Although he failed in a second attempt to discourage municipal tax incentives for business development, first-term Sen. Jack Harper says he has given cities and towns a punch-in-the-eye warning to be more accountable to taxpayers.

Mr. Harper, R-4, an outspoken critic of what he calls “corporate welfare” — sales tax rebates for large businesses and retail centers to locate in a particular community — gutted his bill, S1043, with a floor amendment in Committee of the Whole on Feb. 26, and the Senate defeated the legislation March 1.

The bill required municipalities to pay the state the amount of sales tax incentives they provide to secure business development. The payments would come in the form of withholding a municipality’s state shared revenue in the amount of the incentives.

Mr. Harper said debate over the incentives since last year has made the public more aware of how cities and towns are spending tax revenues.

“The cities have a black eye that they must address now,” he said in an interview. “They’re going to show more discipline in offering incentives and will try to justify them and be more accountable to the people.”

As much as $279 million in tax incentives reportedly have been provided or agreed to in recent years by Valley cities to attract auto dealers, shopping centers and large retail outlets.

Proponents of tax incentives for business development say the deferred revenue is returned to communities many times over through economic growth, and that developers use the sales tax savings for construction of access roads, streets and landscaping, saving the cities those costs. The incentives also hasten completion of new business centers, they say.

“I believe I’ve given the cities a year to prove that some of these incentives are necessary for projects that would not have been built without the incentives,” Mr. Harper said. “I still think they have a huge [negative] impact on the small businesses that are in the area.”

His bill last year was not given a hearing in committee, but this year Mr. Harper agreed to exclude repayment to the state of sales tax rebates to businesses that locate in a redevelopment or blighted area. He called the amendment a “loophole,” but said it was necessary to gain support for the bill, which then made it through the Finance and Commerce committees on 5-4 and 8-1 votes, respectively.

“Then the paid lobbyists went to work,” said Mr. Harper, explaining why he submitted a floor amendment that he admitted gutted the bill and eventually led to a final vote of 14-13, two short of the majority needed for passage.

After a meeting with several lobbyists and tax attorneys who opposed the bill, Mr. Harper urged adoption of his floor amendment. He said it was agreed upon by opponents who still remained against the legislation

The amendment stated that before a municipality provides tax incentives to a retail business, a city or town must “make a finding” that the incentive “is anticipated to raise more revenue than the amount of the incentive” and without the incentive, the business would not locate in the municipality.

“This is what they wanted in the bill,” Mr. Harper said. I gave it to them.”

A lobbyist who met with Mr. Harper said, however, opponents of the bill did not agree to the amendment.

“We made it clear the language was better than the original bill,” said Mara Kelly, who represents the International Council of Shopping Centers of Arizona. But, she added, Mr. Harper indicated to the Senate he had made a deal [with lobbyists] on the bill.

“We didn’t say we were okay with the language,” which came from Senate staff, Ms. Kelly said. “It was more an informational meeting.”

Stuart Goodman, who represents DeRito Partners, a development company, said Mr. Harper’s floor amendment was “a concept floated by an attorney” in the meeting.

“There was no agreement reached,” Mr. Goodman said. “We made it clear we’d have to bring the issues back to our clients.”

Mr. Harper told Arizona Capitol Times it was his understanding the floor amendment would be accepted by the bill’s opponents, but said he lost the support of some lawmakers who previously supported the bill.

Sen. Carolyn Allen, R-8, said Mr. Harper’s floor amendment was “vague,” and the altered bill could invite lawsuits, if passed.

Sen. Mark Anderson, R-18, who still voted for the bill, said, “I’m disappointed the sponsor watered it down. We’re down here to protect the taxpayers. The compromise is better than nothing.”

Had the bill been enacted the amount of the incentives would have been allocated to the Department of Commerce for what Mr. Harper calls “real economic development.”

In a fiscal report on the bill, Senate staff concluded that Commerce would not benefit from the bill because the measure “would double the cost of a tax incentive, [and] it is likely cities would stop offering these incentives to business.”

“If the bill discourages businesses from coming to Arizona, there would be foregone revenue loss for the state,” the report said.

There is no similar bill in the House this session.

Insurance Coverage

In other final action March 1, the Senate passed S1366, which requires the state — should it convert to self-insured health coverage for its employees — to provide all benefits mandated by the Department of Insurance (DOI). Self-insurance is not regulated by the department.

However, H2451 as amended, which was advanced by the House Appropriations Committee on March 3, would prevent the state from self-insuring health coverage for its employees.

The Senate also passed an insurance bill that would loosen DOI restrictions on health plans and other insurance regarding limits on deductibles, co-insurance and reimbursement levels. Sen. Dean Martin, R-6, sponsor of S1382, said the bill is necessary because managed care planners need more flexibility in the benefits they file with the state for approval.

Cactus League Funds

On March 2, the Senate approved and sent to the House S1264, which prohibits the Tourism and Sports Authority from using Cactus League funds to facilitate relocation of a Major League spring training operation from one Arizona location to another.

The Senate was scheduled to take up final debates the afternoon of March 4 on 31 bills, including:

• S1375 — requirements for voter identification

• SCR1039 — latitude for the Legislature to change AHCCCS eligibility stipulated by Prop. 204

• S1221 — increase of the speed limit to 80 mph on rural interstate highways

• S130 7— residency restrictions for sex offenders

• S1113 — medical malpractice —