Top aides to Gov. Doug Ducey are defending the $1.5 billion cut in tax collections and bailout of the most wealthy as “modest and responsible.”
In a briefing with media on Wednesday, Matt Gress, the governor’s chief finance officer, said the deal Ducey has negotiated with Republican legislative leaders will still leave plenty of money for new and expanded programs. He said these, ranging from road improvements and cash for new schools to new body cameras for Department of Public Safety officers, all can be accomplished even with the tax cuts that will largely benefit the most wealthy.
“It’s a downpayment on Arizona’s future,” said Daniel Scarpinato, Ducey’s chief of staff.
More to the point, he said that Arizona needs to enact aggressive income tax cuts to ensure that Arizona attracts new business and gets firms to expand here.
Scarpinato said Arizona has landed new jobs in high tech and driverless cars because it has been competitive. But he said it’s not a static model.
“Other states are becoming more competitive,” Scarpinato said.
“So we’re going to continue being more competitive,” he continued. “And if we don’t act these things will be left behind and we won’t see this continued economic activity.”
Scarpinato said all this can be done because the state has more money than anticipated. And he brushed aside questions of whether cutting this much in income taxes based on current economic conditions creates the hazard of having to cut programs and services the next time the economy goes south.
“We’re being very conservative in both revenue projections but also on ongoing spending,” he said.
And there’s something else.
Scarpinato said the state is counting on more than $200 million a year in new sales tax revenues once Arizonans get to start wagering on professional and college sports. And the state also is benefiting from a relatively new levy that Arizonans are paying when they purchase items online.
He also insisted that while the state has gotten about $4 billion in federal cash due to Covid it is not building those into the budget. Instead, it is being used for one-time expenses.
But that’s not exactly true.
For example, the plan calls for putting $1 billion in federal dollars into expanding child care for the needy. That should wipe out the current “wait list” of people seeking state help but finding no cash available.
That, however, leaves the question of what happens to those people who were getting child care once the cash runs out.
What makes all this crucial is that the tax cuts in the deal are effectively permanent: Because of constitutional constraints, it would take a nearly politically impossible two-thirds vote of the House and Senate to rescind them once they are in place if tax collections collapsed.
The plan starts with that 2.5% flat tax for everyone, collapsing a progressive structure than has rates as low as 2.59% and as high as 4.5%. That makes those in the top category the big winners.
But they benefit a second way.
Voters decided in November that earnings above $250,000 for individuals and $500,000 for married couples should be subject to a 3.5% surcharge. The Ducey-GOP plan, however, effectively cuts that to no more than 2%.
The schools will still get the money that Proposition 208 was designed to generate. But that will come out of state coffers rather than the pockets of the wealthy.
Scarpinato was unapologetic.
“The governor wants to see the state move forward from an economic development standpoint,” he said.
And that, he said, includes protecting small businesses. He pointed out that Proposition 208 was structured in a way that affected small businesses who pay no corporate income tax but instead pass through all the profits to the owners who would be subject to the surcharge.
Anyway, Scarpinato said, it’s not like the governor believes that the tax-cut plan and paying the voter-imposed obligations on the wealthy to do more for public education is going to harm anything.
“Why wouldn’t we let Arizonans keep more of their hard-earned money?” he asked.
The spending side of the package is a kind of laundry list of priorities.
For example, there’s $100 million in “pavement protection” for targeted roads in the 13 rural counties. The plan also calls for salary increases — but only for “targeted positions” at certain state agencies, like DPS officers, adult and juvenile corrections officers, child safety caseworkers and staffers at the Department of Water Resources.
There’s $65 million for what’s been called the “new economy initiative.” This expands an existing program to provide cash to universities to graduate more students in what the governor has said is a critical high demand industries like coding, artificial intelligence and “entrepreneurism.”
Rural community colleges would get $28 million, with additional dollars for Pima and Maricopa community colleges for STEM programs: science, technology, engineering and math.
At the K-12 level, the state will provide an extra $50 million for special education students. It also contains a new plan to evaluate incoming kindergartners to know where they are in reading, with the idea of putting resources where needed.
The state also is finally going to revise what it pays for construction of new schools, bringing it to what Gress said is the “market rate.” Many districts have until now had to supplement the state allocations with local funds, an issue that resulted in a yet-to-be-resolved lawsuit playing out in Maricopa County Superior Court.
The state also will pay down some debt, put more cash into maintenance of state prisons and close down the prison at Florence, the oldest in the state. That will move the inmates to the nearby Eyeman facility which, in turn, will help deal with chronic staffing shortages in the Department of Corrections, Rehabilitation and Reentry.
Also in the plan is $25 million for “forest health.” That includes sending 720 inmates out to clear hazardous vegetation.
And there’s also $200 million in the budget to find more water for the state — eventually.
The idea is to start putting money aside that can be used essentially to purchase water in the future. That could include desalinization plants.
But aides to the governor also foresee the possibility of having water brought into Arizona from the Missouri River, meaning, at the very least, constructing a pipeline.