Arizona Cities Are Sitting on a Mountain of Cash—So Why Are They Opposing Tax Cuts?

Arizona Cities Are Sitting on a Mountain of Cash—So Why Are They Opposing Tax Cuts?

The Arizona state coffers are running over with cash. The state is set to receive $12B in federal recovery funds, more than the entire annual state budget. On top of that, forecasting by the Joint Legislative Budget Committee projects by 2024 the state will have a $6.4B cash balance with $1.5B in ongoing revenues. Republicans in the Legislature and Governor Ducey are looking to return the record high, multi-billion-dollar state surplus to taxpayers by passing major tax cuts.

On the front lines to defeat these efforts—the cities—that are claiming major income tax reductions will significantly impact their bottom line. But it isn’t just the state sitting comfortably on a mountain of cash, the cities are too.

tax scorecard

In opposing the proposed tax cuts, cities are arguing that the package will result in a $225 million decrease in their shared revenue from income tax collections. Despite this estimate being seriously flawed, their projections are in reality insignificant.

Based on research from the Arizona Tax Research Association, we’ll look at 4 cities—urban, rural, small, and large—comparing their estimated “cut” from the tax package to their cash balances and scored against additional revenues generated from the 2019 Wayfair legislation, which permanently expanded the cities’ tax base.

Chandler

The city of Chandler has a budget of just under $317 million in general fund expenditures for FY2021, leaving nearly $135 million in the general fund.

So far in FY2021, the city has collected close to $3.6 million in new, local TPT revenue and $1.2 million in state shared TPT collections by remote sellers. Taking the average from the 8 months of collections so far in FY2021, this would result in just over $7 million annually.

The estimate of Chandler’s decrease in shared revenue? Just over $10 million.

With a cash balance of $135 million, $7 million in new revenue from Wayfair, Prop 207 revenue, and nearly $36 million in Covid cash from the latest package, residents of Chandler need not worry about their city providing a high level of service.

Their estimated “cut” represents a 0.67% decrease in Chandler’s general fund when scored against new ongoing tax revenues.

Flagstaff

The city of Flagstaff budgeted $81.7 million in general fund expenditures for FY2021, leaving the city with a cash balance of over $33 million.

From Wayfair, Flagstaff has already collected $1.3 million from remote sellers and their estimated state share is $340,000. Averaged out this is just under $2.5 million in new annual revenue. Flagstaff has also received $15.2 million in new Covid cash.

The estimated “cut” from income tax reductions? $2.9 million. This represents a mere 0.36% decrease in the general fund when scored against new ongoing tax revenues.

Tucson

The city of Tucson has an FY2021 budget consisting of just under $517 million in general fund expenditures and has a $150 million cash balance.

From Wayfair, Tucson has collected $8.6 million during the first 8 months of FY2021 and the city’s share of state collections is estimated to be $2.5 million so far. Annually this could amount to $16.7 million. Tucson’s share of the latest Covid relief package: $139.7 million.

Tucson’s estimated reduction from income tax cuts is $21.3 million, or a 0.71% decrease in the general fund.

Eloy

The city of Eloy’s FY2021 budget includes $13.6 million in general fund spending. Interestingly, that leaves the city with a general fund balance of $15.2 million—more than their entire budget.

From Wayfair, Eloy has collected $173,477 year to date and their share of state collections is $88,727. Annually this could mean $393,306 in revenue for the city. Eloy is set to receive $4.7 million in Covid cash.

The estimated decrease that Eloy would see is $761,689.72, which would be 1.3% of the general fund.

Cities in Arizona are not strapped for cash.

In reality, most cities won’t feel much of a change at all from the small reduction in shared revenue from major state income tax cuts. But taxpayers will. The fact that the state and cities are sitting on ample cash reserves proves one fact. Taxpayers are overpaying in taxes. And returning some of their hard-earned money is long overdue.

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The City of Phoenix Is Pushing Back on Tax Cuts so It Can Keep Fleecing Taxpayers

The City of Phoenix Is Pushing Back on Tax Cuts so It Can Keep Fleecing Taxpayers

The Arizona state General Fund is flooded with revenue. Latest projections show the state with $1.2 billion in ongoing revenue and a cash balance upwards of $6.5 billion in FY2024. This is by far the largest budget surplus in state history and doesn’t even include the $1 Billion stashed away in the rainy day fund.

