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State should explore additional revenues to fund Arizona’s long-term success

After two decades of studying what makes our state’s economy so strong, it’s clear there are multiple factors that have positioned Arizona for long-term success.

Competitive tax rates, smart economic development programs and competitive regulation policy provide us with a strong foundation. Building upon that is our commitment to investing in things like road construction, communications infrastructure, workforce training, public safety and a high-quality education system – all of which cost money. Lots of money.

The current economic downturn related to the COVID-19 pandemic revealed both flaws in the system, as well as opportunities. As we take steps to emerge from this recession, Arizona is positioned to continue as a national leader in most economic categories, including growth in jobs, population and income.

To be truly great, though, we need to continue our commitment to those key economic fundamentals that require funding. This is a challenge even in good economic times, yet I continue to be bullish on our great state. That is because, time and again, our elected leaders have been committed to finding innovative ways to keep our economy strong and our future bright.

The need for additional revenues is very real and, as we continue to debate the merits of raising the state sales tax rate or designing a new property tax system, there are immediate alternatives that can be implemented right now.

  • As reported by the Phoenix Business Journal, tribal gaming revenues are estimated to be in excess of $2.5 billion. Taxation on vices like gambling typically fall in the 20% range – a rate that would bring the state at least $500 million in new tax revenues every year. A tax rate like that on tribal gaming would not be accompanied by the negative economic or political consequences of a typical tax increase but would actually increase funds for economic growth initiatives.
  • A non-competitive gaming landscape has decimated the state’s horse racing industry. Simply modernizing the gaming opportunities at those tracks – as other states have already done – can generate another $100 million.
  • Legalizing recreational cannabis – which may require no legislative action at all – can generate another $400 million in annual tax revenues by 2024.

Taking those steps alone could mean an additional $1 billion in new revenues each year.

Jim Rounds

Jim Rounds

Some have also discussed the many benefits for both small businesses and state coffers by making permanent the alcohol-to-go component of Gov. Doug Ducey’s executive order. On alcohol delivery, one needs to keep in mind that bar sales account for as much as 40% or more of a restaurant’s revenue.

Still others, in advocating for much-needed criminal justice reform, point to the substantial savings the state can realize, redeploying those funds to other state programs.

Arizona’s economy was performing at a high level before the recent recession and can return to being a national leader – with the right public policy. We need to find the right balance between taxation and spending, but we also need a fair list of alternative revenue sources for consideration.

While I am not specifically advocating for any of the listed items, it is clear there are new revenue streams that should be considered as the Arizona Legislature prepares to return in special session. They are the kind of innovative options our state has looked to in the past to ensure our economy remains strong and our future remains bright.

Jim Rounds, an economist, is President of Rounds Consulting Group.

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