No Sale

Forget about voting for a statewide tax increase this year

If you were hoping to have a chance to vote for a tax increase to balance the state's budget, it appears you're out of luck.

The idea of asking voters to approve a temporary tax increase, which was floated by Gov. Jan Brewer in a speech to lawmakers in March, appears dead.

Republican leaders dismissed the idea nearly as soon as Brewer proposed it, while Democrats waited to see if more details would emerge.

Earlier this week, Democratic Rep. Steve Farley of Tucson said that a ballot proposal to hike taxes simply wouldn't work, because voters would not be able to decide the fate of the proposal until September—at the earliest. Given the current dire fiscal condition that the state now finds itself in, lawmakers couldn't write a budget with such an uncertain funding source.

But without a major boost to revenues such as the sales tax, lawmakers still have to somehow bridge an estimated $2.9 billion shortfall for the fiscal year that begins on July 1.

Brewer has yet to offer a comprehensive spending plan. GOP leaders have floated various drafts that include deep cuts to education and social programs, but those proposals have failed to find much support, even within the GOP caucus.

Laura Devany, spokeswoman for the Senate majority, said this week that budget talks were "progressing," with lawmakers meeting in small groups to develop their plan. She said that budget bills were on the agenda of the Senate Appropriations Committee on Thursday, April 23.

Meanwhile, Becky Blackburn, spokeswoman for GOP leaders in the House, said that Republicans were working out final details on spending cuts and could start hearing budget bills next week.

But some rank-and-file Republicans who spoke on background said that such talk was far too optimistic, given the current state of budget bargaining.

Lawmakers' ability to cut programs is limited, because some voter-approved state programs are protected by funding formulas that they cannot adjust. Their hands are also tied because, in order to remain eligible for federal stimulus dollars to balance the budget, they must continue funding certain programs with state dollars.

Republican leaders have begun to consider alternatives that include selling state assets and borrowing against future revenues.

But Brewer warned in her March speech that she would not sign a budget that simply cuts funding and leans on borrowing, putting her on a collision course with legislative leaders from her own party.

"I will not sign a budget that relies primarily on debt and federal stimulus dollars," Brewer said. "And I will not sign a budget that relies primarily on unrealistic spending cuts."

Meanwhile, Democrats continue to refine a proposal they released earlier this month that uses a combination of tax increases, spending cuts, financial maneuvers and stimulus dollars to balance the budget.

Farley said Democrats are now proposing to expand the sales tax to some services, while possibly lowering the overall rate, in order to make up a shortfall that has developed in the Democratic plan as the state's financial forecast has worsened.

Farley says that House Democrats have been meeting quietly with representatives from the governor's office and a group of rank-and-file Republicans in the hopes of developing a bipartisan budget agreement.

But since the Arizona Constitution requires a two-thirds majority in both the House and the Senate to pass any tax or fee increase, Democrats would have to persuade a considerable number of GOP lawmakers to join with them.

Support for a tax increase is coming from unexpected quarters. The latest organization to come out in favor of a temporary tax increase is the Arizona Chamber of Commerce, which had previously advocated only cutting government programs to balance the budget.

While chamber officials still want lawmakers to permanently cut a property tax that could raise roughly $250 million a year and are calling for a variety of other tax reforms (including a reduction in the state's corporate income-tax rates), they released a report last week that acknowledged that the state may need to temporarily raise sales taxes.

In the report, chamber officials note that "under these extraordinary circumstances, certain temporary tax increases, such as an increase to the sales tax, should be considered if all other options have been exhausted and there is no other viable way of closing the deficit."

The chamber's report also suggests the state should examine the possibility of allowing off-reservation casinos to open, with an eye on capturing tax revenues.

In the meantime, Democrats continue to wait for GOP leaders to produce their own budget plan.

"We're waiting for the Senate president and the House speaker to get around to realizing that we have to raise revenues," Farley says.