DALLAS — Faced with recurring budget gaps, Arizona Gov. Jan Brewer is proposing a series of steps designed to improve the state economy, including budget cuts and financial incentives for business.
Brewer, who last month won her first election since becoming governor through succession, said she aims to lure large employers to Arizona when the economy begins to expand.
Among the measures she proposed is a phased reduction of the corporate income tax, another tax break for manufacturers, and other tax breaks and tax credits.
Brewer’s plan would also create a new $25 million state fund to provide grants to businesses considering expansion, easing regulation and making the state’s Commerce Department more like a private agency.
The proposal comes as Arizonans are paying higher sales taxes designed to offset previous budget shortfalls. Voters in May approved a three-year, 1-cent increase in the sales tax. That was expected to add $1 billion per year to annual revenues.
While state revenues have increased through higher taxes on consumers, Brewer believes similar results can be achieved through lower taxes on business that receive incentives to expand.
Under Brewer’s plan, the corporate income tax would fall to about 5% from 7% after the voter-approved sales tax increase expires in mid-2013.
Arizona, the second poorest state in the nation after Mississippi, has been hard hit by the recession and the collapse of the housing boom.
Discount retailer Wal-Mart is the state’s largest private employer, but health care companies such as Banner Health could represent a growing segment of the economy, analysts say.
In the latest Case-Shiller Index from Standard & Poor’s, Phoenix home prices fell 1.5% in September and were down 1.9% for the year to date. Phoenix remains one of the cities with the worst housing slump out of 20 in the index.
Tumbling values in the Phoenix area have left many homeowners unable to sell their homes for enough money to cover what they owed on their first mortgages. In short sales, lenders agree to let homeowners sell for less than what they owe, but former homeowners in the state have been finding recently that some lenders still try to collect the balance of the unpaid mortgage.
The state is recovering from a sharp downturn in tourism despite a boycott due to Brewer’s signing of SB 1070, a law that required police to investigate the citizenship of people who appeared to be illegal aliens. The major provisions of that law were ordered halted by federal courts pending a ruling on the law’s constitutionality.
In July, Arizona suffered its second rating downgrade in eight months from Moody’s Investors Service, falling to Aa3 from Aa2 amid ongoing budget shortfalls. Standard & Poor’s lowered the state’s issuer credit rating to AA-minus from AA in 2009.
Earlier this year, the state mortgaged many of its buildings to raise more than $1 billion in one-time revenue to offset budget shortfalls. It also issued debt against state lottery revenues.
To lower costs further, a state commission expects to recommend that Arizona consider privatizing some state parks and increase the use of privately operated prisons.
The recommendations are expected to be submitted by Dec. 31.
In January, the Legislature returns to again cut the budget after voters in November refused to allow funds from dedicated programs for public education and health to be shifted into the general fund.
The state must cut spending after losing its authority to use short-term borrowing. State officials earlier this year failed to renew a borrowing agreement with Bank of America that had helped Arizona weather the previous fiscal year’s financial downturn.