DALLAS — Arizona will be spared nearly $1 billion in spending cuts after voters approved a three-year sales tax increase to bolster falling revenue.
While the statewide Proposition 100 tax hike achieved easy victory, voters rendered a split decision on local tax increases, approving a 0.2 cent hike in Tempe and rejecting a 0.25 cent boost in Gilbert.
Approval of Proposition 100 was also a victory for Gov. Jan Brewer, who had been pushing for the one-cent tax hike after cuts of $2 billion in the current and coming fiscal year budgets.
Efforts to pass the tax failed in regular and special legislative sessions last year and finally succeeded in this year’s regular session that ended last week.
Proposition 100 is expected to raise about $1 billion per year over the next three years.
Brewer — a Republican who inherited the job last year when predecessor Janet Napolitano joined the Obama administration as head of Homeland Security — called the vote “the beginning of Arizona’s comeback.”
Brewer is running for election this year against a field of challengers, including state Treasurer Dean Martin, a fellow Republican who has been critical of her handling of the budget.
Had Proposition 100 failed, a contingency budget approved by lawmakers in the recently ended session would have taken effect.
The biggest loser would have been public education, which would have lost about $428 million in state aid.
The state university system, which has already taken deep cuts, would have lost another $107 million, and community colleges would have lost $15.2 million.
Without the tax increase, state revenues were expected to fall 13% in the fiscal year beginning July 1 and possibly as much as 14.5%, according to state budget director Richard Stavneak.
Amid the falling revenue, Arizona has turned to borrowing to cover its operating costs to an unprecedented degree.
Earlier this year, it raised $750 million from the sale of state buildings that are now leased. Those proceeds were used to help balance the general fund for state operating costs.
Next week, officials expect to sell $450 million of bonds backed by lottery revenues, with the proceeds also going to operating costs.
In the current fiscal year, Martin has had to take out short-term loans in the form of warrants from Bank of America to cover operating costs, and he said in a recent report that he expects to have to issue more warrants before the year ends.
The one-time budget fixes were cited by Moody’s Investors Service this month in maintaining a negative outlook on the state’s Aa2 issuer credit rating.
Standard & Poor’s last year downgraded Arizona to AA-minus from AA, citing the state’s inability to balance its budget.
