Radical Soak the Rich Initiative will Derail Arizona’s Economic Recovery

by | May 18, 2018 | News and Updates, Tax

Looking to exploit the momentum created by the recent school strike, a small coalition of liberal organizations and labor unions have launched a ballot initiative that would permanently damage Arizona’s economy.

The proposed “Invest in Education” proposition would impose a new top individual income tax bracket of 9 percent, a near doubling of the current top rate of 4.54 percent.  This radical increase would give Arizona the 5th highest income tax rate in the nation, trailing only California, Hawaii, Oregon and Minnesota.

Joining the ranks of the high-income tax states would be a decision that Arizona would quickly come to regret. The evidence is overwhelming—states with a low or no income tax have consistently outperformed high tax states in job creation and economic growth.

It is why for decades Americans have been voting with their feet and moving to states like Arizona with a favorable tax climate. On net, nearly 1,000 people a day are migrating to low income tax states, while the same number is exiting high tax states. If this initiative passes, we should expect entrepreneurs, high earners and employers to take their jobs and investments elsewhere.

To justify their crushing tax hike, proponents are promising that the approximately $700 million in anticipated new revenue from the tax will go toward K-12 funding. Of course, the initiative doesn’t include any language that ensures the money will make it into the classroom, nor does it include any reforms to improve outcomes or parental satisfaction.

They are also selling their plan on the idea that only the “rich” will pay the tax increase. In reality, small business owners and entrepreneurs will be hammered by the increase since they pay their taxes through the individual tax code.

Also unmentioned by the proponents of the initiative is that a new revenue stream for schools is no longer needed. While the Red for Ed debate was raging on at the legislature and in living rooms this spring, economic forecasts confirmed that Arizona would have the largest budget surplus since the great recession.

This tremendous news is not an accident. The rapid acceleration of projected revenue is a direct result of both local and national policies that fostered a pro-growth economic environment in Arizona. It can be argued that lawmakers reacted too slowly during the legislative session to allocate new funding into K-12 classrooms (close to $1 billion), but it illustrated that the best mechanism to generate more money for schools is through economic growth, not job crushing tax increases.

The impact of the largest tax increase in Arizona history would be catastrophic. It will kill jobs, punish small business owners and send families fleeing to other states. The proponents of this measure might think they are being clever by linking two politically attractive targets—school funding and taxing the “rich”—but we are confident that voters will see through their ploy and reject this divisive initiative if it reaches the ballot.

Arizona Teacher Pay: Separating Fact from Fiction

by | May 1, 2018 | News and Updates

Last Thursday 50,000 individuals descended on the Arizona Capitol in support of a teacher’s strike; the state’s school districts shut down and turned away roughly 800,000 students.

According to the narrative surrounding Arizona’s education system, nearly everyone is willing to accept that teachers are grossly underpaid, that Arizona ranks 50th in per pupil funding and that the state has failed to backfill $1 Billion in pre-recession education funding.  Indeed, according to the machine that consistently ensures Arizona gets no credit for educational wins and disparages our system at every turn, Arizona ranks dead last in every possible educational metric.

But there is more to the story.  And if Arizona is going to take meaningful steps to improve the K-12 system, we must first start with a clear and factual picture.

Last year the Morrison Institute at Arizona State University published a study declaring a startling decline in teacher pay and turnover.  Their work joined the collection of analyses of teacher pay done by the National Education Association (NEA), the Arizona Office of Auditor General (OAG), and National Center for Education Statistics (NCES.)

According to the Morrison Institute, the 2016 average salary of an Arizona elementary school teacher adjusted for “regional buying power” was $40,860 and $46,070 for secondary teachers – 50th and 49th in the country, respectively.

This was a curious finding, especially since most every other national ranking has Arizona with a higher average teacher salary than the Morrison Institute.  The National Education Association ranks Arizona 43rd in the country at an average teacher salary of $47,218.  The Arizona Office of the Auditor General has Arizona teacher salaries at $46,384 and the National Center for Education Statistics has Arizona ranking 44th in the country with average teacher salaries at $47,403.