When the state is sitting on a pile of cash this big, it means one thing: they are taking too much of your money. And the answer is simple—give it back to taxpayers.

With Republicans at the Legislature and Governor Ducey planning to provide a large and comprehensive tax cut, one special interest group is already lobbying hard behind the scenes to kill that plan: local cities.

The fight of course is over money. 15 percent of income tax revenues are shared with cities. In Phoenix, that accounts for just over $241 million this year, or roughly 4.8 percent of their $5 billion operating budget. Phoenix is arguing that the proposed income tax cut would result in a $65 million reduction in shared revenues; or 1.3 percent of their operating budget.

Of course, this estimated “cut” in revenue is seriously flawed. It fails to take into account that shared revenues from the income tax are based on collections from two years prior. Considering the tax package wouldn’t be fully implemented for another 4-5 years, any potential decrease in shared revenues would not be fully realized for at least 6-7.

Additionally, complaints about static reductions in revenue fail to include any dynamic analysis of economic growth and the corresponding increases in tax revenues—both from income and TPT collections—promulgated by tax cuts.

The passage of Prop 208 made Arizona the 9th highest income tax rate in the nation. It has already begun pushing small businesses to relocate to lower tax states—taking their jobs and income, property, and TPT tax revenues with them. Make no mistake, the loss in revenue for cities such as Phoenix will be much larger if no action is taken to address Arizona’s uncompetitive income tax climate. In fact, a study by the Goldwater Institute found that the Prop 208 price tag to state and local revenues will amount to a $2.4 billion loss.

Knowing that a debate over a potential 1.3% reduction in revenues 7 years from now won’t generate much sympathy to stop the tax package, the city of Phoenix has decided to tell lawmakers that if the legislature cuts your income taxes, cities will be forced to cut police officers on the street. In other words, legislative tax cuts would be responsible for “defunding the police.”

This rhetoric can’t be described as anything other than complete hogwash.

Here is the real bottom line: The City of Phoenix is downright reckless with taxpayer money. The city spends like drunken sailors. They’ve never seen a tax increase they don’t like. And they don’t think twice about fleecing the taxpayer every opportunity they get.

In 2015, Phoenix raised their transportation excise tax in order to waste billions on boondoggles like light rail. They have spent billions on a “Sky Train” hardly anyone uses and then jacked up fees by 200 percent on ride sharers to pay for it.

In 2017, Phoenix’s spending appetite was so colossal they extended the amortization of their pension debt, to free up a few million dollars for one time spending at the cost of billions to taxpayers down the road.

For years Phoenix ran a hotel that never managed to make a profit. In 2017 they finally shed the asset, but not before a staggering $200 Million loss to taxpayers.

All this reckless spending has forced the city to constantly raise taxes and fees. Just last month, Phoenix approved raising their water rates for the 5th time in 6 years on top of rate increases for trash and recycling.

On top of these tax and rate increases, research done by the Arizona Tax Research Association shows the city has also received over $24.6 million year to date in FY2021 (with four additional months of collections to go) from remote sellers. This is new revenue to the city due to the passage of 2019 Wayfair legislation. If these new monies were scored, that 1.3 percent revenue loss would actually be a potential 0.8% reduction realized in 6-7 years, a fraction of the money Phoenix has wasted in just the past couple years.

With tax increase after tax increase and revenue windfalls from the state, the city of Phoenix does not have a revenue problem, it has a spending problem. The legislature providing relief to taxpayers (who will surely be more responsible with their own money than Phoenix will be) will not cause any city to “defund the police.”

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The Pelosi-Schumer Attempt at a National Ban on All Tax Cuts Won’t Work

The Pelosi-Schumer Attempt at a National Ban on All Tax Cuts Won’t Work

Championed by the left as a win for the people, the Democrat COVID “relief” plan is little more than a blue state bailout with handouts to special interests and expansion of progressive policies. As if the billions of taxpayer dollars being funneled away wasn’t enough, Schumer snuck a provision into the package that would prohibit states from cutting taxes and providing relief to their taxpayers. Not just this year, but through 2024.

