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Jobs bill not the end of economic incentives in 2011

The ink is barely dry on Arizona Competitiveness Package, but business groups and Republican lawmakers have at least one more batch of economic incentives they hope to push through the Legislature this session.

The Greater Phoenix Economic Council is rallying support for SB1041, a slate of tax credits and property tax incentives that were stripped out of the so-called jobs bill during negotiations over the sweeping package of tax reforms. The plan, which GPEC has dubbed “Invest Arizona,” would expand the job-creation tax incentive established in the competitiveness package and create temporary property tax breaks for high-dollar investments.

GPEC President and CEO Barry Broome said lawmakers have taken a first step in righting the state’s economy, but most of the tax cuts in the Arizona Competitiveness Package won’t go into effect for years. Broome said Arizona needs something that will create jobs now, especially since Arizona has the highest cost of doing business for capital-intensive industries in the Mountain West. The proposal he is pushing will give the state the third-lowest cost in the region, he said.

Gov. Jan Brewer, House Speaker Kirk Adams and Senate President Russell Pearce said there would still be more work to be done to improve the economy after they passed the jobs bill. Invest Arizona, Broome said, is the next step.

“We’re very proud of the leadership package. We applaud the leadership. But it moves us from ninth to fifth, and it doesn’t move us until between 2015 and 2018,” Broome said. “Well, we’re in a recession between now and 2015. And on major capital-intensive industries and export industries, this allows us to make a move now.”

The legislation includes a pair of tax breaks for qualifying companies. Any firm that relocates or expands in Arizona and meets certain thresholds for job creation and capital investment wouild receive both temporary income tax credits and a property tax reduction. To qualify, companies in urban areas would have to invest at least $5 million and create at least 25 new full-time jobs that pay at least the average wage. Companies in rural areas would have to create at least

15 new jobs and invest $1 million.

The income tax credits, which are similar to a provision in the jobs bill, provide a $3,000-per-job tax break. Unlike the previously approved legislation, SB1041 expands eligibility for those tax credits to include payroll withholding taxes so that smaller companies that don’t pay corporate income taxes can qualify.

On the property tax side, qualifying firms will pay only a 5-percent assessment rate for seven years, not the 20-percent rate currently levied on businesses.  

The bill sailed through the Senate on March 3, passing on a 24-5 vote. Broome said he is “cautiously optimistic” about getting Brewer’s support. Previously, she had touted similar provisions that would turn Arizona into a “statewide enterprise zone,” though she removed those from the jobs bill during negotiations with legislative leadership. Brewer rarely comments on pending legislation, and a spokesman would not comment on whether she supports SB1041.

But some GOP lawmakers say there’s no need for the Invest Arizona bill so soon after the Legislature passed the jobs bill, especially when the new bill is nothing more than a slew of incentives they view as government handouts.

“It sounds good, but you know, there’s a lot of stuff in it that we kept out of the governor’s Commerce Authority (bill),” said Senate Majority Whip Steve Pierce, one of the five votes against SB1041. “The exact same things that we fought to keep out of the other bill are in this one, like enterprise zones.”

Pierce said the tax credits and property tax breaks in SB1041 are too similar to provisions of the state’s expiring enterprise zone program. While he would have liked to see more aspects of the jobs bill go into effect sooner — the across-the-board tax cuts won’t start phasing in until 2015 — he said the incentives in Invest Arizona will cost too much and may not even be needed.

The fiscal impact of Invest Arizona is unknown, according to fact sheets drafted by Senate staff and provided to senators.

Sen. Sylvia Allen agreed with many of Pierce’s criticisms, and said a second jobs bill may be too much, too soon.

“The jobs package that we passed was, I think, sufficient right now,” she said.

Sen. Michele Reagan, the bill’s sponsor, said SB1041 is the “perfect complement” to the jobs bill.

“The most important part, to me, is there’s something in there for everybody, in the sense that there’s something in there for small business, for large business, for rural business,” she said.

Reagan and the other supporters of Invest Arizona will have to add a little more. The bill lacks a hard cap on the tax credits, which critics compared to the notorious alternative fuels fiasco, though most senators seemed or unaware of the omission.

GPEC spokeswoman Melissa DeLaney said the bill will be amended in the House to include a cap on the $3,000-per-job tax credits. Like the jobs bill, SB1041 will cap the program at $90 million and 10,000 jobs. But it will remove a 400-jobs-per-company cap that was in the earlier bill, which Broome said will encourage companies that will bring more than 400 new jobs to move to Arizona.

The House is expected fix other flaws in the bill as well. Michelle Rider, GPEC’s senior vice president of external relations, said the current version of SB1041 would likely conflict with wording in the jobs bill, and might affect some statutes that will no longer exist when the jobs bill goes into effect in July. As written, the bill might even create a second $3,000-per-job tax credit, instead of amending the one that was included in the jobs bill.

“We’re not going to let it pass if that’s what happens. That’s just not going to work.” Rider said.

The lack of a cap in the current bill already cost Reagan and GPEC at least one vote. Sen. Andy Biggs, R-Gilbert, said he’s concerned that the bill would enact “runaway” tax credits that would cost far more revenue than they ever bring in.

Biggs also echoed a sentiment common among the Legislature’s most conservative members — that the government is picking winners and losers with the tax credits.

“I liked the tax portions of the jobs bill, but didn’t care for the jobs portion of (this) bill,” Biggs said.

But Broome said one purpose of the bill is to attract certain industries and set the stage for them to prosper in Arizona. Specifically, Broome said the bill will make Arizona more attractive to aerospace and defense companies, target industries of Brewer’s new Arizona Commerce Authority. He noted that defense-related industries aren’t eligible for the incentives that other industries can get when they locate in foreign trade zones.

The bill’s backers have already made some concessions to their critics. The Senate approved an amendment eliminating a

1-percent commercial property tax assessment ratio for companies that make at least $250 million in capital investments and create at least 150 jobs. The reclassification would’ve cost the state most of the property tax revenue from several big-ticket projects that are planned, such as open-pit copper mines near Superior and Tucson that are awaiting congressional approval.

“That was a compromise to get broad-based support,” Broome said.

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