DALLAS — A potential solution announced by Gov. Jan Brewer on Wednesday afternoon to Arizona’s projected $3.4 billion budget shortfall for fiscal 2010 collapsed a few hours later over a proposed three-year increase in the state sales tax.
Senate President Bob Burns, R-Peoria, postponed a planned Wednesday night vote on the budget plan and adjourned the Senate when it became apparent the plan did not have enough votes to pass. Brewer, Burns, and other state leaders were in talks yesterday to resolve the impasse.
“We need to stop the train and get things back on ground zero here so we know where we’re at,” Brewer said.
At a Wednesday afternoon news conference, Brewer said the budget-balancing plan was “a long-term solution to turn Arizona around and right the ship.” House Speaker Kirk Adams, R-Mesa, said the plan was “the best package most likely to secure the necessary votes.”
“If Arizona is going to get out of the worst recession that we are in, we’ve got to produce an economic environment where people can hire again, they can build buildings again, and they can get the economy moving again,” Adams said.
The budget plan, which has been endorsed by the Republican majority in the Legislature, includes the sale of state government facilities, including prisons as well as the House and Senate buildings, and leasing them for 20 years.
Legislators said the sale-leaseback plan would put $735 million into the general fund, with the facilities reverting to state ownership after 20 years of lease payments.
Conservative Republicans in the Senate balked at Brewer’s proposal to put an increase in the state sales tax on the November ballot. The Democratic minority countered that $650 million in tax cuts would make the budget shortfall worse in the future.
The temporary sales tax increase would become effective Jan. 1 with voter approval, and expire in 2013.
State officials said the sales tax increase referendum must be approved by the Legislature today to make it onto the Nov. 3 ballot.
The state tax would go up to 6.6% from the current 5.6% in 2010 and 2011 if voters approve, and then drop to 6.1% in 2012 before going back to 5.6%. The additional tax would generate $2.5 billion a year, with the revenue dedicated to education, health care, and public safety.
Voter approval of the sales tax increase would automatically put a cap on state general fund spending of $10.2 billion a year through fiscal 2012, roughly equal to the fiscal 2009 budget.
The budget plan would balance the sales tax increase with a reduction in state income tax rates. Individual tax rates would be cut 6.6% across the board, with a 30% reduction in corporate income tax rates. The cuts, totaling some $400 million a year, would go into effect Jan. 1, 2011.
The budget plan would make permanent the current three-year suspension of a state property tax that was set to become effective again this year. The tax would generate an estimated $250 million a year.
Andrew Morrill, vice president of the Arizona Education Association, said at a news conference that the $650 million of tax cuts is the wrong approach.
“Nobody likes to pay taxes, but the revenue has to be there to build the state we say we want,” Morrill said.
Arizona has an issuer rating of Aa1 from Moody’s Investors Service and AA-plus from Standard & Poor’s.
