Costly Rural Tax Credit Program Moving Again at the Legislature

by | Feb 26, 2018 | News and Updates

Last year’s Rural Tax Credit bill has popped up again at the legislature, a $30 million hit to the budget when Arizona can least afford it.  Proponents of the bill are drawing support by selling this idea as a way to spark investment and growth in rural areas of Arizona.

The crux of the legislation is $30 million in salable tax credits which the few eligible “investment firms” use to raise a maximum of $50 million in investible capital.  The tax credits may be utilized to offset corporate income, individual income, or premium insurance taxes for the qualified investors for the fund.  The money is essentially raised leveraging a taxpayer-subsidized risk pool and then used to invest in rural businesses.

HB 2590 is very similar to programs tried in other states under the name CAPCO (Capital Companies,) that have had dismal results. CAPCO has been widely regarded as one of the most inefficient ways to raise capital, and ineffective ways to invest capital.  Because CAPCO has earned a terrible reputation for wasting millions of dollars, the program is continually rebranded and repackaged when pitched in different states.

Proponents of the bill claim this legislation is different and includes significant accountability provisions that make it different than other CAPCO plans.

These “protections” include a business plan, commitments for jobs created and retained, prohibition on charging management fees, requirement to have the approved credit-eligible capital 100 percent invested, and a demonstration that the investment result in greater local and state tax revenues than the aggregate of the tax credits received.

A two-part series written by the Pew Charitable Foundation points out the easy gamesmanship of many of these reporting requirements, concluding that “the investment firm typically bolster their claims using reports written by academics they hired.  Independent policy analysts say the authors of the studies use methods that inflate the economic benefits of the programs.”  Under HB 2590 it will be very easy to inflate the benefits since the language allows the investment fund to take credit for both created and “retained” jobs. In other words, they can invest in a company that never grows and they would claim 100% of the business activity in their economic analysis.

Management fees have been a source of abuse in other programs which stemmed the amount of money that made it to businesses.  Though the legislation prohibits management fees, the mechanics of the investing structure is so complex it is not clear that other types of fees could not be charged using a different accounting label.

And though all of the approved credit-eligible capital for the program (up to $50 million) must be continuously invested in rural business for at least 3 years, this provision doesn’t make it a better deal for taxpayers.  After all, the investment firm makes profit off monetizing the tax credit to begin with, as well as selling the investments.

Last year, lawmakers funded a $10 million special investment tax credit program, which can be used by these same investors to funnel investment dollars into rural Arizona.  We encourage lawmakers to reject HB2590 and instead support better alternatives that don’t pick winners or losers or require taxpayers to subsidize the risk of investors.

 

Universities Don’t Belong in the Real Estate Business

by | Feb 2, 2018 | News and Updates

Arizona’s framers and past policymakers were extremely mindful about protecting the state’s property tax system from being gamed by private interests.

Arizona’s Constitution requires property taxes to be uniform between comparable property uses.  It also prohibits government from subsidizing private businesses.  And lastly, it restricts the granting of tax exemptions for properties that were taken by government in order to evade property taxes.

These guardrails make sense given the zero-sum nature of property taxes.  When a tax levy amount is set, that total is divided and paid amongst the community’s individual residential and commercial taxpayers.  Like a balloon being squeezed, when one taxpayer is taken off the property tax rolls, everyone else pays more.

Which brings us to the Board of Regents and Arizona State University. Like other political subdivisions in Arizona, ABOR and ASU is exempt from paying property taxes on land that they own.

Included in this exemption is the ASU University Research Park that was granted to ASU in the 1980s to promote their academic mission, fuel innovation and pursue higher learning and research in partnership with private enterprise.  Yet upon closer examination, it has become evident that this “research park” is more about luring private development and corporate headquarters than engaging in academic endeavors.

The same can be said about other ABOR owned land as well. The most visible example is the “Marina Heights” development – 2.2 million square feet of office space that overlooks Tempe Town Lake.  This project made headlines last month for being the largest real estate deal in Arizona history – selling for almost a billion dollars!

Normally a private business is required to pay property taxes regardless if they are located on government property or not.  Yet the Universities have been able to dance around these legal obstacles by creating a lease-back of the property; retaining ownership and collecting a tariff from their private tenants.

In the case of the Marina Heights development, commercial businesses are dodging $12.1 million in property taxes a year.   That means Tempe Union school districts, Maricopa Community College District, and the other receiving jurisdictions are shorted and that gaping hole in the property tax revenues must be made up by everyone else in the district.