How could the Morrison Institute arrive at such a different conclusion than virtually every other study on teacher pay? The answer appears to be that they decided to use a combination of questionable wage and cost of living data to show Arizona in the worst light possible.

For example, in calculating the wage figures, the Morrison Institute used the Bureau of Labor Statistics (BLS), a data set that only uses a cross-section of W-2s and leaves out other wage information such as teacher bonuses.  No other major study (including the NCES) use BLS wage data, and the result is a significantly lower average teacher pay figure.

The Morrison Institute skewed the numbers even further when adjusting for cost of living. In comparing wages among states, most studies incorporate the Cost of Living Index (COLI) to adjust for salaries.  The Morrison Institute instead used the Regional Price Parities index, arguably one of the more questionable data sets available. For example, RPP doesn’t take into account the average cost of home purchases, which would lead to a large discrepancy since Arizona is one of the more affordable states to own a home.

When COLI is used to analyze the more comprehensive NCES and NEA data – Arizona is 40th in the country and outranks Colorado ($46,506), Utah ($47,244) and New Mexico ($47,403) in the region.

How would Governor Ducey’s 20by20 plan impact Arizona’s national standing for teacher pay?  A 20 percent raise would increase the average teacher salary in Arizona to $56,661, a $9,443 dollar increase.  Adjusted for cost of living, Arizona would vault to 10th in the country for teacher pay. 

These facts should be empowering and encouraging to Arizona taxpayers who are used to hearing a constant onslaught of criticisms about how despondent the prospects of our public education.  Considerable and noticeable improvements are achievable and can be accomplished without raising taxes.

 

Federal Tax Reform Benefits For Arizona Workers Now Exceed $215 Million Dollars!

by | Apr 30, 2018 | Uncategorized

Four months have passed since the enactment of federal tax reform, and Arizona workers and taxpayers continue to be rewarded with new raises, bonuses and expanded benefits. As of April 30th, over $215 Million dollars has now been put back into the pockets of Arizona workers and ratepayers as a result of federal tax reform.

Here is a list of Arizona companies that have rewarded employees with additional pay and benefits:

  • American and Southwest Airlines announced $1,000 bonuses for their nearly 15,000 employees in celebration of the GOP tax plan.
  • CEO Bob Parsons handed out $1.3 million in bonuses to his 725 employees at YAM Worlwide.
  • AT&T and Comcast provided $1,000 bonuses to hundreds in their Arizona workforce.
  • Bank of America will be giving $1,000 bonuses to their 10,000 Arizona employees that make up to $150,000 in total compensation.
  • Boeing has committed to $300 million to charitable investments, workforce training and infrastructure improvements benefiting their 3,600 Arizona employees.
  • Nationwide announced $1,000 bonuses and an increase of their 401(k)-matching contribution for their 1,900 Arizona employees.
  • Wells Fargo, with over 15,000 Arizona employees, announced the establishment of a $15 minimum wage, $400 million in charitable donations and $100 million in additional capital investment.
  • Wal-Mart has committed to providing their 35,000 Arizona employees a guaranteed minimum wage of $11/hour and bonuses up to $1,000.
  • APS announced that they intent to slash $119 Million from their utility rates, which would save the average homeowner $56 each year.
  • Verizon will provide 50 shares of restricted stock (valued at $53/share) to their 2,800 Arizona employees, a total value exceeding $7 Million dollars.
  • JP Morgan Chase will be giving a $750 bonus to their 10,000 Arizona employees and raise starting wages from $15 to $18 an hour.
  • Waste Management, Inc. is providing $2,000 bonuses to nearly 2,000 Arizona Employees that do not participate in a sales incentive or bonus plan.
  • Meridian Bank increased their base wage to $15/hour, increased charitable contributions and capital spending and added 20% to existing bonuses.
  • Comerica Bank will provide $1,000 bonuses to their 100+ Arizona non-officer employees and raised their base wage to $15/hour.
  • Home Depot announced bonuses up to $1,000 for its 10,000 Arizona employees
  • Western Alliance provided bonuses, pay raises and an increase in their 401(k)-matching contribution for their 700 Arizona employees.
  • Washington Federal, which has nearly 200 Arizona employees, has committed to 5% merit increases for employees making less than $100k and an substantial increase of training programs for their workers.
  • Starbucks announced pay raises, expanded benefits and company stock (valued at $500 for shop workers, $2,000 for managers) to their 4,000 Arizona employees.
  • FedEx, with 3,700 Arizona employees, will be giving bonuses, pay raises and a voluntary $1.5 Billion contribution to their company pension plan.
  • Honeywell has committed to boosting their 401(k)-match for its 8,000 Arizona employees.
  • U-Haul will be providing bonuses ranging from $500 to $1,200 for their 3,800 employees.
  • Lowe’s has committed to providing their 4,000 Arizona employees bonuses up to $1,000, expanded benefits and maternity leave and $5,000 in adoption assistance.
  • Chipotle is providing bonuses ranging from $250 to $1,000 for their Arizona employees
  • McDonald’s announced a tuition assistance program for their 16,000 Arizona Employees ranging from $2,500 to $3,000.
  • Cox Communications, with over 3,200 Arizona Employees, will be receiving bonuses ranging from $1,000 to $2,000.

