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109th Town Hall considers long-term strategies for sustaining state’s finances

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Arizona political leaders like John Rhodes and Sandra Day O’Connor tackled far-reaching complex issues to set Arizona on a path of prosperity. The long-term planning that helped establish the Central Arizona Project and judicial reform are what Arizonans are urging elected and business leaders to embrace for government finance.

For three days, diverse Arizonans from across the state gathered to dig into the details of how best to structure a government finance system that will create a healthy and prosperous future. Abolishing term limits or increasing legislative terms to allow for long-term planning was one of the many key recommendations that came out of the 109th Arizona Town Hall on “Financing Arizona’s Future.”

Linda Elliot-Nelson

Linda Elliot-Nelson

Participants also concluded that several other well-meaning reforms are causing roadblocks in the creation of a system that reflects best practices while serving the needs of Arizona and complying with Arizonan principles of low taxes. The guiding principles recommended include transparency, openness, fairness, simplicity, stability, accountability and predictability.

With the next legislative session about to get underway, the Town Hall process of seeking consensus from all points of view shapes a roadmap for those in policy-making and leadership positions to consider. A sampling of those recommendations include:

  • Shift revenue generation from the heavy reliance on sales and income tax.  Our overreliance on these revenue sources, combined with changes in the economy and statutory changes to the state tax code since the early 1990s, have resulted in an unpredictable revenue stream and an unfair distribution of the tax burden to certain segments of Arizona’s population. As a result, Arizona’s ability to deliver public services has not kept pace with the economy and more of the burden of providing services has been shifted to local governments and end users (e.g. tuition raises at universities and colleges and unfunded state mandates for local government).
  • Match revenue to expenses, stop general fund sweeps and other accounting maneuvers that create the appearance of a balanced budget while causing structural deficits. Currently, Arizona fails to match expenses to revenues on a year-to-year basis. Instead, necessary spending is deferred and expenses are pushed down to local government. Funds designated for specific purposes (such as highways) are swept into the general fund for other uses. These and other accounting maneuvers create the appearance of a balanced budget while maintaining a structural deficit and not meeting the needs of designated funds.
  • Allow leaders more flexibility in responding to economic fluctuations. Current policies require a super majority to raise revenue at the state level and place other restrictions on local governments. These laws have created an inflexible government financing system that cannot respond as effectively to changing economic times. For local governments, levy limits, expenditure limits and tax rate caps limit the ability to provide appropriate services at the local level when needed.
  • Maintain the “Rainy Day” fund as a needed safety net. The failure to appropriately replenish the budget stabilization fund (the “Rainy Day Fund”) sacrifices Arizona’s opportunity to maintain a safety net to protect against the cyclical nature of our economy.
Tara Jackson

Tara Jackson

The key to future success for our state is to embrace the same long-term thinking that past leaders so effectively utilized. Arizona should incorporate long-term planning as part of the budget-setting and revenue-generating process. A rolling six-year strategic plan would improve efficiency and result in a better budget process. Participants in the Town Hall also recommended that we broaden our tax base to provide more stable and predictable revenue, consider long-term solutions for financing education and update highway user revenue funding to reflect modern trends such as the use of higher mileage vehicles.

Preventative programs that reduce the high cost of incarceration and medical care were also suggested as critical to investing the limited dollars we have and ensuring long-term savings. These ideas and others contained in the report provide valuable insight into how Arizona can ensure that it continues to be a state of economic opportunity far into the future.

For the extensive pre-Town Hall research and the background report on the recommendations for Financing Arizona’s Future, visit www.aztownhall.org

TOWN HALL TAKEAWAYS ON FINANCING ARIZONA’S FUTURE

  1. The state of Arizona should raise revenue sufficient to meet all the necessary obligations of state government including public safety, health, welfare, education and infrastructure; that all dedicated funds should be used only for the purposes for which they were assessed; and that unfunded mandates and cost-shifts to local governments should be eliminated.
  2. People of different political affiliations, backgrounds values and experiences can come together and work successfully to solve problems when they are not worried about who gets the credit.

— Ken Strobeck, executive director, League of Arizona Cities & Towns

One of my biggest takeaways from the 109th Arizona Town Hall was that it is imperative that our state legislators and governor review and revise our current statutes in order to provide counties, cities and special districts with the ability to fund crucial programs.

— Mary Dalton, assistant chief of administration & risk management, North County Fire & Medical District, Sun City West

I thought I’d be a minority voice speaking for public education, but the concern was universal, as was the understanding of the need for strategic investment and new revenues to fund it. It’s important to recognize that quality public education was not the end goal for this Town Hall, but a recognized key component to a thriving economic future for the state.

— Kathy Knecht, Governing Board member, Peoria School District, Peoria

Our legislators, those returning, and those who are freshman need to fix the biggest problem facing most of Arizona: Fund Sweeps. Cities and counties are made to pick up the tab for the state’s budgetary shortfalls and have to raise property and sales taxes to provide basic local government services. When we hear of budget surpluses in the hundreds of millions, this is a bitter pill to swallow. We must push for full restoration of HURF and LTAF funds before we consider lowering corporate taxes or consider tax relief for potential businesses that may want to move to Maricopa or Pima County; let’s take care of current Arizona citizens.

— John Courtis, executive director, Yuma County Chamber of Commerce, Yuma

Coming out of this Town Hall, every Arizonan should know a few things about government finance:

1) Because our state has been historically dependent on land-centric economic drivers such as copper, cotton, citrus and cattle, our current government finance system depends primarily on sales and income taxes rather than property tax.

2) There has been an overall downward trend in government revenue compared to personal income fueled by years of tax cuts without corresponding decreases in expenditures and a cyclical economy in which government services are most heavily in demand when the economy is in decline.

3) “TANSTAAFL – There ain’t no such thing as a free lunch” — we need to seriously consider increasing taxes to support education, infrastructure, health and other shared investments and at the same time make our budgeting process more open and transparent with new tax revenues targeted to specific expenditures — not just going into the general revenue fund.

— Eric Marcus, executive director, Sustainable Economic Development Initiative, Flagstaff

My top prioritized recommendations from the Town Hall include the following:

  1. Suspend all future revenue reductions until a long-term plan is in place (specifically future corporate income tax reductions).
  2. Renew and increase Prop. 301, and enact other long-term education financing solutions.
  3. Increase the individual income tax rate in a modest and incremental manner over time (not in the final report specifically).
  4. Increase the HURF with the various recommendations of Town Hall, including using these funds for transportation (not the general fund for DPS).
  5. Increase mental health treatment funding and decrease corrections funding by treating mental illness and substance abuse outside of the corrections system.
  6. Give local governments more authority to raise necessary revenue for their needs.

— Bruce Dusenberry, president, Horizon Moving Systems; attorney, Tucson

One of the overriding takeaways from the Town Hall is overwhelming support for re-funding education at levels, even with the recognition that it may take some revenue enhancements. There clearly was an urgency to reauthorizing Prop. 301 which funds schools. Infrastructure was the second priority.

— Rusty Foley, executive director, Arizona Citizens for the Arts, Phoenix

For the full background research report on Financing Arizona’s Future, as well as the final recommendations from the three-day Arizona Town Hall, visit www.aztownhall.org .

Tara Jackson is president of the Arizona Town Hall and Linda Elliott-Nelson is vice president for Learning Services, Arizona Western College, Yuma, and board chair of Arizona Town Hall

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