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California vote against tax hikes may show need for ‘Plan B’ in AZ

Most Capitol observers believe voters are more likely to approve Gov. Jan Brewer’s temporary tax increase proposal than the Legislature, but recent events in California may be a sign that the governor should have a good backup plan ready.
On May 19, California voters rejected five ballot initiatives that would have authorized tax hikes and increased borrowing as mechanisms for erasing that state’s $21.3 billion budget shortfall. The vote may provide cautionary example for Brewer, who has asked lawmakers to either approve a temporary tax increase or put it on the ballot to eliminate a portion of the state’s $3-billion budget deficit.
As California Gov. Arnold Schwarzenegger and state lawmakers scramble to repair a budget plan that relied heavily on revenue sources that required approval by voters, Brewer spokesman Paul Senseman declined to say what course of action the governor will pursue if her tax hike proposal, which she hopes will raise $1 billion a year through 2012, fails at the polls.
“I wouldn’t speculate on it at this point, but certainly there’s still time for the Legislature to act directly and not make a referral,” Senseman said. “The governor hasn’t eliminated the option of supporting a referral if the Legislature chooses that as the direction they’d like to take.”
Brewer said the vote in California hasn’t given her second thoughts about putting a tax increase on the ballot in Arizona.
“I feel very comfortable in the fact that we are different from California, and I think the people of Arizona will listen to the information that we provide to them. And if we don’t turn around and do my five-point plan …Arizona will be bankrupt, and it will be a devastation to each and every one of us, and certainly to our children and our grandchildren,” Brewer said.
In a speech to the Tucson Chamber of Commerce on May 20, Brewer said it had become “increasingly clear that a temporary increase in the state sales tax has the best chance of successful approval by the voters if the votes for legislative approval cannot be mustered.” Brewer first proposed a temporary tax hike in early March, but has said little about which tax she would prefer to raise.
“She’s suggesting that (increasing the sales tax) seems to be the strongest one that’s out there. That seems to be the strongest candidate and most viable candidate,” Senseman said.
Some polls reflect the confidence Brewer has in voters, though others cast doubt on whether the plan will succeed. A Cronkite/Eight poll in April showed 60 percent of respondents support a sales-tax increase, while a Rasmussen poll from earlier that month showed 65 percent of respondents oppose such a tax hike.
“We’ve done two or three polls where we asked specifically about a tax increase,” said Arizona State University pollster Bruce Merrill, who runs the Cronkite/Eight poll. “One time we measured (support for a tax increase) at 58 percent, and another time it was up around 65 percent, about two-thirds of the people.”
If Brewer is planning to use revenue from her proposed tax increase in fiscal 2010, which begins in July, the clock is ticking. According to the Arizona Secretary of State’s Office, a special election would require 90-120 days of public notice, meaning voters might not have a chance to approve or reject such a measure until nearly halfway through the fiscal year.
Such a scenario could force Brewer to frontload Arizona’s federal stimulus dollars in 2010, leaving little of the money left for 2011, when the state is expected to face another deficit.
In mid May, Senseman told the Arizona Capitol Times that the state likely will have to use most of the education money from the American Recovery and Reinvestment Act, more than $800 million, on the fiscal 2009 and 2010 budgets. That scenario would leave little or no stimulus money for education in 2011, which Senseman said emphasizes the need for the temporary tax increase.
Dennis Hoffman, an economics professor at ASU’s W.P. Carey School of Business, said the state could face some unpleasant choices if it uses the lion’s share of its stimulus money in 2010, only to see voters reject a tax increase at the polls.
“(The budget) would have to be about 30-percent smaller, wouldn’t it≠ We’d have to have 30-percent smaller state government,” he said.
While California’s special election provides a cautionary example to lawmakers in Arizona, the two states’ situations do not mirror each other precisely. Hoffman said California’s taxes have remained high over the past 15 years, a period in which Arizonans have seen their taxes go down. Additionally, he said, Arizona’s public sector shrank as a percentage of the state’s total economy in the past decade or so, while California’s public sector grew larger.
Hoffman said the message from California policymakers was that if voters rejected the tax hike, “then items A, B, C and D won’t happen.”
Hoffman continued, “I think that’s the problem with California. They’ve run this bluff for years. They wring their hands and say they’ve got to fund massive amounts of government over there. And the voters have had it. Our voters have had a completely different experience.”
Senseman said Arizona and California’s situations are not comparable.
“It’s actually not really a similar situation,” he said. “I think it would be very, very difficult to compare (Arizona to) a state that had already had significant tax and fee increases placed on their taxpayers, and then having an additional follow-up initiative.”
California voters have shown a willingness to approve tax increases on themselves in the past, for example in a 1993 special election where they backed a .5 percent sales tax for public safety. Other times, they have not looked as favorably on tax hikes, such as in 2006 when they rejected increased taxes on tobacco, gasoline and property in three separate ballot measures.
If Brewer is counting on voters to approve her plan, California may provide an outline of pitfalls to avoid. Mark Baldassare, president of the Public Policy Institute of California, said the rejected ballot measures were extremely complex, confusing voters who had a relatively short period of time to take in a lot of information.
“Since the measures weren’t simple, the voters turned to their usual cues and signals of endorsement, whether there was some consensus around Democrats, Republicans, business, labor, liberals and conservatives,” Baldassare said. “They were getting mixed signals rather than consensus from people who they would consider the experts on these matters. I think that in that context, the complexity made it relatively easy for people to say they would vote no.”
Baldassare also said the fact that the vote was not held during a regularly scheduled election likely depressed turnout. Special elections have low turnouts — only one in six eligible voters participated on May 19, he said — and those who did cast ballots were older, more educated, more affluent and more fiscally conservative than the electorate as a whole.
“One thing that could’ve been done differently would be to make the decision in the Legislature instead of going to the voters to make complicated decisions. They didn’t have to go to the voters. They made a decision to go to the voters,” he said.

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