Is two years of dwindling revenue collections evidence that Arizona is in need of a comprehensive overhaul of its tax policies≠

Officials attending a workshop of Arizona’s financial future heard that question Aug. 27 at the Arizona League of Cities and Towns annual conference.

Participants were Rep. Steve Huffman, R-Dist. 26; Rep. John Nelson, R-Dist. 12; Tony Astorga, senior vice president of Blue Cross Blue Shield of Arizona; William Post, board chairman of Arizona Public Service Co.; and Dennis Hoffman, professor of economics at Arizona State University.

Mr. Hoffman set the tone with a presentation that included data on state and local tax collections back to 1972 and stated:

“The tax structure is not designed so that additional Arizona residents result in additional tax collections at levels that match the demands for public services.”

To which, Mr. Hoffman commented, “This is the problem we are seeing. Revenue is not keeping pace with the size of the economy.”

He said the state needs a fiscal structure that will foster growth in the state’s standard of living.

Mr. Astorga and Mr. Post are co-chairmen of Governor Napolitano’s Arizona Citizens Finance Review Commission, and they said that is exactly what their commission is working on.

“Our mission emphasizes revenue, and it emphasizes the long term,” said Mr. Astorga.

“We have been given the mission of determining how to improve the Arizona economy,” said Mr. Post. “If we just look at revenue, what can we do to stimulate the economy≠”

In a question-and-answer session, an attendee asked if the commission’s recommendations would be helpful.

Mr. Huffman, who is co-chairman of the Tax Reform for Arizona Citizens Committee, and Mr. Nelson, who is chairman of House Ad Hoc Arizona Revenue Tax Review Committee, were somewhat skeptical because they said legislative decisions seem to be more driven by spending.

Mr. Huffman pointed out that the $6.4 billion fiscal 2004 budget passed by the Legislature and signed by Governor Napolitano had forecast revenues of only $5.9 billion.

“We’re not that tied to revenue,” he observed.

In response to the attendee’s question, Mr. Huffman said, “That’s the million dollar question.” He said he had met with Mr. Astorga and Mr. Post to review the commission’s work. “It could be a valuable resource, but the decisions are going to have to be made by the governor and the Legislature.”

The Budget Process

In his presentation, Mr. Huffman stated, “We cannot talk about tax policy without talking about what we spend in the budget.”

Mr. Nelson said his committee is concerned about legislative budget process. “Should we determine what revenue will be and then develop a budget≠” A former Phoenix city councilman, Mr. Nelson said that’s how the city’s budget came about.

However, in the Legislature, the Senate and House Appropriations Committees meet and develop spending numbers, Mr. Nelson said. “Then we vote on them,” he said.

“There needs to be another way,” he added. “How can we do that so that we come up with a budget that meets the needs of the state≠”

Mr. Huffman and Mr. Nelson did concur with the three other panel members that the state’s tax policy is critical in attracting and retaining new businesses.

Mr. Hoffman had observed that businesses looking to relocate to Arizona “may think they will have to pay the bill” because of current policy.

“We can’t expect that businesses can just raise their prices to keep up with increases in taxes,” said Mr. Huffman. “You come to a point you just can’t pass those costs off to people.”—