$12.8 billion Arizona budget that slashes taxes introduced

PHOENIX (AP) - A $12.8 billion spending plan for the coming budget year that slashes income taxes by 25% over three years and shields the wealthy from having to directly pay a new surcharge to boost education spending was introduced in the Arizona House on May 24.

The fate of the deal hammered out between Republican leaders of the House and Senate and GOP Gov. Doug Ducey was murky as some Republicans expressed concerns about various components of the budget and all Democrats were solidly opposed to the $1.5 billion per year income tax cut.

With just a one-vote margin in each chamber, one Republican member can sideline a deal. And several members have said they have concerns, some because of spending that goes against their conservative principles and others because of the tax cuts, which are permanent and come as the state still carries large amounts of debt from the Great Recession.

"It’s almost overwhelming, the amount of spending," Republican Sen. Michelle Ugenti-Rita of Scottsdale said in an interview late last week. "And its not sustainable."

While she has major concerns, Ugenti-Rita would not say she would oppose the budget if it were up for a vote.

Republican Rep. David Cook of Globe said he also had major concerns, starting with a deal on an increase in weekly unemployment that bypassed his work this session on the issue. He’s also concerned with the size of the tax cuts and a separate provision that will keep the wealthy from paying a new voter-approved 3.5% surcharge on wages above $250,000 for an individual and $500,000 for a couple.

The estimated $827 million cost of Proposition 208 would be put on lower-earning Arizonans, something that rubs Cook the wrong way.

"We’re taking general fund revenue...and paying tax debt for higher income earners," Cook said Monday. "And I don’t think that’s fair."

Also of concern to Cook is the amount of debt the state is carrying. An Associated Press analysis shows the state is on the hook for $6.6 billion in pension debt and $7.6 billion in bonds, lease-purchases and payment deferrals. That includes $930 million owed to schools from a budget gimmick used following the Great Recession that delayed nearly $1 billion in payments. The current balance is $930 million, and the proposed budget would pay that down to $900 million.

"If we go down that road of ignoring our debt and our obligations, that’s the wrong road to go down," Cook said.

Cook said the income tax cut — the largest in state history — is a problem. The proposal eliminates the state’s graduated income tax structure in favor of a one-level tax rate of 2.5% that’s lower than the current bottom tier rate of 2.59%. The current maximum rate is 4.5%, which would reach 8% with the Proposition 208 surcharge.

The new maximum rate of 4.5% would not affect the new revenues created by the 3.5% Invest in Education initiative because the budget deal taps general fund revenue to make up the difference.

"I’m all for cutting taxes," Cook said. "But in a responsible manner."

The 11 budget bills that were introduced Monday will have their first hearing in the House Appropriations Committee on Tuesday. A similar hearing will be held in the Senate, likely the only time the public will have a chance to weigh in on the proposal.

For Republican Legislative leaders who hammered out the deal with Ducey, the strong questions from other GOP lawmakers are a problem. Changes to the agreed-upon budget will need the governor’s backing and still maintain support from other GOP members who support the policy proposals in the spending plan for the fiscal year that begins July 1.

And as always when the actual budget bills are introduced, there were surprises.

One is a clear attack by Republicans on Democratic Secretary of State Katie Hobbs, by barring her hiring private attorneys to defend the state in any election-related lawsuits. Hobbs spent more than $250,000 on outside lawyers last year after Attorney General Mark Brnovich refused to defend her office in lawsuits. She asked the Legislature for a supplemental appropriation to pay that bill, but it was not included in the budget.

The budget requires Brnovich, a Republican, to make all policy decisions regarding election lawsuits. And it specifically blocks Brnovich from providing legal advice to Hobbs.