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Wanted: new revenue

Lawmakers will be facing quite the conundrum in 2010 – how to raise more revenue for the cash-strapped state without raising taxes.

The Republican-led Legislature stymied attempts by Gov. Jan Brewer to put a sales tax increase on the ballot, and outright rejected the idea of passing a tax increase itself. But now, even some fiscal hawks believe it’s not possible to make enough cuts to bridge a projected fiscal 2011 deficit that may be as high as $3 billion, which means that somewhere, somehow, the state will likely need to find new sources of revenue.

“You’ve rendered me speechless,” said Republican Rep. Adam Driggs, when asked where the state could find the needed revenue.

In 2009, the Legislature approved a plan to sell and lease back a number of state properties, including the House and Senate buildings, to the tune of $735 million. With that option already off the table for fiscal 2010, lawmakers may be forced to get even more creative – some might say desperate – and a number of members are already touting various proposals and pet projects.

Groundwork for some options has already been laid. The Legislature passed a bill allowing the Arizona Department of Transportation contract with the private sector for new roads that residents would pay to use. Rep. John Kavanagh, a Fountain Hills Republican and strong advocate for the plan, said those agreements could bring in hundreds of millions of dollars for the state while helping to meet Arizona’s transportation needs.

Kavanagh believes privatization may be the key to pulling Arizona out of its massive deficit, and he doesn’t necessarily want to stop at private roads.

“If private industry builds our highways, why can’t they maintain them? And the same could be said for a host of other services – IT, printing, all sorts of maintenance, cleaning. So privatization can save the state a lot of money by expanding it to other areas,” he said.

Sen. Russell Pearce, a Republican from Mesa, said the state could contract with a private company to house the 5,000 prison inmates whom Arizona is paying other states to incarcerate. Pearce opposes privatizing existing prisons, but he said recalling those 5,000 inmates to Arizona and contracting with the private sector to house them would save the state money while creating new jobs.

“So it is a win-win deal for Arizona. It is an economic boost relative to employment,” Pearce said. “I’m not going to raise taxes.”

However, even many advocates acknowledge that privatization of state services can provide long-term savings, but little in the way of the large infusions of cash the state desperately needs. Byron Schlomach of the Goldwater Institute suggested the state may be able to bring in some quick cash through privatization, such as by selling the rights to operate state parks such as Kartchner Caverns.

“Really what you’re looking for is one-time revenues more than anything else. Frankly, they’ve largely exhausted the options on that,” Schlomach said.

One proposal that is getting mentioned more frequently these days is expanding casino-style gambling to racetracks. Rep. Andy Tobin, a Paulden Republican, is pushing the so-called “racinos” as a viable option that he believes would generate as much as $2 billion over the next two to three years. But voters would have to approve a change in state law for that to happen, and Tobin faces a lot of opposition, including from members of his own party who believe it would be wrong for the state to encourage gambling as a means of raising state revenue.

Tobin said gaming is being expanded anyway, pointing to plans by the Tohono O’odham tribe to build a massive casino in Glendale, near University of Phoenix Stadium. If such a provision is passed, existing regulations and restrictions on tribal gaming would be nullified, but Tobin said his proposal would at least keep much of the gaming confined to racetracks.

He hopes to get Brewer’s support for the plan.

“The governor and her staff have to be more than passive spectators. They’ve seen the numbers, and I think they need to decide whether or not this is something they want to engage in,” Tobin said.

Brewer, who in the past has hesitated to expand casino gambling to off-reservation land, was noncommittal when asked in mid-September about the possibility. “That has not been brought to my attention. I know that there’s been some communication amongst legislators, and certainly in the paper I read the racino issue is out there.”

Sen. Steve Pierce said racinos are an option that might warrant more discussion. “It could bring in a lot of money,” the Prescott Republican said. Kavanagh said the prospect is “intriguing,” but questioned whether it would muster enough voter support to pass at the polls.

Despite the number of ideas being floated, Brewer doesn’t think there’s any way the Legislature can find the money it needs without resorting to a tax increase. She said she is still committed to her plan to put a temporary 1-cent sales tax on the ballot, which she said would generate about $1 billion a year.

“I don’t think they’re going to come up with any other ideas because that’s what floats government are taxes,” she told the Arizona Capitol Times.

Brewer isn’t the only one. Dennis Hoffman, a professor of economics at Arizona State University’s W.P. Carey School of Business, said the state may be able to generate some revenue by doing things like changing the fee structure for AHCCCS or eliminating tax credits for education – both options that likely would be unpopular in the Legislature – though those would be “back-door taxes, in a way,” he said.

“It’s pretty hard to get there without thinking about that evil T-word,” he said.

Some lawmakers are amenable to raising more money through taxes, just not with the tax increase Brewer wants. Rep. Steve Farley said he and other Democrats came up with a number of proposals during the legislative session, and he expects those to reemerge in 2010.

Depending on how it’s structured, a Democratic proposal to lower the sales tax rate while expanding the base of products and services that are subject to sales taxes could raise enough money to fill a large portion of the budget gap. A utility excise tax on electricity production, especially from nonrenewable sources, would generate an estimated $300 million. And the utility tax might even garner the 20 and 40 votes it would need to pass outright in the Legislature – especially considering the fact that many of those taxes would be paid by out-of-state customers.

Farley, of Tucson, believes his Republican colleagues will “absolutely” be more open to the Democratic proposals next year. “I think they all looked pretty good at the time (they were proposed), and I think they’ll look even better now that they’ve banged their own heads against their own walls,” he said.

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