Budget crisis could halt incorporation

The ability of Arizonans to form new corporations will start to slow within days - and come to a screeching halt some time after - unless lawmakers fix their budget, according to the chair of the Arizona Corporation Commission.

Kris Mayes said her agency was willing to go along with plans by Gov. Jan Brewer and legislators to have its incorporating division become fiscally self-sufficient. The plan, as crafted in legislation, was to let the agency keep - and use - any money it obtained in fees.

That plan was, in fact, approved by lawmakers.

But Brewer had objections to other provisions in the same bill, notably the permanent repeal of the state property tax. And since she couldn't just excise the parts of the legislation she didn't like, she vetoed the entire measure.

Mayes told Capitol Media Services that has left her agency in fiscal limbo.

On one hand, there is money coming in, to the tune of about $233,000 a month paid by individuals who file papers for new corporations at $60 a pop and $50 fees for limited liability companies. But there is no statutory authority to use that money to pay the bills.

Brewer said the problem is simple to fix: Lawmakers could have a special session to provide the authorization the commission needs.

"It's their job; that's what they were elected to do," she told Capitol Media Services.

It's not just the commission that is having problems. That same vetoed legislation also had language to help everything from the Department of Revenue to the Office of Pest Management.

"There's no controversy about them whatsoever at all," the governor continued.

"Everybody agrees," Brewer said. "They could go in, they could waive the rules, they could get it done in a day and move on, working on the other issues we need to work on."

The governor said if she had her way, lawmakers would return to the Capitol this coming week.

So far, though, legislative leaders are balking.

House Speaker Kirk Adams, R-Mesa, said he's not convinced that the situation is as dire as Mayes and the other commissioners contend. Anyway, he said, there are other options to keep the agency afloat until lawmakers return in January.

For example, he said, Brewer has access to $85 million in unrestricted federal stimulus dollars that could be given or loaned to the commission.

That suggestion annoyed Mayes.

"We don't need stimulus money, we don't need money from the state, we don't need money from the Legislature," she said. "We just need the authorizing language to use the money that we're bringing in."

Brewer expressed frustration with the lack of legislative interest, to the point where the governor said she might use her power to call lawmakers into special session without first getting their agreement to deal with the issue.

"That's certainly something I'm going to have to make a decision on," Brewer said.

"I would be much more comfortable, of course, if they would agree with me at a certain time and their members were available," she continued. "And I would like to do that next week, if at all possible."

One thing working against legislative cooperation is the resentment by some Republicans that vetoes left the current budget about $1 million in the red. Rep. John Kavanagh, R-Fountain Hills, who chairs the House Appropriations Committee, said legislators are willing to come back to the Capitol only if there is a plan to fix the entire mess but not to deal with just part of it.

Mayes warned, though, that the cash on hand is drying up.

She predicted that, beginning Oct. 1, requests by individuals to start up new companies, a process that now takes about 30 days, will be delayed.

"We're very seriously looking at curtailing the number of businesses that get processed to be formed in the state," she said. Mayes said she and her colleagues have made that clear to both the governor and lawmakers.

And at some point, she said, the money will just run out. With no money to pay those who process those business applications, they will sit.

"We want to be very clear that there are ramifications to the inaction of the Legislature and the governor on this point," Mayes said. "And that is, we won't be forming new businesses in Arizona starting at some point in this fall."

Mayes said the implications of that are serious.

A corporation cannot conduct business in Arizona until the paperwork is processed and approved by the commission.

"You can't conduct business under that name until it's approved," she said. "This could affect a lot of things."

For example, she said, people form entities to buy and sell land. Beyond that, the inability of a new corporation to begin operations means it won't be able to sell items - and the state won't be able to begin collecting sales and income taxes.

Commission spokeswoman Rebecca Wilder said the need for trained staff is important because incorporating is more than just having her agency file away some papers.

She said all documents must be scanned into the computer system before being examined.

"The corporations and LLC statutes contain many technical requirements for various documents, and the examiner must read every word in order to determine if those statutory requirements are met,'' Wilder said. "The variations on what customers submit are infinite, because customers are not required to use our forms, and, of course, some documents are more complex than others.''