But not only are local taxpayers impacted; so is everyone else in the state.  Arizona’s K-12 system is financed only in part by the property tax formula; the rest is backfilled by the State’s general fund.  ABOR’s State Farm building costs the State’s general fund $3.45 million and its “Research Park” upwards of $6 million.

Furthermore, this creative wading into the lucrative real estate business hasn’t stopped the university from asking for more state money or raising tuitions on students.

Hopefully lawmakers will see fit to close this property tax loophole. Rep. Vince Leach has introduced HB 2280, which would prohibit any development that doesn’t serve an academic purpose on University property from being exempt from paying property taxes. The bill passed out of House Ways and Means committee this week, and is awaiting a vote on the floor. The Club urges lawmakers to pass this commonsense fix and protect property owners from these unfair tax shifts.

Bonuses, Pay Raises and Benefits from AZ Business due to Tax Reform Now Exceed $200 Million Dollars!

by | Jan 29, 2018 | News and Updates

With another surge of announcements from Arizona companies providing pay raises, bonuses and other benefits, over $200 Million dollars has now been put back into the pockets of Arizona employees and ratepayers as a result of federal tax reform.

As of January 25th, 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 intend 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.

In total, over 100,000 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.

ASU Law School Makes In-Kind Contribution to Goddard Initiative

by | Jan 25, 2018 | News and Updates

It appears that Arizona State University may be providing taxpayer funded support to a ballot measure in violation of state law. In conjunction with the far-left National Lawyers Guild, the Sandra Day O’Conner School of Law is hosting a forum on the legal issues of “Dark Money” in Arizona politics.

Normally, giving a platform at ASU for liberal advocates to attack donor privacy wouldn’t be an issue, except that this event is much more than that.  The main speaker at the forum is Terry Goddard, the campaign chair for a statewide ballot initiative to require charities and non-profits that engage in electioneering to report their supporters to the government. If that weren’t enough, the event also invites students to “become involved in the petitioning and subsequent legal issues that may arise.”

All of this activity is direct electioneering occurring on a taxpayer funded University campus, being promoted on ASU’s taxpayer funded website.

Defenders of this forum will contend that this is a student event organized by the Lawyers Guild and that ASU is not formally backing the initiative. The problem with this defense is that a direct endorsement is irrelevant, what matters is if taxpayer resources are being illegally used to support or oppose a candidate or ballot measure.

The good news is that the Attorney General’s office has decided to intervene. In a letter sent today to the ASU Law School, the AG has informed the Dean that Arizona law prohibits the use of any “university resources, including the use or expenditure of monies, accounts, credits, facilities, computer hardware or software, webpages, personnel, buildings or any of thing of value for the purpose of influencing the outcome of an election.” (emphasis added). It is unclear if ASU responded to the letter or decided to let the event proceed as planned.

Granting space at a University facility and promoting the ballot measure on ASU’s website should not occur. If Mr. Goddard or other supporters of the ballot initiative want to hold a campaign event on campus, they should promote it on their own website and pay out of their own pocket to host the event.

Hopefully Attorney General Brnovich will keep the pressure on ASU and make sure that taxpayers were not forced to illegally support Goddard’s electioneering activities.

Club Urges Legislature to Return Money to Taxpayers

by | Jan 23, 2018 | News and Updates

Today the Arizona Free Enterprise Club in partnership with several other organizations sent a letter to the Governor and members of the Legislature urging them to return any additional revenue generated from the Tax Cuts and Jobs Act passed in Washington D.C.  The letter was as follows:

On behalf of the undersigned organizations, we write to urge Governor Ducey and the legislature to return to the taxpayers any additional revenue being collected by the state as a result of federal tax reform.

There is little doubt that the Tax Cuts and Jobs Act passed in Washington DC represents a big win for Arizona workers and job creators. The TCJA provided long overdue tax relief, cutting both individual and corporate rates while simplifying the tax code.

Already the benefits of tax reform have born fruit, with over $175 million put back into the pockets of Arizona families through bonuses, wage increases, expanded benefits and utility rate cuts. This number will only grow larger as the individual tax rate reductions kick in next month. Coupled with increased business investment from the corporate rate cuts and full expensing, the prospects for a booming Arizona economy have never been higher.

While this is all good news, last week the Department of Revenue released their conformity report showing that Arizona taxpayers will end up paying as much as $250 Million more in state income taxes in FY 2019 as a result of the federal changes. The number could climb to over $300 million in FY 2020.

We understand that this tax increase was a result of historical conformity practices and was not caused by any direct action taken by Arizona policy makers. Nevertheless, conforming our tax code in a way that does not return this money back to hardworking taxpayers would be a disastrous income tax increase that would undo many of the benefits of tax reform.

