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Mind the Gap 

Lawmakers and the governor battle over how to solve the state's ever-growing budget problems

A virtual avalanche of numbers came crashing down on the state Capitol over the last week, as Gov. Jan Brewer and legislative Democrats released separate budget plans in an effort to bridge a budget shortfall that the governor's office now estimates to be as high as $4 billion.

Meanwhile, the Republican caucus was pushing this week to scrape together enough votes to pass its own budget plan, which calls for deep agency cuts and various gimmicks to resolve the budget crisis without a tax increase.

Brewer, who has been urging lawmakers to consider a temporary tax increase since March, finally offered specifics with a proposal to temporarily increase the state sales tax by one penny per dollar, which she estimates would bring in $1 billion annually.

She also called for $964 million in cuts to state spending; borrowing $450 million against future lottery revenues; restoring $165 million in state property taxes; using $810 million in federal stimulus funds; and various other maneuvers.

As part of her plan, Brewer wants to have voters revisit ballot measures that protect spending on education and health-care programs. She also wants voters to approve new restrictions on the growth of state spending.

In a letter addressed to the citizens of Arizona, Brewer said she'd waited until this week to produce a budget proposal "out of respect for our Legislature and its constitutional and time-honored role in spearheading the budget process."

She said she finally decided to unveil her own proposal because "after five months of rancorous discussion, and with only four weeks to go, further debate as to which proposal offered to date is the 'right' one is an exercise in futility, for one clear, simple reason: None of them would result in a balanced budget."

The rollout of the Brewer proposal on Monday, June 1, was marred by the leak of a memo last week from political consulting group HighGround, which outlined a $225,000 plan to build support for the governor's plan.

The memo called for a PR campaign coordinated by HighGround—a firm run by Brewer allies Chuck Coughlin and Doug Cole—that would include meetings with editorial boards, print and radio advertisements, and robo-call campaigns in specific legislative districts across the state, all with the aim of bringing pressure on Republican and Democratic lawmakers to support Brewer's proposal.

Republican lawmakers were angered by the notion that the governor and her allies would be campaigning against them in their districts.

Media coverage of the proposed HighGround campaign overshadowed the release of a new budget plan by legislative Democrats, who are taking a stab at using complex gimmicks in the hopes of dramatically changing Arizona's tax structure on a simple majority vote.

The Democratic proposal calls for the extension of sales taxes across services that are currently untaxed, such as legal work, haircuts and dog grooming.

To keep the increase "revenue-neutral"—and therefore avoid the requirement that any new tax be approved by two-thirds of the Legislature—the Democrats lower the overall state sales tax from 5 percent to 3.4 percent.

To help the state bring in more money, Democrats anticipate that cities and counties will also extend their shares of the sales tax to services, creating a windfall. As a result, the state can then borrow $1.17 billion in shared revenues from cities and counties.

Democrats say that extending the tax to services broadens the tax base while lowering the overall rate, which would create a more stable tax system.

The Democratic plan also restores a statewide property tax that would raise $250 million annually, and gets rid of a subsidy that will result in $730 million in higher local property taxes for both businesses and homeowners.

However, they try to sweeten the pot for businesses by boosting the business personal property tax exemption and expanding an effort to reduce businesses' share of property taxes by decreasing the assessment ratio that forces commercial-property owners to pay more than twice what homeowners pay.

Republicans dismissed the Democratic plan on the day of its release.

"Rather than addressing how spending got more than $3 billion dollars out of alignment and taking steps to reduce unsustainable government spending, Democrats are asking Arizonans to pay billions of dollars for their fiscal mismanagement," Senate Appropriations Committee Chairman Russell Pearce said in a press release.

It appears that Democrats and Republicans do agree on one thing: They don't like the budget proposal that Brewer has put forward.

"Neither Democrats nor Republicans want a sales-tax increase," says Steve Farley, a Democratic state representative from Tucson. "Gov. Brewer showed her ability to be a uniter and not a divider by pushing Democratic and Republican legislators closer together in opposition to her plan."

More by Jim Nintzel

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