Just as Governor Napolitano was winding up a news conference March 2, where she blasted a measure to end state revenue sharing, Sen. John Huppenthal, R-20, showed up to announce he would no longer allow one of his bills to be used as the vehicle to eliminate it.

A short time later, Sen. Bob Burns, R-9, said, “I’m going to look for another bill.” His striker amendment on Mr. Huppenthal’s S1115 would have phased out state revenue sharing with large cities by 2012 and permitted the cities to impose a local income tax to make up the difference. The measure made it through two committees and was ready for debate by the full Senate when Mr. Huppenthal stopped the process.

Although he opposed the income tax provision, Mr. Huppenthal said he agreed to let his bill be used to prompt discussion about what he and other Republicans see as “fiscal irresponsibility” on the part of cities, in part because of sales tax incentives they have provided to attract auto malls, large retail centers and other businesses.

“I think this was a very healthy discussion,” Mr. Huppenthal said.

Meanwhile, the Senate gave preliminary approval to a bill restricting tax incentives, and another bill to penalize cities that provide tax breaks to business was scheduled for floor debate at press time March 3.

The Burns measure targeted 2007 for the beginning of a five-year phase-out of state sharing of individual and corporate income tax revenues with nine cities that have populations larger than 100,000. The bill commensurately would reduce state income taxes over the five-year period and permit the affected cities to impose their own municipal income tax, if approved by two-thirds of their city council members.

“I talked to Bob and told him I couldn’t be prime sponsoring a new income tax,” Mr. Huppenthal said.

Mr. Burns told reporters that if he could find another bill to amend for his revenue sharing proposal, it would be different.

“We’re going to do away with the income tax provision, and I’m looking now at the possibility of property tax,” which, he said, would have to be approved by local voters.

Governor’s Response

Mayors joined Ms. Napolitano, who held her news conference in a Phoenix fire station to emphasize a possible cutback in basic city services, and other representatives of the nine cities affected by Mr. Burns’s proposal.

“This bill is a budget shenanigan that simply represents a back-door tax increase… a hidden tax increase on 80 per cent of Arizona taxpayers,” she said. “I have presented a budget that protects state shared revenue.

“We shouldn’t be playing the shell game of hide the tax, move the tax, with the citizens of Arizona. [Cities] will be forced to institute city income taxes. All this is doing is saying who gets to take the political heat.”

The governor added that there seems to be “a large number of bills designed to micromanage the cities.”

Speaking for the mayors, Phoenix Mayor Phil Gordon said, “Cities create the wealth for the entire state. This [bill] will devastate the cities, which will devastate the state. Can you imagine what our state Legislature would be saying and doing if the federal government decided to end the return of federal funds to the states?”

Glendale Mayor Elaine Scruggs said cities provide services not only for their residents but anyone who happens to be in town.

“Revenue sharing is a way for everybody to help pay for that, she said, adding that loss of revenue sharing would be a “tremendous tax burden on individual taxpayers and beyond what can be absorbed” without a tax increase.

Proponents of revenue sharing also received support from a rural legislator. Sen. Jake Flake, R-5, told the Republican caucus on Feb. 28 that Mr. Burns’s proposal was unfair to the nine large cities, which account for 62 per cent of the state population.

“It’s a matter of divide and conquer,” he said. “I think this bill goes against what we as Republicans ought to believe in.”

Catherine Connolly, executive director of the Arizona League of Cities and Towns, says Phoenix, Tucson, Mesa, Glendale, Scottsdale, Tempe, Chandler, Gilbert and Peoria would lose about $325 million per year. But Mr. Burns said, “For years down here, I’ve heard how cities want local control. If we were to pass this legislation, we will certainly turn over local control with the funds involved.”

Preliminary OK Given To S1274

The Senate on March 2 gave preliminary approval to S1274, a measure sponsored by Sen. Jay Tibshraeny, R-21, that requires cities to make certain findings as a condition of providing tax breaks for a business. He is a former Chandler mayor.

Those findings include that the incentive would result in more revenue than the amount of the incentive and that the business would not otherwise locate in the city without the tax break.

The bill also requires two-thirds votes by the city council on the findings and on the tax incentive agreement.

Former Tempe Mayor, Sen. Harry Mitchell, D-17, said he supports S1274.

“It doesn’t gut local control and shines a light on the whole process,” he said.

A bill sponsored by Sen. Ken Cheuvront, D-15, is designed to end municipal tax incentives. With some exemptions, S1201 would withhold a municipality’s portion of revenue sharing in the amount of any tax break provided. The bill would apply to cities in a county with a population of more than 1 million, which today means Maricopa County.

A similar measure failed last year.

A Senate report states that Phoenix, Chandler and Mesa alone have provided recent tax incentives totaling more than $87 million. City officials say that incentives are needed to attract retail and other developments and that they more than pay for themselves in sales tax revenue, infrastructure improvements and expedited developments. —