In total, over 125,000 Arizona workers are on the receiving end of bonuses, pay raises and other benefits thanks to the business tax cuts. Combined with the individual income tax reductions that will show up on paychecks next month, the direct financial benefit for Arizona taxpayers as a result of tax reform will be over $1 Billion dollars in 2018.

The Club will continue to expand the list of AZ companies rewarding their employees with bonuses, pay raises and benefits. If you know of a company not on the list, please email info@azfree.org so that the Club can include the good news on our tax cut victory tally.

Possible Funding Options and Reforms for Ducey’s Teacher Pay Plan

by | Apr 23, 2018 | News and Updates

It has been a week since Governor Ducey announced his “20 by 20” plan for Arizona teachers, and suffice to say there are more questions than answers on the long-term financial sustainability of the proposal. According to the latest JLBC estimates, if the Governor’s plan was implemented to increase teacher pay (which likely won’t happen, since local districts determine teacher pay) and fully fund Additional Assistance, Arizona would be running a structural deficit of $200 Million dollars by 2021.

The Governor’s solution to this problem has been to increase the economic revenue projections for the State above the JLBC estimate and bank on continued caseload reductions at AHCCCS (Arizona Health Care Cost Containment System.) Governor Ducey could be right, but this is the same exact mistake that was made 10 years ago that led to billion-dollar deficits and a decade of budget turmoil. Additionally, this doesn’t take into account another recession that is likely to occur in the next couple of years.

Rather than rely on a rosy economic outlook, policymakers should evaluate funding alternatives, budget cuts and modifications to the Governor’s education plan that would avoid putting Arizona in another fiscal crisis. Additionally, lawmakers would be remiss to pass on another opportunity to tie education policy reforms with new increases in K-12 funding.

Some possible funding options and reforms include:

