Arizona Heads Toward Budget Showdown

DALLAS — Despite a veto threat, Arizona lawmakers yesterday advanced an $8.2 billion budget that avoids a tax increase to close a shortfall estimated at between $3 billion and $4 billion.

The Republican-controlled House was preparing to vote on the budget yesterday after the Senate passed the 10-bill spending package in an all-night session.

Among the borrowing provisions is a plan to sell state prisons for $495 million and lease them back over a 20-year period. The state would also raise $100 million by privatizing some state prisons over a 50-year period.

Republican Gov. Jan Brewer has threatened to veto the legislative budget if it does not conform to her proposal issued on Monday. But key lawmakers said that passage of the bills was a prelude to negotiations with the governor.

Brewer’s five-point plan includes a 1 percentage point increase in the sales tax to raise $1 billion over three years, a step that the Republican lawmakers consider a burden that should not be imposed in a recession.

The GOP legislators’ plan also includes the elimination of the education-equalization tax, a property tax that, if assessed, would bring in $250 million a year.

The legislative plan has provoked opposition from local governments for seeking to withhold revenue that is normally shared with cities, counties and other jurisdictions.

Democratic lawmakers, for example, want to “borrow” the shared revenue from the cities by withholding it for three years. The revenue would be paid back with interest, under that plan. But Phoenix city officials said the withholding of any revenue would be devastating to their budget, which is awaiting final passage. Cities and counties in Arizona have been cutting budgets for years already.

The local governments have also threatened a constitutional challenge to the legislature’s proposal to give cities and towns only half their normal share of vehicle-license tax dollars, or about $95 million, while directing the other half into school aid.

In a special meeting Wednesday, 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.

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’s plan would raise the sales tax rate from 5.6% to 6.6% in an attempt to compensate for rapidly falling revenue.

“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.

For reprint and licensing requests for this article, click here.
MORE FROM BOND BUYER