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Bare-bones Revenue Department would eliminate audits

An unintended consequence of a veto last month means the state agency tasked with collecting taxes is on the verge of laying off more than half of its staff, barring a budget fix to allow access to all of the money lawmakers gave it earlier this year.

Anthony Forschino, the agency’s assistant director, said the layoffs would still allow the Department of Revenue to function, but in a bare-bones manner.

“You’re not going to get answers to phone calls. Our returns are going to be processed very slow,” he said. “If you’re filing a return with a refund, expect months before you get it.”

Lawmakers gave the department $67 million for the 2010 fiscal year, but the agency has access to only $40 million of that. The other $27 million was to come from the proceeds of the sale of unclaimed property, but the legal mechanism allowing the transfer was included in a budget bill Gov. Jan Brewer vetoed in September.

At the time, Brewer said she wanted a special legislative session by the end of the month to fix the problems her veto created for the Department of Revenue and other agencies, including the Corporation Commission. But that has yet to materialize, while legislative leaders and the governor continue to squabble over the scope of the special session.

Forschino said the $40 million to which his agency has access will cover the cost of operations until early February. If the department receives a commitment from lawmakers and Brewer that they’ll come up with a solution before then, he said there would be no reason to lay off employees.

If there isn’t a commitment soon, however, the department will terminate as many as 450 of its 700 or so employees. Forschino said the layoffs must occur by Nov. 1 if the agency believes it will have to make the $40 million last the entire year.

Forschino said employees already have been told their jobs are in jeopardy. He said the loss of that many people would eliminate all but the core functions of the agency.

“(Laying off) 450 people would take us down to nothing. We would be processing returns and that would be it,” he said.

Audits of tax filings and collections of unpaid taxes are among the services that would cease, Forschino said. He said it was difficult to determine how much that could cost the state, but noted that collections and auditing generate more than $300 million annually.

The department already has trimmed more than 300 employees this year in response to an emergency budget cut in January that was part of an effort to close a $1.5 billion state budget deficit.

House Assistant Minority Leader Kyrsten Sinema said she would like to see a special session begin soon so the employees don’t have to lose their jobs.

“The money is there, they just don’t have the power to use it. It’s not like they’re asking for extra money or special money. They’re only asking for the money that’s appropriated,” the Phoenix Democrat said.

But Rep. John Kavanagh said the straits aren’t quite as dire as the Department of Revenue has indicated.

Legislative budget analysts have told lawmakers that the agency could avoid the layoffs by shifting funds, he said. Kavanagh, a Fountain Hills Republican who chairs the House Appropriations Committee, also said Brewer could use federal stimulus money to give the agency a loan until lawmakers address the problem.

“We’re told they have ample funds for the time being,” he said. “There’s no need to create an artificial crisis.”

Kavanagh said the doom-and-gloom scenarios are part of a broader strategy by Brewer to generate support for her sales tax ballot referral, which she has been calling for since March.

The governor failed to convince lawmakers to send a 1-cent, three-year sales tax increase to the ballot for a special election. Many believe her veto of S1025 (budget reconciliation; general revenues), which contained the provision affecting the Department of Revenue, was in response to that failure. The bill also contained a permanent repeal of a state property tax that was supported by many Republican lawmakers.

Kavanagh said he was willing to return for a special session and fix the funding mechanisms for the Department of Revenue, but only if Brewer agreed to also reinstate $464 million in cuts to K-12 education and social services that she vetoed.

Sinema, though, said it wasn’t right for either Republican lawmakers or Brewer to use the agencies as leverage for further political gain.

“I think it’s a bad strategy to hold three agencies hostage, especially if one of them is the Department of Revenue,” she said.

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