  • Eliminate the Arizona Competes Fund (Budget Savings–$11.5 Million)—The Arizona Commerce Authority Currently receives $21.8 Million in total funding from the state general fund, with $11.5 Million earmarked for the Competes Fund. As one of the most unnecessary and useless expenditures in the state budget, the Competes Fund would only be missed by political insiders and special interests that have access to the grants and subsidies handed out by the Commerce Authority. This is a spending cut that most taxpayers would support.
  • Cut University Bonding package by 50% (Budget Savings–$13.5 Million)—Last year the legislature approved a measure to allow Universities to bond for as much as $1 Billion for new capital facilities and other projects. It was always questionable whether our three state Universities needed a billion dollars for new buildings, especially since they have secretly been in the property tax abatement business for several years without notifying lawmakers. Modestly reducing their bonding capacity to $500 Million isn’t unreasonable and wouldn’t impact their current level of operational funding.
  • Reduce Urban Revenue Sharing with Cities by 10 percent (Budget Savings–$120 Million.)—Currently Arizona tax revenue from income and sales is shared with local municipalities, with approximately $1.2 Billion being diverted from the state general fund. It is one of the most generous revenue sharing models in the country, and is questionable policy as it removes accountability at the local level. And as long as cities believe that it makes sense to throw away over $100 Million a year on utterly wasteful projects such as light rail, it is clear that this is a cut that wouldn’t be missed.
  • Reduce the K-12 teacher funding increase to 10 percent by 2019 (Cost Savings–$225 Million)—Though the Governor seems stuck on the 20 by 20 plan, lawmakers would be wise to instead approve a 10 percent increase and wait to see if the revenues materialize to justify a larger amount. A 10 percent increase is doable under the JLBC budget projections and would provide the capacity to substantially increase teacher pay at the local level. According to the Tax Research Association, Arizona is currently 40th in teacher pay in the US when adjusted for cost of living. If school boards decide to use the additional funding to solely pay for teacher pay raises, Arizona would move up to 22nd in the nation. This would be a major step in the right direction while keeping Arizona on a sound fiscal trajectory.
  • Continue moving toward backpack funding and other school finance reforms—If parents and students are to see a more fair and equitable funding structure in Arizona, then reforms are needed to fix Arizona’s broken funding structure and do a better job of tying K-12 funding to students. Though advocates, unions and the media are more than happy to point all the fingers at the legislature and Governor for low teacher pay, local school boards and administrators continue to escape all accountability. It isn’t right that mismanaged and poor performing districts will be equally rewarded as the responsible schools that have done a good job getting money in the classroom. Lawmakers must look at every proposal to increase funding as an opportunity to empower high-performing schools and districts and stop protecting the bad actors in the school finance formula.

Income Tax Hikes to Fund Teacher Pay Raise?

by | Apr 17, 2018 | News and Updates

Late last week the simmering dispute over teacher pay finally boiled over, and now the legislature and Governor Ducey are racing to meet the demands of angry educators. On Thursday, the Governor held a press conference announcing his commitment to fund a 20 percent pay raise for all teachers, to be implemented over two years.

The good news is that the Governor remains committed to raising teacher pay without raising taxes. The downside is that his administration may be relying on unrealistic revenue projections over the next couple of years, which if overstated could lead to a new budget deficit for Arizona. After fixing the structural deficit in his first year, it would be a major disappointment if his new proposal puts Arizona back in the same hole that Ducey inherited in 2015.

The Governor’s plan isn’t the only proposal circling the halls at the capitol. A small group of Republican lawmakers were pitching their own teacher pay plan, with one big difference—the 20 percent raise would be paid for primarily through middle-class income tax increases and an “undisclosed” tax hike in 2020.

Notwithstanding the fact that any spending plan that relies on mystery tax increases in the future isn’t a real plan, it is startling that some lawmakers support the idea to use tax conformity dollars generated through federal tax reform to pay for higher teacher salaries. Make no mistake, any revenue kept by the legislature as a result of tax conformity is an income tax increase.

Earlier this session a coalition of organizations sent a letter to the legislature and the Governor urging our elected leaders to return to the taxpayers any additional revenue generated by the State as a result of Federal tax reform.  Currently the Department of Revenue and JLBC have estimated that individual taxpayers will pay between $175 to $235 Million more in individual income taxes if action is not taken by lawmakers.

Despite the wishes of politicians, this is not new revenue generated by Jack’s magic beans. This is a looming tax hike that could undo the benefits of federal tax reform if not properly addressed.

If policy makers want to implement a 20 percent teacher pay raise, they should do it through other spending cuts and reasonable projections in future revenue. And if lawmakers do want to raise taxes to increase teacher pay, then they should at least be transparent in their actions and not hide their tax increase proposals in the shadows of income tax conformity.