Lobbyists for cities and towns failed to dissuade Gov. Janet Napolitano from signing a bill that penalizes municipalities in Maricopa and Pinal counties from offering tax incentives to lure businesses. In a statement, the governor echoed the argument of those who backed the bill by saying the incentives have “gotten out of control.” Tax incentives have been offered to businesses, many that were likely to move into the areas anyway regardless of the tax breaks, the governor said. “The use of tax incentives to pit Maricopa County towns and cities against each other is not in the interest of Arizona or its taxpayers,” she said. The bill, H2515, had rough sailing in the Senate. It was finally brought to the floor for a vote three months after it was approved in committee — but not after repeated pleas by Sen. Ken Cheuvront, D-15, who reminded colleagues, sometimes several times during a week, of the supposed egregiousness of the tax incentives and the need to end the practice. Some of these run in the tens of millions of dollars, the senator had pointed out. For one reason or another the bill was twice retained on the calendar, meaning votes were postponed two times. H2515 prohibits cities and towns in Maricopa and Pinal counties from offering retail tax incentives to business to relocate to their community. The penalty is the withholding of their portion of state shared revenues equal to the amount of the incentive offered. The original bill, sponsored by Rep. Rick Murphy, R-9, dealt with hearing aid dispensers. A striker carrying the tax incentive language was adopted by a Senate panel late in March. It was first scheduled for a floor deliberation on April 5, but the debate was postponed, over objections by Sen. Jim Waring, R-7, who heard the bill in his committee. Waring was apparently not told the bill was going to be retained on the calendar, meaning it would be taken up again on another day. “Given that this bill had had so many problems getting toward the finish line, you always get a little suspicious when suddenly, something happens,” Waring had said. “I’m a little nervous about the bill.” As it turned out, Waring was right to be nervous. The bill did not come back to the floor until two months later. In fact senators finally voted on it on June 19, the day before the session ended. (Voting had been suspended anew on June 18). The bill received enough support in the Senate to sail though, 18-8. The House sent it to the governor by a vote of 36-21 on June 20, the last day of session. On the day it was voted out of the Senate, Cheuvront, aided by Senate President Tim Bee, had to fight off one amendment after another that the bill’s backers believed would sink the proposal. The central point of contention was why the measure was limited only to Maricopa and Pinal counties. Those who supported the bill said the problem is severe in these areas; other places have an entirely different situation. Those who sought to apply the bill’s provision to the entire state argued that limiting it to the metro areas seems “arbitrary” and “unfair.” League of Cities and Towns sought veto The League of Arizona Cities and Towns consistently opposed the bill and had asked Napolitano to veto it. In his letter to the governor, Ken Strobeck, the League’s executive director, called H2115 a “misguided attempt” to address the issue of using sales tax incentives to attract retail business. To back up its arguments, the League said that it is the cities and towns that drive the state’s economic success. It cited a study by the University of Arizona stating that over 90 percent of the state income tax is generated by cities and towns. The study cites a report stating that in 2005, the metro areas — Phoenix-Mesa-Scottsdale, Flagstaff, Prescott, Tucson and Yuma — were the sources of 92.2 percent of Arizona’s gross state product, higher than the average in more than two dozen other states. “The report clearly demonstrates that the state’s robust economy is not occurring by accident, but as the result of mayors and city councils making economic development a policy priority as well as making investments that attract business and improve the quality of life in our communities,” Apache Junction Mayor Doug Coleman, League President, said on its Web site. League: Move could send message that state is not business friendly The League was quick to suggest that this success derived in part from municipalities’ use of tax incentives. Indeed, Strobeck said a tools cities and towns have used “to fuel the economic engine of the state” was sales tax incentives offered to key retail businesses. “The bill, if enacted, erodes the effectiveness of that tool, thereby jeopardizing the state’s economic and fiscal viability,” he said. “In today’s economy it makes no sense to restrain those entities, both public and private, that contribute major tax revenue and provide jobs. Further, these provisions send a clear message that Arizona is not a business-friendly state,” he said. Pressing the point, lobbyist Jeff Kros offered as an analogy how Arizona as a state also tries to draw businesses from other states. “They wouldn’t want the federal government doing to the state what the state is doing to the municipalities here,” he said. While it is true that the municipalities are using taxpayer money, they are investing it, he added. “Cities are not in the business of losing money. They’re trying to create new revenues,” he said, pointing out that retailers are “terrific taxpayers.” But the bill’s backers said this “tool” has been abused — in the amount of tens of millions of dollars. “If local governments want to offer tax breaks to private retailers, then they can pay for them.” Steve Voeller, president of the Arizona Free Enterprise Club, said in a statement. “These targeted tax giveaways are not only a waste of money, but it puts businesses that don’t receive special breaks at a competitive disadvantage.” Voeller cited two recent tax giveaways that he said were “particularly egregious:” Surprise offered a $240 million sales tax rebate to Westcor; Phoenix agreed to a $100 million rebate to CityNorth, both commercial developers. In the end, Napolitano sided with those who thought that the municipalities have gone too far. Cheuvront had said the governor was “predisposed” to sign the bill because she “understands how bad the incentives have been.” Loophole But Napolitano pointed out an “inadvertent loophole” in the bill. It could exempt Peoria, putting the city at an unfair competitive advantage, because a piece of Peoria extends intoYavapai County. Napolitano believes this was not the intent of the Legislature and calls on lawmakers to fix the loophole. The law, which applies to municipalities entirely within a metropolitan statistical area of 2 million or more people, also appears to exempt Marana, which is in Pinal and Pima counties.