Yes, that means that in addition to only a dismal fraction of the “relief” going directly to taxpayers, further relief through state tax cuts would be barred.

It’s a simple principle: good behavior ought to be rewarded, and bad behavior punished. Yet the Democrat’s blue state bailout does the exact opposite, extracting billions from states that budgeted responsibly and mitigated economic shutdowns while rewarding blue states whose budget shortfalls are of their own making – stemming from bad policies pre-pandemic and even worse during the pandemic.

Initially packed with $140 million for Pelosi’s Big Tech pals in Silicon Valley and a bridge to nowhere, the $1.9 trillion Schumer-Pelosi package was still passed with $350 billion to flood blue states, $1.7 billion to Amtrak, billions to expand Obamacare and bailout union pensions, $165 billion to schools that remain closed, and recklessly sends stimulus checks to prisoners and illegal immigrants.

Unlike states that completely shut down their economies, Arizona would be receiving federal funds on top of our billion-dollar budget surplus. With this flood of deficit backed billions, D.C is trying to run up state spending, creating unsustainable budget baselines all while tying our hands on tax policy.

By overreaching into the tax policy of state governments, Democrats are inspiring Republican legislatures to tie every future penny to block blue states from activities like tax increases, infringements on the Second Amendment, expansion of social programs, and many other preemptions to thwart the left’s agenda. In the words of Mitch McConnell, “you’ll regret this, and you may regret this a lot sooner than you think.”

Additionally, the move is completely antithetical to our federalist form of government and potentially runs amuck of the anti-commandeering precedent of the Supreme Court. James Madison argued the powers of the federal government are “few and defined” while the powers of the states are “numerous and indefinite” extending to all objects including “the internal order, improvement, and prosperity of the State.” How can we provide for the prosperity of the state if we are barred from touching our tax code for the foreseeable future?

Democrats running blue states are unsurprisingly upset from years of businesses and taxpayers fleeing their states and flocking to low-tax, pro-growth red states.  Perhaps the plan is to make red states as bad as their own by preventing any tax cuts and eventually businesses and taxpayers will be trapped with nowhere to flee. Since their ship is sinking, they want to pull the whole fleet down with them.

Lawmakers should take a stand against Schumer’s infringement on state governments and the ridiculous non-pandemic related spending in this package and force a debate over whether we should be spending billions bailing out unions, special interests, and expanding progressive polices or return the money to taxpayers and create a pro-growth environment for small businesses. Common-sense and history say the latter.

Lawmakers Should Stand Up for Small Business by Passing SB 1783

Lawmakers Should Stand Up for Small Business by Passing SB 1783

It’s not every day that an innovative tax reform proposal also results in exposing one of the biggest political lies of the year. Yet that is exactly what has happened with the introduction of Senate Bill 1783, legislation introduced by State Senator Javan Mesnard.

Geared toward promoting small business growth and investment, SB 1783 would establish an optional, alternative small business tax code in Arizona. Under this proposal, policymakers would be able to craft and develop a tax code tailored specifically for small business owners, with an eye at setting competitive, pro-small business tax rates.

Exploring tax reform geared toward small business makes a lot of sense, especially since Arizona recently joined the ranks of other uncompetitive high tax states. Arizona currently has the 9th highest small business income tax rate, 11th highest state sales tax and 20th highest business property tax in the nation.  

The ability to craft a pro-business tax code is reason enough to support SB 1783, but it turns out the legislation would have another consequence. If enacted, small businesses that elect to use this new system would also not be required to pay the income tax surcharge that was included in Proposition 208.

As a result, supporters of Proposition 208 have come out in force against the bill, claiming that SB 1783 would be an “end-run” around the initiative. This was a somewhat surprising position for them to take, especially since it completely undermines what they sold voters when Prop 208 was on the ballot.

Make no mistake, the backers of Proposition 208 were unequivocal in their position that the measure would NOT tax small business. In the official AZ Publicity Pamphlet issued to every voter in the state prior to the election, the Invest in Ed campaign stated in their ballot argument that the amount owed by small businesses under 208 would be “zero, nothing. The measure ONLY applies to personal income, not business income. This is worth repeating: There are no business-tax increases. The surcharge only applies to personal income.”

