A committee tasked with suggesting ways for the state to increase economic development has made several recommendations to the Legislature, including backing a plan to reduce the commercial property tax assessment ratio.

The Ad Hoc Committee on Economic Development recommended at its Dec. 15 meeting that the property tax burden for commercial and industrial businesses be decreased by 5 percentage points, from 25 per cent to 20 per cent. Rep. Steve Huffman, R-26, one of the committee co-chairs, is planning legislation that would decrease the rate by a percentage point per year for five years.

Mr. Huffman told an Arizona Tax Research Association conference in November that businesses pay the vast majority of property taxes in the state even though there are three times as many residential taxpayers. At the committee meeting, he said the high tax rate is often a factor in businesses not locating in Arizona.

“It is putting us at a competitive disadvantage,” he said.

Sen. Victor Soltero, D-29, expressed concern that corporate taxpayers would be given a break on the back of the residential taxpayers by forcing homeowners to make up the difference in revenue.

“I just want to make sure that the general public isn’t going to be up in arms about this,” Mr. Soltero said.

Without getting into the “micro details” of his unfinished legislation, Mr. Huffman said he believes it is possible to decrease the burden of the corporate taxpayers without increasing the burden on residential taxpayers.

The committee also recommended creating a tax structure to attract target industries and jobs to Arizona and creating a development fund to be used for economic development deal-closing incentives.

“If you can spend $1 million and attract one company that brings 300 or 400 jobs, that makes a difference,” said Sen. Jim Waring, R-7, co-chair of the committee.

Mr. Waring said the development fund would likely “be somewhat more controversial” than the other recommendations. He said the concept is based on a similar fund in Texas, where the state has a pool of money that can be used to attract businesses and build infrastructure. In Texas, he said, the governor, lieutenant governor and speaker of the House must all agree on any money being spent.

Mr. Waring said the committee only discussed the idea in theory and that a substantial discussion is needed in the Legislature before such a fund could be put into practice.

Attracting large companies – especially high-tech or bioscience companies – to Arizona is “vitally important” to the state’s economy, Mr. Waring said. To do so may cost money, but he said it would be money well spent if it could change the landscape of the state’s economy and corporate climate.

“You can’t have an economy based on Circle Ks and Blockbusters,” he said. “There’s a lot worse things that the state could be doing with its money than attracting smart people to do great things.”

Several recommendations concerning the Department of Commerce were made to allow the agency to more easily attract businesses, such as shortening the application process for companies to receive incentives from the state.

Commerce Dept. Wants Commission Funding Restored

The most important recommendation, said Commerce Department Deputy Director Joe Yuhas, is that the Legislature restore funding for the Commerce and Economic Development Commission (CEDC) to its original levels and that the Commission refocuses itself on its original core purpose. The CEDC was formed in 1989 as the state’s economic policy and planning board.

The CEDC is currently funded by the Arizona Lottery, receiving 21.5 per cent of revenues from the sale of two special Lottery games. Originally, CEDC received 32.5 per cent of the revenues from the games, but Laws 197, Chapter 214, decreased the contribution.

“I’d say, with no doubt, that this is a huge step in the right direction,” Mr. Yuhas said.

The committee also recommended the Legislature restore funding for the Job Training Program that had been removed in recent years to balance the budget during an economic downturn. It was also suggested that legislation be crafted to prevent funds from being removed from the program in the future.

Two recommendations were made to improve the working relationship among lawmakers and the Department of Commerce. Mr. Waring said the relationship between the Legislature and the department is often tense, in large part because legislators do not fully understand the department’s actions. He said more open communication and a stronger Commerce presence at the Legislature would help the situation.

The recommendations will be forwarded to the Legislature for possible action in the upcoming session. —