Gov. Janet Napolitano will have to decide between approving a tax repeal she has called irresponsible and the possibility of taking a political hit now that a member of her party has broken ranks by voting in favor of a GOP-sponsored tax-relief bill.
The decision by Sen. Ken Cheuvront of Phoenix to support H2220 gave the GOP leadership the 16th vote in the 30-member Senate. The House approved the bill earlier this year in an effort to permanently repeal a state property tax that raises an estimated $250 million per year.
It is now up to Napolitano to sign or veto the bill, or allow it to become law without her signature. The governor is now in a position to decide between cutting taxes while the state faces a significant budget deficit — which could mean more cutbacks for programs she supports — and opening herself to criticism for opposing tax relief for property owners during an economic slump.
“She doesn’t want to be put on the spot. She doesn’t want to have to make this decision, but now she will. Now she will have to,” said Sen. Karen Johnson, a conservative Republican from District 18 who has clashed with Napolitano on the governor’s 3-in-1 ID plan and many other issues.
Earlier this year, Napolitano criticized some Republicans as “irresponsible” for acting this year to permanently repeal the tax, which had been suspended until 2010. She said the move is “untimely” and “irresponsible at this point in time.”
The GOP had fewer than the 16 votes needed to move the bill until Cheuvront tipped the balance on April 7 when he announced he would vote for the bill.
Republican Sens. Tom O’Halleran of Sedona and Carolyn Allen of Scottsdale had declared they could not support the measure and followed up by voting “no” on April 8. 
Their opposition had, for a while at least, blocked their party from achieving one of its priorities for this session.
With 17 members, Republicans have an advantage over the 13-member Democratic caucus. But their control over the Senate is fragile. One dissenter would still give the GOP 16 votes, the magic number, to pass a proposal. But two or more dissenters can mean trouble.
Allen’s and O’Halleran’s opposition to the legislation meant a theoretical 15-15 tie, if the Democrats voted as a block.
The final vote on H2220 was 16-13, with Cheuvront and 15 Republicans voting "yes." O’Halleran and Allen joined 11 Democrats in voting against it.
The Democratic leadership in the Senate likely will urge Napolitano to reject the bill. Senate Minority Leader Marsha Arzberger called the legislation “foolish.” Assistant Minority Leader Jorge Luis Garcia said he would encourage the governor to veto the measure.
Some Democrats speculated that Cheuvront broke ranks because a bill he had sponsored was killed by House Democrats on April 3.
But Johnson called his decision “courageous.”
“I know that this was a hard vote for him, and I know that he had tons of pressure from the Governor’s Office and his own caucus,” said Johnson. “I think it was a very courageous vote.”
The core of Cheuvront’s argument is that small businesses would be hit hard with the resumption of the tax — not so much large businesses, because many are in enterprise or free-trade zones. He said residents have seen the value of their homes decrease in the past year. But that’s not the case with commercial property.
“If we do not put this forward, it will be a tax increase on businesses, homeowners and others,” he told colleagues a day before his vote.
The failure of Cheuvront’s proposal to repeal the Government Property Lease Excise Tax may have played a role in his decision. The bill was intended to make the property-tax system more equitable by limiting tax breaks for companies.
Cheuvront himself hinted as much when he first made his decision to vote for the tax repeal known on April 7. He began by saying he has fought for tax equity for many years. He lamented that his bill had failed in the House, and blamed Democrats for its demise. 
The government property lease excise tax, created in 1996, is a tax break for businesses. Opponents of Cheuvront’s bill say the incentives spur economic development, and have been effective in revitalizing depressed areas.
The way it works is that cities acquire land and lease it to the private sector. Because government land is not subject to property tax, business owners leasing the land don’t have to pay the usual levy.
Instead, the business would be required to pay a lease excise tax, which is lower than property taxes and is based on square footage instead of property value. In addition, the tax is reduced as the structure ages, and cities can abate the tax for up to eight years if the project is located in a redevelopment zone in a central business district.
Cheuvront’s bill would have repealed current Government Property Lease Excise Tax rates and replaced them with a tax that is comparable to the property tax. For properties already being leased, the tax would have increased incrementally as the lease aged.
“I have no problem with property tax, as long as it is an equitable property tax,” Cheuvront said as he explained his vote to colleagues. “Our taxing system is incredibly inequitable, and the way it has been dealt with in the last couple of years, with cities taking property off the rolls, makes it that much more inequitable.
“This is saying to taxpayers that this is an unfair taxing system that we have now in place, and we need to address it.”
The repeal of the state equalization rate is a priority for the Republican leadership. But O’Halleran and Allen argued that the tax has already been suspended until 2010 and would not be reinstated until tax bills go out in November 2009. Thus, there is time to act next year. They also argued that permanently repealing the tax now would add approximately $250 million to the budget deficit.
One of O’Halleran’s main arguments during the vote was that no analysis was made on the impact of the tax’s repeal on Arizona’s long-term economic health.
O’Halleran said later that he voted against the measure knowing his position might well be used against him in his re-election bid.
“But this is so much more important than getting elected to office. This is the future direction of our state. I’m not down here to get reelected,” he said. “I have a fiduciary responsibility to let taxpayers know that they have a real big problem, and to help them identify that there is a need to address it now.”