DALLAS - Arizona Gov. Jan Brewer is winning local support for her combination of spending cuts and a temporary tax increase to cover a $4 billion state budget gap for the fiscal year starting July 1.
In a special meeting yesterday, the League of Arizona Cities and Towns passed a resolution in favor of Brewer's proposal, saying it would spare local governments further disruption in their budgets after deep cuts over the past two years.
"Gov. Brewer's plan is the only one proposed thus far that does not do significant harm to Arizona's local governments," said league executive director Ken Strobeck.
The league's vote came a day after the Phoenix City Council threw its unanimous support behind Brewer's plan, unveiled on Monday.
Of three proposals, including separate plans from the Legislature's Republican and Democratic party leaders, "the governor's is the only one that would not affect shared revenues," said Karen Peters, head of government relations for Phoenix.
Shared revenues include income tax, sales tax, and vehicle license taxes collected by the state, which distributes about 25% of the revenues to local government.
Under the Democratic proposal, the state would "borrow" the local portion of the shared revenues to patch the state's budget gap and pay it back with interest at a later date. For Phoenix, that could mean the loss of as much as $120 million, Peters said.
Such a loss could affect the debt service for the city's sales-tax revenue bonds that are issued under the Phoenix Civic Improvement Corp.
"If the state took all that sales tax revenue, it would affect bonds, it would affect operations, everything," Peters said.
As it is, Phoenix is struggling to keep pace with falling revenues, she said. Actual monthly sales tax collections are coming in about $2 million below projections, she said.
"We're going to limp to the finish line on June 30," she said, referring to the end of the 2009 fiscal year. The City Council expects to put the finishing touches on the 2010 budget next week.
The council has already cut $270 million, or 22%, from the $1.1 billion budget this year. Rated AAA by Standard & Poor's and Aa3 by Moody's Investors Service, Phoenix carries about $1.4 billion of general obligation debt backed by property taxes, $3 billion of enterprise debt for airport, water, and wastewater projects, and other revenue-backed bonds. About $1.3 billion of debt is backed by sales tax revenue. Another $970 million is supported by state taxes, hotel and rental car taxes, and fuel taxes, officials said.
Brewer released her $9.1 billion budget proposal as lawmakers struggled to close a gap estimated at $3.3 billion a month ago, and now at $4 billion. Brewer is seeking a one percentage-point increase in the state sales tax for three years, taking the rate from 5.6% to 6.6% and raising an additional $1 billion.
"Unfortunately, after considering every option, and after performing a painstaking assessment of our real economic situation, a temporary tax increase is necessary to bridge the gap between fiscal crisis and recovery," Brewer said in issuing the plan.
GOP lawmakers opposed the tax increase, saying it would increase the drag on a slumping economy. Brewer's plan also calls for $600 million in cuts to state agencies. The budget must be in place by July 1, the start of the 2010 fiscal year.