That is why we urge state policy makers to return this money back to hardworking taxpayers and head off an unnecessary and economically destructive state income tax increase.  It is the right action to take to ensure that the recently enacted federal reforms deliver on their anticipated benefits.

Sincerely,

Scot Mussi                                                 Victor Riches
President                                                   President & CEO
Arizona Free Enterprise Club               Goldwater Institute

Tom Jenney                                               Farrell Quinlan
Senior Legislative Advisor                     Arizona State Director
Americans for Prosperity AZ                 NFIB

Grover Norquist
President
Americans for Tax Reform

 

 

Is the City of Tucson in the Business of Selling Insurance?

by | Jan 18, 2018 | News and Updates

Every household receives a lot of mail.  We rifle through this stack separating it into two piles: the mail we want or must deal with – bills and official notices – and ‘junk mail,’ usually made up of advertisements and promotions from businesses in which we are disinterested.

But what if you receive mail that looks like this:

It is a letter in an envelope with the City of Tucson’s logo.  It is typed on City of Tucson letterhead.  And it is signed, “Sincerely, City of Tucson.”

But it is in fact a letter from a private company selling a warranty product of your home’s water and/or sewer line that runs from the public utility connection to the home.

After weeding through the series of statements such as, “The City of Tucson has authorized [Service Line Warranties of America] to be made available to homeowners,” and “endorsed by the Tucson Mayor and Council” as well as the official City seals; no one could blame a homeowner for being confused.

Or irate.

Surely this is a scam. After all, how could the City of Tucson approve such a advertisement or be allowed to endorse a product and use the City’s logo like they are a professional athlete hawking sneakers?  Are they in the insurance business now?

It turns out this is completely legal, and Tucson isn’t the only municipality that has entered the endorsement business. In the last six years over 400 cities across the country have begun renting their logo out to private companies and endorsing products.

The city of Tucson has collected approximately $500,000 from their own agreement with the insurance provider.  The majority comes from the leasing of the logo, but the city also receives a kickback of 50 cents on every enrollee with 13,000-15,000 citizens enrolled in the program each year.

The idea for local governments to enter the endorsement business came from the National League of Cities and Towns, where a nationwide agreement exists between Service Line Warranties of America and the League to peddle this idea to all their member cities. Lest anyone thinks this is an altruistic endeavor on their part, the National League receives their own kickback for every policy sold.

Suffice to say, there are several reasons this practice should be outlawed immediately by the state legislature.

Government should NEVER endorse any product or service.

The substantive problem with this endorsement is not the product or service being sold, it is the government’s role in endorsing any product, service, or company to its constituents.

Our interactions with government usually include a coercive element.  The choice to pay our taxes or follow the law is not voluntary. That’s why whenever we get a letter in the mail from a government entity – we open it.

Contrast this with our relationship to entities in the free market.  They are completely voluntary.  Private companies are free to advertise, convince, and negotiate with us all they want.  And we are completely at will to ignore, engage, purchase, or renegotiate with them.  We throw away letters in the mail from businesses without even a second thought.

Governments mandate and private companies market.  For one to do the other is a fundamental erosion of our system and leads to corruption.

Just imagine if you received a letter with the seal of the Internal Revenue Service emblazoned on the front promoting a tax preparation program from H&R Block that has been endorsed by the IRS.  Even if the IRS didn’t send the letter itself, does anyone think this is a good idea?  Audit fearing taxpayers would be forced to wonder if they should continue to use Bob the accountant or switch over to the IRS’s preferred vendor.

Federal government has laws and codes strictly prohibiting their agencies and public officials from “endorsing,” giving “preferential treatment,” or giving “governmental sanction” to non-federal entities.  The fact that the State doesn’t have similar restrictions is baffling.

Picking winners and losers.

This policy also puts the government in the position to pick winners and losers.  They decide which businesses and which services will be allowed to use their logo for profiteering.  This is a very slippery slope.  Not only are they giving some businesses an “edge” in the marketplace, but they are using their authority, credibility, and public trust to “persuade” their citizens about what services or goods they should buy.

Hopefully this practice will end soon.  Representative Todd Clodfelter (LD 10) has drafted legislation this year to prohibit the State and all political subdivisions from promoting or making endorsements of non-public entities.

After all, government logos don’t belong to the government, but to taxpayers.  Seals are public property meant to convey only official government business.   It undermines and diminishes the very integrity of a government seal when we allow it to be sold to the highest bidder.