Use ‘balanced approach,’ consider tax hikes, panel says
PHOENIX – A team of university experts on Thursday urged lawmakers to consider tax increases and sweeping changes to Arizona fiscal policies to tackle the state’s budget crisis and preventing another one.
“It is vitally important that state policymakers take steps to place the state of Arizona on a more sustainable path for state finances,” the team said in a report to the Legislature.
Balancing the state budget through spending cuts alone won’t work. What’s needed is a “balanced approach” that also uses federal stimulus money and considers tax increases, the team said.
The Arizona Board of Regents assembled the team of seven university personnel, a regents economist and a consultant who is a former gubernatorial and legislative budget director. The move came in response to a request by top legislative leaders for ideas for balancing the budget.
The state faces a projected shortfall of nearly $3 billion on nearly $11 billion of spending in the budget year that begins July 1.
Both Republican Gov. Jan Brewer and most members of the GOP-led Legislature want to use stimulus dollars to help keep the state in the black, but there is vigorous debate on what to do after that. Brewer’s idea includes a temporary tax increase, key Republican legislators are calling for deep spending cuts and Democrats suggest alternatives that include suspending tax credits and allowing a suspended property tax to take effect again.
Reacting to the team’s report, Senate President Bob Burns, R-Peoria, said he would have aides study the recommendations in detail. But he said he did not find much to like at first glance, particularly regarding possible ways to balance the next budget.
“We’re still trying to get there without a tax increase,” said Burns, citing possible sales of state assets as a possibility to raise one-time cash. The report also mentioned that as a possibility.
Burns, R-Peoria, also said the report didn’t seem to place enough emphasis on the private sector.
“We do have this other side of the equation which is the private sector economy. It just doesn’t make sense to me that we would put a tax burden – or an increased tax burden – on them in this situation,” he said.
The report said broadening of the state sales tax to make it apply to more transactions could transform it into a more stable revenue source that doesn’t plunge and soar with cyclical changes of the economy.
The report also recommended considering various changes to the state income tax – some to simplify it – and diverting money from the vehicle property tax from transportation work to the state’s general fund.
In a nod to the political reality that many Republicans won’t back a tax increase, the report said lawmakers could consider coupling short-term tax increases with permanent tax reductions. That would possibly avoid triggering a state constitutional requirement for a two-thirds votes by each chamber to approve tax increases and make a majority vote possible for passage.
The experts said prudent long-term steps include giving lawmakers limited authority to change voter-mandated spending laws, doubling the size of the now-drained rainy day fund, providing a dedicated funding source for school construction and either offsetting any new tax cuts with spending cuts or matching spending increases with tax increases.
The budget shortfall is so big that spending cuts necessary to balance the budget by themselves would impact basic government services so severely that it would “fundamentally transform how Arizona is perceived as a place to live, work and raise a family,” the report said.
The current crisis resulted from the deep recession and “the cumulative effect of past legislative actions that both increased spending and decreased taxes beyond a sustainable level,” the team said in the report’s summary.
The state’s economy and revenues will not return to pre-recession levels until after the 2011-2012 fiscal year, the team said.
“Meanwhile, the state’s population continues to grow, increasing eligible populations for everything from education, to health care, to the confined population in our prison system,” the summary said. “Against this backdrop, (the team) concludes that balancing the budget entirely through budget cuts is not feasible, and a more balanced approach is required.”