Budget Debate

May 11, 2009

Transcript:

Ted Simons:
Hello and welcome to "Horizon." I'm Ted Simons. State lawmakers finally made some progress on a Republican-proposed budget last week. The house appropriations committee passed bills that will close a nearly $3 billion gap in next year's budget. The plan will make about $650 million in cuts, including $220 million to K-12 education. The plan would also use nearly a billion dollars in federal stimulus cash. Here to discuss the budget is Republican representative John Kavanagh, chairman of the House Appropriations Committee, and Kyrsten Sinema, a member of the committee. Thank you both for joining us on Horizon.

Kyrsten Sinema:
It's good to be here.

Ted Simons:
The budget passed. Is this the real deal? Is it just to push things along, a trial balloon? What have we got here?

John Kavanagh:
It's the next to the last step before a budget comes out of the house. Is it the final budget? No. There are individual concerns of members that have to be taken care of. We still haven't gotten the governor's final plan for the way that she wants to spend the stimulus money. These are all things that will require a tweak. But it's pretty close to what you'll see as the final budget from the house and then we have to deal with the senate and then the governor.

Ted Simons:
Is this the thing, as it stands, with a tweak or two, that could pass in the house.

Kyrsten Sinema:
Well, I certainly hope not. Because if this is a trial balloon, I would say it's more like a lead balloon. What we saw last Tuesday was a budget that had net cuts to education from kindergarten to college of over $700 million. Cuts to programs like services for kids with developmental disabilities. That department took cuts of over $130 million in this budget. This budget does not reflect the values of Arizonans and actually sets a major crisis for our state in terms of the future.

John Kavanagh:
I think my colleague is using AIMS math. The budget has $649 million in cuts, so how we're cutting from $700 million from Ed. is a mystery to me. The bottom line is we're just doing a 2% cut to education.

John Kavanagh:
We're doing a 2% cut to education.

Kyrsten Sinema:
Well there are lots of hidden cuts. For example, tn the appropriations last week, representative Kavanagh said there were no cuts to the university system and in fact we were restoring funding to the university system. The truth is while the stimulus dollars require we put money back into the university system, this takes another $21 million out and then, raids over $90 million of auxiliary funds that belong to the university system that are not state dollars. They actually steal the dollars from the university to help balance the budget.

John Kavanagh:
Colorful language. But she forgets the fact we're giving back all of the money we took in 2009. So right of the bat they're getting back somewhere in the area of 160 million dollars. And the cuts in '10 to universities are $40 million. So they're over $100 million ahead.

Ted Simons:
I want to get to the legal aspects of what we've just touched on here relatively quickly in the conversation. But there are a couple of things that have people really concerned and let's start with taking money out of school districts. Is it fair to hit a district that has saved, accumulated cash and saved and been prudent, is it fair to hit them now against a school district that was just profligate or maybe didn't save, nothing goes out of their system.

John Kavanagh:
The result of the excess balances aren't prudence. The result of the excess balance is collecting more money than they were supposed to. They have a spending limit. Many districts have gone way over that spending limit. They can't spend it legally. In fact we made it clear in approps., we'll not sweep one dime of money that a school district can spend. But the money which they can't spend which is sitting there, we need to prevent further cuts to education.

Ted Simons:
Is this the kind of time when you -- you save the money for when times are bad? Times are bad...

Kyrsten Sinema:
Times are very bad and I've actually been talking with school districts around the state about what they plan to do with these dollars. They actually do have the right to spend them before the end of this fiscal year and many of them will do so because of the shortfalls they're finding from legislative cuts, but also from decreased revenue from prop 301. But, more importantly, many of these funds have been encumbered for spending between now and the end of the fiscal year. To take those funds would actually violate contracts, it's quite a concerning issue.

John Kavanagh:
It's not true and there's a 4% limit on what they can spend from those funds. We will not touch one dime within the 4% limit.

Kyrsten Sinema:
You know one other concern is that, if you take the additional dollars, that means you're forcing those local tax dollars to increase -- the levy on the local property owners will be increased for next year. So it's a back-door tax.

