DALLAS — Revenue from a temporary one-cent sales tax designed to balance Arizona’s budget fell 10% short of projections the first month the tax was collected, officials said.
The state expected $72 million in additional revenue, but collections came in $7.5 million short in July at nearly $65 million, according to the Department of Revenue.
Voters were told the tax would add $1 billion annually to state coffers when they boosted the sales tax by one cent in May. However, collections are more likely to come in at $862 million, according to Farrell Quinlan, director of the National Federation of Independent Business, and an opponent of the tax.
Overall general fund revenue was below projections in July, primarily due to sales taxes, officials said. The state expected to bring in $371 million in sales tax revenue, including the new sales tax revenue, but instead brought in $346 million. July was the second month that revenue declined.
Arizona began its fiscal year July 1 with a budget balanced by the expected income from the higher additional sale tax, as well as spending cuts and shifts in state spending. In November, the state will ask voters to transfer $124 million from the state’s Growing Smarter fund and $345 million from the First Things First program into the general fund. Growing Smarter funds were dedicated to land conservation, while First Things First provided funds for an early-childhood health-and-education program.
Meanwhile, Arizonans will see their property tax assessments drop an average of 3.7% from last year — a fraction of the actual decline in home values. Property tax bills are sent out about 18 months after appraisals, so the values are based on 2008 valuations, which fell 23%.
Property values have continued to fall in Arizona, one of the states hit hardest by the housing crisis. The taxes they generate support local jurisdictions, including cities, counties, and school districts.
Despite lower home values, some property owners will see higher taxes due to local government rate hikes, officials said.
“We expect that the state will lag in the economic recovery as it will take some time to rebound from the severe housing market downturn, which has led to weakening in state finances and economy that is more significant than other states,” Moody’s Investors Service analyst Maria Coritsidis said in a July report downgrading Arizona’s credit rating to Aa3 from Aa2.
The downgrade came after Gov. Jan Brewer and the Republican-controlled Legislature agreed to mortgage state buildings, sell lottery bonds, and raise the sales tax to overcome a $3 billion budget deficit in the current fiscal year.
Facing election to the term she was appointed to in January after the departure of former Gov. Janet Napolitano for President Obama’s cabinet, Brewer blamed Napolitano, the president, and Congress for Arizona’s troubles.