Saying the state’s finances are worse than ever, Gov. Jan Brewer formally asked lawmakers Monday to hike the state sales tax by 1 percent for three years.
Brewer, predicting a $4 billion gap between revenues and expenses for the coming fiscal year, also wants lawmakers to restore at least part of the currently suspended state property tax. And she has proposed more than $750 million in short- and long-term borrowing, including getting investors to give the state money now in exchange for $45 million a year for the next decade in anticipated lottery sales.
She also wants to put several measures that have passed since 1998 back on the ballot in 2010, including expansion of government-paid health care to everyone below the federal poverty level and providing inflation-indexed increases in state aid to schools. Brewer says unless voters reapprove them — and come up with a new tax to fund them — lawmakers would be free to kill the programs.
Her plans were immediately rejected, not just by the members of her own Republican Party who control the House and Senate but also the Democrats.
House Speaker Kirk Adams, R-Mesa, said the 1 percent tax hike won’t raise the $1 billion a year Brewer is predicting. But Adams said even if that weren’t the case, most Republicans think a tax hike is a bad idea.
“If we can balance this budget without increasing the burden on the people who are actually paying for these services that we provide, then we ought to do that,” he said.
House Minority Whip Chad Campbell, D-Phoenix, was no more enthusiastic.
“It’s simply too expensive for the average Arizona family,” he said, putting the cost at $438 a year per household. Democrats do want higher taxes but propose instead to hike what property owners pay in school taxes, a move that hits businesses harder than homeowners.
Brewer wants lawmakers themselves to impose that sales tax hike, which would temporarily bring the state levy to 6.6 cents on every dollar spent on taxable items.
That, however, would require the votes of two-thirds of the members of both the House and Senate. And most of the Republicans who control both chambers already have said they don’t intend to support higher taxes.
Gubernatorial press aide Paul Senseman said, though, Brewer believes some lawmakers will change their minds once they see the size of the deficit.
If lawmakers won’t enact a tax hike themselves, Brewer wants them to refer the question directly to voters this fall. That move requires only a simple majority.
Adams, however, said Arizona can’t build a budget for the new fiscal year on the chance that voters might approve the tax hike this fall. He said voters are in an anti-tax mood, citing the recent defeat in California of a tax hike plan.
And Eileen Klein conceded there is no contingency plan at this point of what would happen to the budget if voters reject the plan as they did just last month in California.
Brewer herself said last week she’s not worried.
“I think the people of Arizona will listen to the information that we provide to them,” she said, saying if the package — including the tax hike — is not adopted “Arizona will be bankrupt and it would be a devastation to each and every one of us, and certainly to our children and our grandchildren.”
Brewer also included a sweetener to get Republican votes: future tax cuts, mostly benefitting business.
One provision would cut Arizona’s corporate income tax rate to 4.5 percent. Klein said Arizona’s current rate of nearly 7 percent makes the state less competitive in attracting new business, with only California having a higher levy in the region.
Brewer also is promising the eventual phase-out of that statewide property tax, which hits business harder than homeowners, even though she wants to bring it back temporarily to balance the budget for the next two years.
In releasing her proposal, Brewer sets the stage for a challenge to the Republican plan awaiting House and Senate action, one with no tax hike. The big reason for the difference is that Brewer plans to spend nearly $950 million more than lawmakers propose on education and health care.
For one, Brewer believes the number of people who qualify for free health care will grow much sharper this coming year than lawmakers believe. Tom Mannos, Brewer’s deputy chief of staff, said the soft economy resulted in an additional 50,000 people that qualified in just the last two months; year-over-year growth is in the 11 percent range.
The governor also does not like a plan by GOP lawmakers to sell off three state prisons to private companies to run, a plan GOP leaders said could generate $100 million up front in cash from firms seeking the contracts. Instead, Brewer proposes what amounts to mortgaging those facilities but keeping state employees operating them.
Even with the tax hike, Brewer is still proposing to cut spending in several areas.
The governor wants to take nearly $43 million from the state’s three universities, with the allocation to be determined by the state Board of Regents. That is the maximum permissible reduction; deeper cuts would risk the loss of federal education stimulus dollars.
Aside from higher taxes, Brewer’s budget also counts on the state collecting more from those who owe taxes.
The budget fix approved by lawmakers in January slashed employment at the state Department of Revenue by a third.
Democratic legislative leaders said that actually cost the state money as many of these people were auditors and collectors.
Brewer is not proposing to add back auditors. But she does plan to give the Department of Revenue about $2.1 million to contract out the collection of unpaid taxes, which the agency said grew from $367 million last July to $420 million now.
Brewer figures that outsourcing would generate $30 million next year.