Ted Simons:
Is that the idea that the state says we're not raising taxes but when you do this, all of a sudden, the locals get hit.

John Kavanagh:
Well first of all, part of the money is excess state revenue. It's hard to say how much is local revenue and how much is state revenue. But the bottom line is, our plan doesn't have a tax increase. The Democrat's plan has a $700 million increase in tax increases. So the extent we're taking the money that schools can't use to spend on education, we're trying to prevent the tax increase, the Democrats without going near here have already piled it on for the taxpayers.

Kyrsten Sinema:
And Democrats do believe that revenue is required to solve this problem. We think that the voters support that, they've said over and over in polls that they're willing to spend for to protect things like education and healthcare and social services for middle class families.

John Kavanagh:
We Republicans save that for last, because we know the devastating effect that the tax increase will have on jobs.

Ted Simons:
As we talk about the state not raising taxes but the locals having to, we have $210 ten some odd million dollars taken from cities towns. You've changed this now to a voluntary aspect regarding impact fees. What's this all about?

John Kavanagh:
Switching to the impact fees?

Ted Simons:
Yes.

John Kavanagh:
This is totally voluntary. Impact fees are monies that cities and towns have collected from developers to pay down the road for future amenities -- police stations, parks and what have you. They cannot legally use this money for anything but the additional facilities that the new growth created. We're simply saying if you need that money today to prevent layoffs and keep cops on the streets, we will let you access that money. In return, we would like to have a reduction, not dollar for dollar, of the money we give you so we can avoid a tax increase and further cuts.

Ted Simons:
What's wrong with that?

Kyrsten Sinema:
It's unconstitutional. But above and beyond that, no city or town is going to do this. Because, in order to access those dollars, they have to give a portion to the state. They'll be sued by the homeowners that paid those levies. Because, it's unconstitutional. Because of this, the cities and towns would be still responsible for creating those infrastructure items whether it's parks or fire stations or sewage systems. They have to do it. So they're going to have to pay for that later. Which means all they'd be doing is getting themselves in debt to help us get through the crisis.

John Kavanagh:
Some of the facts are missing from your Rep. Sinema's assessment. This came from the homebuilders and --

Kyrsten Sinema:
I meant homeowners.

John Kavanagh:
The homebuilders are the ones who paid this money and they would get it back if it wasn't spent.

Kysrten Sinema:
Well.

John Kavanagh:
But also, tied to this plan would be reasonable reform for the way the development fees are collected.

Kyrsten Sinema:
The homeowners actually pay these fees and it passes to the homebuilders and then the city. These are directly dollars that homeowners pay and they deserve services for the dollars they pay.

John Kavanagh:
These are not services, they're for infrastructure. But beyond that.

Ted Simons:
Further here, critics will say this is the homebuilders trying to prove that cities don't need impact fees, that there's something going on behind the scenes.

John Kavanagh:
Actually the homebuilders here are looking for reforms. That's part of the package. We'll make the development fees fairer for the future and we can use those fees voluntarily-- no city will be forced -- to take care of a budget crisis near historic.

Ted Simons:
Are you hearing from cities and towns willing to volunteer for this?

John Kavanagh:
Well, there have been talks behind the scenes. No city or town wants to come out and draw the wrath of the league of cities. But we understand that a number of cities are interested in substantial amounts. Cities are suffering and they don't want to take cops off the streets.

Kyrsten Sinema:
I don't believe a single city would take advantage of this, but also believe that this will not become law because it's not constitutional and frankly, there's not enough votes in either chamber to pass it. In fact, after the house appropriations committee passed this, the senate president himself said it was a crazy idea.

Ted Simons:
Well we'll have the senate president on tomorrow night and see if he holds to that idea. I want to keep things moving here: the equalization rate. The idea of permanently repealing that is part of the budget plan. For those who say this is a wise thing to do, they say this tax is a job killer. Why are they wrong?

Kyrsten Sinema:
The fact is this tax has been in existence for quite some time, it was only suspended for the last three years because we had a lot of money. Right now, if we do nothing, if the state does absolutely nothing, this tax will come back into play and it will cost the average homeowner about $36 a year. We don't anticipate that this tax will have a negative impact on homeowners. In fact, polls have shown homeowners want this tax to come back because it directly funds education.

