop came in corporate income taxes, which were down 24.3 percent. Some of that may have been related to companies chasing after their refunds right after the start of the year, but the news remains generally bad; in the first seven months of the fiscal year, corporate income taxes are $125 million below the forecast.

Overall sales taxes are down 7.5 percent from January '07, with the biggest drop coming in the area of contracting, which plunged 24 percent compared to last year. Individual income tax collections were lagging 11 percent behind last January's figures.

The latest numbers have budget analysts increasingly pessimistic that Arizona's economy will rebound anytime soon. The state's expected $1.7 billion shortfall for next year amounts to about 16 percent of the general fund--the highest percentage among the 50 states, according to a national survey by the Center on Budget and Policy Priorities.

In other legislative action last week:

• Rep. Steve Farley, a Democrat who represents midtown Tucson, narrowly escaped an ethics complaint from Rep. Andy Biggs, a Republican from Gilbert. Farley accused Biggs of using an "underhanded trick" to amend a transportation bill that would require local governments to split mass-transit projects into separate ballot questions when voters are asked to approve transportation plans.

Biggs then accused Farley of violating House rules that prohibit members from impugning the motives of members.

Farley delivered something of a backhanded apology on the House floor before giving a more sincere one later.

"I think it's part of me learning as a freshman legislator the difference between impugning the process and impugning the processor," says Farley. "It was a very good learning experience for me to be careful no matter how passionate I am about the issue."

• A bill sponsored by Rep. Jonathan Paton to give county sheriffs the authority to enter into intergovernmental agreements with the Department of Homeland Security passed the House on a party-line vote. The bill was designed to allow Pima County Sheriff Clarence Dupnik to cross-certify a Border Patrol agent to work with his border-crimes unit to improve communications with the federal agency.

• A package of Child Protective Services reform bills sponsored by Paton passed out of the House Government Committee.

• An omnibus energy bill designed to improve energy efficiency in autos, homes and commercial buildings had been watered down to mostly voluntary requirements, which, as Sierra Club lobbyist Sandy Bahr points out, is basically "what we have now."

More by Jim Nintzel

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