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Funding shortage plagues Corp Comm; Tucson office to close

The Arizona Corporation Commission voted on Oct. 5 to close a division office in southern Arizona as it grapples with funding woes resulting from the governor’s budget veto and from legislative inaction to fix the problem.

That office processes the papers of businesses that want to form new corporations in the state.

The irony is clear. At a time when policymakers are hoping to attract businesses from out of state, a unit that facilitates the formation of those corporations is being plagued by funding shortfalls, forcing it to take drastic actions, including the closure of an office and the transfer of several staffers to another division.

Kris Mayes, chairwoman of the Corporation Commission, said the lack of money will have a dramatic impact on Arizona’s economy and its ability to form new businesses. The division that is slated to bear the brunt is the state’s repository of all corporate records and annual reports. It examines and approves the formation of all limited liability companies and corporations. It also grants authority to out-of-state corporations to do business here.

“We think that is really a travesty at a time when we are facing an epic recession,” Mayes said. “We could be faced with a situation where somebody who wants to move to Arizona from California and start a new business and they just can’t do it for a year. My biggest fear is they will just decide to skip over to some other states, where they can form a new business.”

By a vote of 3-2, commissioners decided to shut down the Corporations Division office in Tucson but retain its employees. Twelve employees of the division’s Phoenix office will be absorbed temporarily by another division, and the four employees in Tucson will be transferred to another division. That equates to a reduction of about one-fourth of the division’s work force.

The commission expects to reopen the office and return the employees to their former posts once the Legislature restores the division’s budget.

Also, all of the Corporations Division’s personnel will undergo a one-day furlough per pay period.
These changes are expected to take effect by the middle of this month.

In fact, neither the Legislature nor the Governor’s Office is opposed to the funding mechanism that the commission is seeking. Yet the commission faces the shortfall as a result of political wrangling between lawmakers and the governor over other budget issues.

Gov. Jan Brewer vetoed a budget bill in September because it contained the repeal of the state equalization tax. That bill also contained funding mechanisms for several agencies, including the Corporation Commission, the Arizona Lottery, the departments of Agriculture, Housing, Insurance, Racing, Revenue, Transportation, as well as the Office of Pest Management and Registrar of Contractors.

Policymakers had agreed to allow the Corporation Commission to receive funding entirely from the commission’s public access fund. Previously, the division had received money from the state’s general fund and the public access fund.

In order to accomplish the shift, lawmakers approved legislation to redirect a portion of corporation fees to the public access fund. That was one of the policy changes in S1025, which was vetoed by Brewer.

As a result, the commission lost about $2.8 million this fiscal year. The Corporations Division has a budget of $4.5 million.

In a letter to House and Senate leaders, commissioners noted that the amount of time it takes to process incorporation papers from businesses will “continue to grow exponentially” each month that the budget issue is not resolved.

As of Oct. 5, expedited processing took as many as five days, and non-expedited papers could take as long as a month to process. The cutbacks mean it will take longer now, according to the Corporation Commission.

Two commissioners voted against the option to close the division’s Tucson office, but Mayes said it was the “best of four bad options.”

The Corporation Commission’s staff had come up with four scenarios to deal with the budget problem. One of the options would have avoided closing of the Tucson office and the furloughs. Instead, it essentially involved shifting some money to the Corporations Division from the Securities Division, which would have delayed the problem until later in the fiscal year and allowed policymakers more time to find a solution.

Commissioners Paul Newman and Sandra Kennedy, both Democrats, supported that option.

During deliberation, Newman argued that Tucson is a major city, that having a Corporations Division office in the city is more than symbolic, and that it serves the business community there.

“This cut is bad for southern Arizona, and when you make cuts they shouldn’t necessarily be done on a
geographical basis or with a geographical bias,” Newman, who is from southern Arizona, told the Arizona Capitol Times.

Kennedy said she fears that once the Tucson office is closed, it will never open again.

Mayes argued that deferring action would lead to more painful decisions in January. If the Legislature and the governor do not approve all of the policy changes the commission is seeking, the Securities Division, under the alternative option, could face a 50-percent reduction in staff by fall of next year.
It’s too much of a gamble, Mayes said.

“In this environment, I don’t think anything is certain. Look at the fact that we have failed to get a budget for our Corporations Division this year.” she said. “Does anybody really think we are going to be better off next year?”

The decision to shut down the Tucson office followed the commission’s lobbying efforts to have the governor call a special session to fix problems with the budget. Each of the commissioners, for example, has been assigned a group of lawmakers to contact.

Senate Minority Leader Jorge Garcia said caucus members are also willing to come in and work on a fix.
“I am glad the commission took that action because it was the right action to take, and that is the only action that will force my Republican colleagues to come back to a special session,” Garcia said. “It is the business function of the state that is going to suffer, and I hope all those chamber folks throughout the state are pounding on Burns’ and Adams’ offices because if they are not doing that, they are not doing their jobs.”

Sen. Jonathan Paton, a Republican from Tucson, said he would be willing to vote for a fix. He lamented that Tucson will see much of the fallout from the budget cuts.

“I don’t know why, and this has happened elsewhere in government, that Tucson seems to be bearing the brunt of the cuts. When they think about cuts, they – they being whatever government agency – say, ‘Well, we’ll cut our Tucson office first,’ and I don’t know why that is when we give more money to the state than we get back.”

Senate Majority Whip Steve Pierce, a Republican from Prescott, said Senate leadership is committed to fixing the problem.

But it’s the governor who has to call the Legislature back into a special session, and she’s the one who decides the scope of the session, Pierce said. He said the governor’s veto was to blame for the commission’s problems, adding that the Legislature, in fact, passed funding for the commission.

“I would think this part that they are closing is essential and essential to southern Arizona,” Pierce said. “But at the same time everybody is going to have to learn we are going to have to get by with less government because we simply cannot afford the level of government we have been getting.”

He added: “I am not saying that the Corporation Commission is the place to take that out. I am saying that money needs to be moved around to the most essential places, and if this is one of them, it shouldn’t have been closed.”

Mayes said the problem could be averted if lawmakers and the governor stepped in to allow the Corporation Commission to pay for operations by keeping the money it receives.

“This is all unnecessary. We could solve this problem tomorrow by just fixing one little piece of language that allows the commission to have its budget and keep the money that we are bringing in.”

Last month, the Joint Legislative Budget Committee wrote a letter that lays out a temporary administrative fix to the commission’s problem. It outlined several ways to alleviate the problem.

One way is to delay the commission’s rent payment to the state, which would reduce its budget shortfall.

The rest of the shortfall can be offset, through January, if the governor approves a “change to their allotment schedule permitting the commission to ‘roll forward’ appropriations from other funds.” JLBC noted that the Arizona Department of Administration sets this allotment schedule and limits by quarter how much an agency may use.

The governor’s Office of Strategic Planning and Budgeting could allow changes to the allotment schedule, JLBC said.

JLBC added that the commission’s staff has requested to “roll forward” appropriations from the utility regulation revolving fund and shift some public access fund costs onto that fund, but the executive branch has not approved it.

Also, Brewer can use federal stimulus dollars as “bridge loan” for the commission, according to JLBC.

But Paul Senseman, a Brewer spokesman, said those options would serve only to exacerbate a problem and delay necessary action.

“It is certainly an option, but it would be totally irresponsible if there wasn’t a commitment, at a minimum, from legislators that they were going to come back in and resolve that issue with a specific amount of money at a specific date and time,” Senseman said.

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