Ted Simons:
But isn't this a much harder tax on businesses?

Kyrsten Sinema:
Well, certain businesses would pay more. A.P.S. would probably pay a much larger amount. That's one of the reasons they're opposed to it. We think everyone should do their part to stop the crisis. Homeowners and businesses alike.

John Kavanagh:
All businesses will pay more, business are taxed multiple times the rate of a residence. This is a tax which primarily draws on businesses. And the Goldwater Institute, commissioned a study. You're looking at 15,000 more jobs lost if we suddenly bring this tax back. And at best, to say that it won't cause job losses, at best it's wishful thinking and at worst it's willful blindness.

Kyrsten Sinema:
Well it doesn't seem fair that a Republican budget would force an increase levy on homeowners to pay for schools but decreasing the burden on businesses.

Ted Simons:
Respond to that. Because it sounds like there's a lot of cutting, cut, cut, cut and here's an opportunity, $250 some odd million dollars on something that historically has been there, that could come back and help.

John Kavanagh:
The majority of that money is paid by businesses. Their property taxes are twice the rate of a residence. So, right off the bat, they're getting hit. The bottom line is that California is raising every tax they can find. Businesses are fleeing California. We want them to, as they drive through Arizona, say, hey, they're not raping the business owners in Arizona. Let's stop here, lets set up factories and jobs, and taxes and revenue, we'll get far more back.

Kyrsten Sinema:
I think that John brings up an important point. And that is we do want to attract businesses to Arizona. And business property taxes are higher in Arizona than they should be. And the way to fix that is to find some balance. One thing to remember is that businesses won't come to Arizona if we don't have a healthy and strong education system.

John Kavanagh:
The additional businesses which your tax reform, which is actually tax increases by expanding the sales tax to every service you can find, that's not going to bring businesses here. When you suddenly throw all of these accounting requirements onto lawyers and doctors, hairdressers --

Kyrsten Sinema:
It's not our proposal. That's Rick's proposal. Rick Murphy's.

John Kavanagh:
You do want to increase the sales tax.

Kyrsten Sinema:
We do want to repeal the accounting credit. You know businesses actually get paid to do their taxes but homeowners and regular people don't. So we think, that's a $24 million savings.

John Kavanagh:
This is not for doing their own taxes. That fee, is for doing the paperwork to submit the sales tax we collect. So it's a little bit different and what about the $233 million that you want to pass on to electric ratepayers, most of them who are ratepayers? You don't mention that.

Kyrsten Sinema:
Actually the utility excise tax, we think, is a really great idea. What it would do is put 1/10th of 1 cent tax on the production of non-renewable energy, most of which actually is shipped out of state and paid for by taxpayers in other states.

Ted Simons:
Last question for both of you. Quickly here. Critics will say that the Republican plan loses sight of the quality of life and it's a numbers game only. Respond to that, please.

John Kavanagh:
Overall cuts, 6.5%. Education, 2.2% of total spending. This is not a budget that decimates Arizona. And, in fact, this budget is very light on the cuts and the idea is to let people keep their jobs by not destroying businesses by raising taxes to phenomenal levels.

Ted Simons:
Last question for you, the government, Arizona general fund has increased far more the population and inflation combined. Isn't it time -- there's no other way to do it. You've got to cut.

Kyrsten Sinema:
Well, absolutely we have to cut. Unfortunately, cutting is not the solution to get out of all of our problems, the problem is too big to cut. The fact is that as Arizona was growing very rapidly. We were growing with formulaic spending, which means spending we had to do to keep kids in school and pay for healthcare. But there was also some discretionary spending. Like full-day kindergarten. And spending on things like child protective services to keep kids safe. For every dollar in new spending we did we also gave a dollar in tax cuts. And we have to solve that. And the answer is simple: make cuts where you have to and raise revenue where you have to.

Ted Simons:
Alright we have to stop right there, thanks for joining us.

Kyrsten Sinema:
Thanks.

John Kavanagh:
Thank you Ted.