On behalf of the House Democratic Leadership:
Several of you have asked for our quick analysis of the Governor's budget proposal. I wanted to share with you these thoughts. In short, these are our concerns with the plan:
- The proposal lacks any real structural tax reform and instead relies on a temporary sales tax hike (a very volatile revenue source) while providing a tax cut to businesses
- Due to a lack of a long-term revenue stabilization, the plan creates a funding "cliff" that will lead to future education and social services program cuts
- The plan implements a TABOR-like constitutional spending limit
- The sales tax increase would have to be approved by the voters, a risky proposition - the state would rely on borrowing until the sales tax passed and the new revenue started to come in which is a financially unsound approach and creates debt-service costs
- The sales tax increase is regressive and more expensive for the average family than other revenue generating options
- Voter-approved funding for key education and health care programs would be placed in jeopardy by the Prop 105 reforms proposed in the plan
The Governor's plan does nothing to address our overall structural deficit problem. It does not create a new, stable revenue source that can help ensure that sufficient funding is available to fund state education and vital social service programs long-term. Instead, the plan relies on a short-term increase to the state sales tax rate which is too expensive for families ($438 a year) currently struggling during the economic downturn. Additionally, the Governor's plan proposes tax cuts to more stable revenue-generating sources and these tax cuts would primarily benefit corporations, mines and utilities. These tax policy changes are diametrically opposed to what Arizona should be doing to improve it's revenue stability. It moves away from structural tax reform - not toward it. The plan also calls for TABOR-like constitutional spending limits that are unrealistic for a state that has traditionally grown and changed demographically as rapidly as Arizona. It is our belief that this plan, as envisioned, would leave Arizona’s revenue and budget situation in an even less sound position that we are in now to weather a future economic downturn. When Stimulus funding runs out, corporate tax cuts are implemented and the temporary sales tax ends (or fails to pass at the ballot), a "funding cliff" would be created. And education funding (including K-12 and higher education), social services and shared revenues for cities and counties will be very much at risk. As you all know, there are many other revenue generating options, all of which would bring more stability to Arizona’s revenue base than a straight sales tax rate increase. Most of these solutions would actually cost the average family far less money than the sales tax rate increase proposed by this plan. The Governor should rethink a package that hits families with a big tax hike and increases reliance on the sales tax while increasing corporate tax giveaways.
We believe that attempting to take the sales tax proposal to the voters for approval is reckless and irresponsible. After the sound defeat of a budget and revenue package in California, it seems incredibly risky to pass-off the responsibility of adopting a comprehensive budget and revenue package to the voters. It is also not a financially sound idea (and costly in terms of debt financing) to try and fund the state budget from bridge borrowing in hopes that a tax increase will pass at the ballot. It is our responsibility as elected officials to pass a budget that protects education and social services and the required revenue changes to fund it.
In addition to creating a "funding cliff" that will eventually result in a situation where funding for education and vital social services is again jeopardized, the Governor's proposal would dismantle voter-protected funding for education and health care programs, including Proposition 301 and Proposition 204. The Governor's proposal would require education and community groups to fight for and pay AGAIN for passage of these propositions on the ballot. The voters have spoken and we believe these ballot measures should not be tampered with nor should Proposition 105 be amended or repealed. The problem that needs to be address is the creation of a stable revenue source through tax reform, not a change to Proposition 105.
We have also attached a document comparing the cuts to health and human services programs in the Governor's proposal, the current Senate Republican proposal (which seems to be the main plan the legislative Republicans are supporting) and the Governor's proposal. If you want more information about the Democratic budget proposal, please visit
www.strongerarizona.com. We look forward to receiving your feedback about the Governor's proposal as well. Hopefully, this information was useful to you.
Thank you.
Cynthia Aragon
Arizona House of Representatives
Community and Constituent Liaison
Democratic Staff
1700 W. Washington St.
Phoenix, AZ 85007-2844
Office (602) 926-3591
