Balanced Approach 

Napolitano wins over the business community, but GOP lawmakers aren't so easily charmed.

Give Gov. Janet Napolitano this: She knows how to reach out to her political enemies.

The Tucson Metropolitan Chamber of Commerce, for instance, put its muscle behind Matt Salmon, the Republican whom Napolitano narrowly beat last November.

But when the chamber's head honcho, Jack Camper, introduced Napolitano at last week's local State of the State luncheon, he couldn't stop gushing about her.

For many in the crowd, it was their first look at Arizona's new governor. Judging from the mix of applause and laughter during a half-hour Q&A following her speech, Napolitano won many of 'em over, at least for now. Even Republicans who had campaigned for Salmon said they like what they heard from Napolitano.

Napolitano charmed Camper and his staff during a meeting last week in Phoenix, during which she impressed them with a thorough understanding of the state's troubled budget picture: an estimated $309 million shortfall in the current fiscal year ending June 30 and a gap hovering in the billion-dollar neighborhood for the next year.

Napolitano has pledged to protect education, universities and programs for seniors and kids, as well as healthcare for low-income Arizonans. To cover those climbing costs, she's trimmed some of her budget, with the deepest cuts aimed at parks, highways and the Department of Agriculture. She's hitting up Uncle Sam for more federal dollars to cover costs of homeland security, healthcare and other programs.

Napolitano budget's proposal, packaged in a slick 54-page summary that's so easy to read that even a Mesa Republican could understand it, also leans heavily on sleight of hand, borrowing against the value of state buildings and future lottery proceeds. She uses temporary fund transfers and suggests that school construction money be raised through bonding.

"It's got a lot of borrowing," says one lobbyist for the business community. "But really, what else are you going to do? It's the only way out of this mess."

Napolitano sidestepped calling for new taxes to balance the budget, which allows her to avoid a sure loser at the Capitol. Even so, the Republican leadership hasn't rushed to embrace her proposals.

Rep. Randy Graf, the majority whip who represents eastern Tucson and the Green Valley area, complains the Napolitano budget doesn't cut nearly enough and borrows too much. Moreover, he gripes, it's overly optimistic about economic recovery for the 2005 budget, leaving the door open to another billion-dollar shortfall.

"We'll have borrowed to the limit, fund sources will be tapped, and then there's nothing left but to increase taxes dramatically," Graf says.

Graf expects a GOP budget proposal that slashes spending will emerge next week. "Everything's got to be on the table," he says.

Meanwhile, Napolitano has followed through on her campaign promise to appoint a citizen committee to examine the state's tax code in an effort to review exemptions, loopholes and other gimmicks. Once that work is done--presumably, by the start of the next legislative session--Napolitano will be in a position to propose a major overhaul of the state's tax code.

But she'll have to decide if it's worth trying to push that reform agenda--and take on an army of special interests--in the 2004 election year.

POLITICAL considerations aside, is a tax hike a sure way to derail economic recovery? UA economic professor Marshall Vest argues just the opposite: Raising taxes may actually improve the state's economy.

Vest's message, delivered at an economic forum last month: "Much of the ideological baggage carried by current state policies are founded on mythology rather than fact."

For starters, Vest says that state and local government spending plays a big role in getting money moving into the economy and delivers something of value, particularly if the state invests in better schools, roads and other amenities that will help lure high-tech, high-wage employers.

"It makes no sense to dismantle state and local government, along with our educational institutions, and justify it with the totally bankrupt idea that by cutting taxes we'll stimulate the state's economy," Vest says. "In fact, cutting taxes actually has the opposite effect and weakens our infrastructure and our ability to compete in the 21st century."

Vest is keenly aware of the political realities that make tax increases next to impossible, including the constitutional requirement that any tax increase be approved by two-thirds of the Arizona Legislature. "That means that it only takes 11 anti-tax/anti-government senators to block an increase--or even to restructure taxes," Vest notes.

The trend is not encouraging. Vest observes that Arizona's per capita income is at 80 percent of the national average and has been falling since the mid-'80s, despite a series of tax cuts that have cost as much as $1.8 billion. Even more disturbing, Vest projects that in 25 years, Arizona's per capita income will fall to 60 percent of the national average.

"Do you get the sinking feeling that we are in a race to the bottom?" Vest asks. "Move over, Mississippi--here we come."

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