The drafters of the measure were just as emphatic, proclaiming in debates and in speeches that it was “legally impossible for any business to be taxed under Prop 208.” Any concerns that small business would be harmed by the 208 surcharge were dismissed as inaccurate fearmongering.

Now that the Joint Legislative Budget Council’s (JLBC) fiscal note has shown that, in fact, Prop 208 could potentially be a massive tax increase on small business, Prop 208 proponents are trying to figure out a way to oppose SB 1783 while still claiming that small business would not be taxed.

One of the most interesting takes has been to proclaim that Prop 208 was never really a tax on small business, it only taxes the profits from small business. Now, these types of arguments might sound okay inside the walls of a think tank, but go try and tell a small business owner that the revenue generated from their small business isn’t really from their small business. In the real world, everyone knows that income from a business is, in fact, from a business.

Unable to directly address their previous statements without acknowledging their duplicity, opponents of SB 1783 are left making general statements about how this bill is “thwarting the will of voters.” We would contend the opposite: SB 1783 honors the will of the voters by ensuring that the promises made by the supporters of Prop 208 are kept.

Fundamentally, the purpose of SB 1783 is to craft an innovative tax code designed to attract and promote small business growth in the state. Lawmakers should support the legislation for this reason alone.

But if SB 1783 provides an opportunity to reinstall trust with voters by protecting small businesses from deceptive tax increases, then even more reason this bill needs to pass.

Arizona Lawmakers Want Six(!) Transportation Tax Increases

Arizona Lawmakers Want Six(!) Transportation Tax Increases

Arizonans are tired of politicians raising their taxes for transportation. When lawmakers approved the highly unpopular $32 car registration fee, taxpayers were so irate that the legislature eventually repealed the fee altogether. The last two years, lawmakers attempted to increase the gas tax but were met with such hostility from voters that the bills fizzled and died.

Still, lawmakers have not learned their lesson.

SB1650 this year, sponsored by Sen. Livingston, features not one, but six transportation tax increases all in one bill:

    • Increases the gas tax, currently set at $.18 cents a gallon, by a penny each year until 2045.
    • Increases the gas tax annually by the rate of inflation, ensuring it constantly increases up and above the one penny each year into perpetuity.
    • Increases the use fuel tax (diesel), currently at $0.26, by a penny each year until 2045.
    • Increases the diesel tax by the rate of inflation – a never ending, automatic tax increase to which legislators would not have to be held accountable.
    • Implements a new $500 tax on electric and $300 tax on hybrid vehicles.
    • Increases the Maricopa county transportation tax from a half penny to ¾ of a penny if approved by the voters in 2022.

Despite what the spending lobby at the capitol tells lawmakers, Arizona does not have a transportation funding crisis. Arizona has a transportation wasteful spending crisis.

With transportation revenue coming from gas taxes, registration and title fees, county and city transportation taxes, appropriations from the General Fund, and money from the federal Highway Trust Fund, the solution to our infrastructure needs is not raising taxes. The solution is to stop funding bad projects and better prioritize investments.

State Waste: Every year, lawmakers across the state introduce bills to bring the pork back to their districts. Instead of prioritizing major bridges, highways, and freeways, lawmakers approve millions in projects that can and should be funded by counties or cities. Additionally, Highway User Revenue Funds (HURF) dollars have been swept by the legislature year after year to fund the Department of Public Safety. Instead of finding a way to properly fund DPS, the legislature handed their taxing authority over to the Department of Transportation and Arizonans saw the infamous $32 Highway Safety Fee.

County Waste: In the case of the Maricopa County transportation tax (Prop 400), a third of this revenue is statutorily earmarked for public transit like light rail. The net effect, cities like Phoenix, Mesa and Tempe have cannibalized hundreds of millions of dollars meant to be spent on regional projects in order to build trains to nowhere. Taxpayers have spent billions of dollars for these boondoggles to provide transit to less than 1% of the population.

SB1650 continues the allowance of this waste while simultaneously attempting to deceive voters by making it appear as if this is simply a continuation of the current county tax when it is an increase.

