John --

Good morning, and welcome to our nineteenth weekly update from the state capitol! BUDGET edition, since the official budget bills dropped yesterday!

But there is a key difference from previous years: the budget bills that were dropped yesterday do not have the required number of votes to pass either the House (31) or the Senate (16).

So why are we going through this dog and pony show this week, you ask? Good question!

As I outlined in last week’s update, the budget is typically a three day process. Yesterday was day one, with the budget bills officially introduced. Today is the Appropriations committee hearing, where each budget bill has to pass the committee before moving on to the full Senate floor. I am a member of the Senate Appropriations committee, so I will be in the room later this morning as we debate and consider the budget bills.

Conceivably, tomorrow is when the bills will come to the full Senate floor, where amendments can be offered and debated, and then final votes on the budget can occur.

But again, this budget does not have the votes in either chamber. The reasons are myriad, with some members of the majority opposed to the absolutely massive tax cut, and with others in the majority opposed because they do not like the high amount of spending that is included.

All Democrats are opposed to the budget as is, principally because of the flat tax proposal that I’ve discussed in recent updates. 

In fact, the Senate president named an additional member to the Senate Appropriations hearing for tomorrow, because the rumor was that one of the Republicans on the committee was opposed to the budget. The makeup of the committee is six Republicans and four Democrats, meaning if every Democrat voted no along with the one Republican, none of the budget bills would pass committee. Now the committee will be 7-4, meaning a single defection would still allow the bills to pass by a vote of 6-5.

What’s in the budget, you ask? The centerpiece is the massive $1.9 billion a year tax cut, which would reform our state’s income tax system from four brackets to a single bracket, at a universal rate of 2.5%. 

To put that figure into some context, it’s over ten percent of the revenue in our annual budget (around $13 billion a year). 

How can we afford this, you ask? Well, we do have some one-time funding from the federal government that can pay for it currently, but the budget also relies on some *very* optimistic revenue projections for the long term that have me more than a little concerned.

You may remember a similar mood of jubilation among state leaders about fifteen years ago, when the economy was doing well and a lot of dollars were spent on tax cuts and other long term expenses. Then the 2009 recession happened, and our state suddenly had a $3 billion deficit to plug that we are STILL paying for as a state.

Not to mention the fact that if you compare Arizona to the rest of the country, our state income tax is quite low. Before the passage of Prop 208 last year, Arizona had one of the ten lowest state income tax rates on average in the country.

With the passage of Prop 208, very high income earners are now paying an additional surcharge on their income above $250,000 (or for married couples, $500,000). Because of that surcharge, some of my colleagues in the majority like to say that Arizona has one of the HIGHEST income tax rates in the country, but that distinction is limited to those very high income earners, NOT the entire Arizona taxpaying population.

So this tax cut is a massive windfall for this high income group. Everyone else? Not so much.

As far as the actual budget goes, there are some good things in there. There is some additional investment in our state universities, some additional dollars for special education, and a pretty sizable investment in infrastructure across the state.

We are also paying down some state debt, and making a $300 million contribution to our state’s pension fund. All good moves, and steps in the right direction.

I would still like to see us prioritize additional investments in higher education and infrastructure. We do not increase funding for our school counselors and social workers. We also do not fund the state’s Housing Trust Fund at all, and we don’t touch the state’s K-12 rollover debt of over $900 million.

The biggest hurdle continues to be the enormous tax cut when we have so many needs as a state. A fiscally conservative budget would also prioritize paying off more of our state debt too, and better prepare us for the next economic downturn, whether that’s one or two years from now or longer.

I just don’t see how the math works here for getting to sixteen votes in the Senate and thirty-one votes in the House. Leadership and the governor’s office may just be daring members in the majority to vote no, but that seems like an awfully inefficient and unfair way for us to spend a week of time.

Nevertheless, I will continue to advocate for the budgetary priorities I have held all session, and continue to work towards a bipartisan budget that addresses the many needs our state has in terms of investments and paying off debt. I am open to modest tax reform, provided that the benefits be more equitably dispersed to all Arizona taxpayers, not just those at the very top of the income scale.

As always, stay tuned to my Facebook and Twitter accounts for more frequent updates!

Thank you,

Sean

http://www.seanbowieforaz.com/

Paid for by Sean Bowie for State Senate. Authorized by Sean Bowie.