City Waste: Of the transportation sales tax approved in 2015, the City of Phoenix allocated 35% to light rail and 51% to bus service, leaving just 14% to street maintenance despite only 30% of streets in Phoenix being considered in good condition. The latest light rail extension cost $245 million per mile to construct, reduced lanes on already congested roads, needs to be continuously subsidized with tax dollars for operations and siphons resources from critical road maintenance projects.

State county, and local governments should stop funding bad projects like light rail and misusing or poorly prioritizing funds, and instead responsibly budget and prioritize the many revenue streams that already exist.

Bad bills such as SB1650 ignore recent years of state surpluses, turns a blind eye to the massive waste in the system and disregards the myriad of funding mechanisms in place. But perhaps most importantly, SB1650 is completely tone deaf to the angst taxpayers have for any more tax increases.

Bill to Provide Handouts to Investors and Insurance Companies Returns to the Legislature

Bill to Provide Handouts to Investors and Insurance Companies Returns to the Legislature

Year after year, legislators in the Arizona House and Senate introduce bills advertised as jobs producers and the solution to affordable housing: tax credits for banks, investors, and insurance companies to finance development projects.  Because bad ideas never die as long as there are lobbyists hired to push them, this year the Low Income Housing Tax Credit (LIHTC) bill is back again as HB2562 sponsored by Representative Regina Cobb and SB1327 sponsored by Senator David Gowan.

The Arizona program allows for $8 Million a year of tax credits that can be matched with the subsidies offered through the federal program.  The bills mirror the federal LIHTC percentages and can be carried over for 5 years.  Banks sell these tax credits to investors who make up a pool to finance the project. This mechanism is supported by layers of middlemen who add to the cost of building these projects. As a result, the program is lucrative for investors, very costly for the taxpayers, and results in fewer units being produced.

The LIHTC program also lacks transparency and oversight making it fraught with fraud.  In 2018, Wells Fargo made an over $2 Billion dollar settlement with the Department of Justice for purported nation-wide collusion to devalue these tax credits.  Hundreds of millions of dollars have been siphoned from the program which led to a report by the Office of Government Accountability, noting poor oversight and wide variations in per-unit building costs.

There are many legitimate ways the legislature can address affordable housing that don’t include swampy D.C handouts to banks, investors, and insurance companies.  Here are three:

  1.  Housing Choice Vouchers (HCVs) which are tenant-based subsidies, not developer-based ones. Instead of incentivizing profiteers to supply housing – HCVs empower individuals and families to access housing in places they desire to live. 

    This approach allows low-income families to move to higher income places which often gives them access to better jobs and school districts and affords children of low-income families’ greater opportunities to succeed.  Because the LIHTC programs provide greater incentives for building in designated areas of greater poverty, it has the direct effect of actually concentrating poverty and segregating poor people.

  2. Direct appropriation of the Arizona Housing Trust Fund.  The appropriation process forces lawmakers to set their priorities based upon available revenues and balance their decisions with the tradeoffs presented.  The appropriations process is more transparent as it is revisited each year (unlike tax credit programs) and the body responds to environmental changes in the state and shifting priorities.  Projects are chosen by representatives who know the needs within their districts instead of developers who decide based upon the potential for maximized profits. Additionally, development with public monies goes through an open bidding process, ensuring taxpayers get the best bang for their buck.

  3. Address the underlying tax and regulatory structure responsible for nearly a third of the cost of development.  A study conducted by the National Association of Homebuilders concluded that 32 percent of the costs associated with building housing are attributable to regulations, mostly land-use and development hurdles by local governments.  In Arizona, the state allows the cities to charge a residential rental tax and gives them broad authorities to regulate development.  The fees, extensive permitting processes, and slow timelines add cost to development that is passed on to the consumer.  No tax credit program can fix this problem.

The expansion of this 35-year-old failed D.C. program in Arizona would be a big mistake. The bills being peddled this year are not being backed by advocates for the poor; but by those who stand to gain the most – insurance companies, investors and banks.  If lawmakers truly care about the poor – and the taxpayer – they will resoundingly reject HB2562 and SB1327.