The First Rule of Holes

Posted by AzBlueMeanie:

"The first rule of holes: when you're in one, stop digging." – Molly Ivins

Oh how I miss the wit and wisdom of Miss Molly. She made a career out of mocking the clowns in the three-ring circus of the Texas Lege. Imagine how much fun she could have with our Arizona Legislature.

The GOP insane clown posse of the Arizona Legislature refuses to accept the immutable law of the first rule of holes. They intend to keep digging. Key budget meetings this week include tax-cut package (Arizona Guardian, subscription required). "Republican legislative leaders [met Monday] and, at least in the House, continue to shop a tax-cut plan to the rank and file before unveiling it publicly, perhaps later this week."

The challenge is to bring some sort of compromise to this apparent dichotomy amid the worst fiscal crisis anyone here has ever seen. After four rounds of budget cuts and ever-declining revenues, the current-year shortfall stands at $1.5 billion — with half the year already gone. Next year’s estimated $3.4 billion deficit is roughly one-third of the state’s general fund.

If the charts, graphs and gargantuan numbers presented during the governor’s emergency cabinet meeting last month — showing the state teetering on the brink of insolvency with $4 billion structural deficits through at least 2014 — weren’t convincing enough, take it from a veteran of the Arizona budget trenches.

“This is cataclysmic,” said former OSPB director Peter Burns, shortly before Gov. Jan Brewer opened her Dec. 21 cabinet meeting. “These are the worst times. Ever.”

* * *

As the JLBC prepares the 2011 spending plan for release next week, the staff may incorporate some of the ideas proffered by noted economist and real estate expert Elliot Pollack, whose firm was hired by the House last month to help staunch the state’s job hemorrhaging and put the economy back on track. Pollack also serves free of charge on the state’s Finance Advisory Committee.

“We’ve been working on putting together a package to create Arizona jobs,“ said House Majority Whip Andy Tobin. “We hired Elliot Pollack’s team to help formulate what would be the best way to create jobs in Arizona and what would be the way to do it most efficiently and expeditiously.”

Tobin said the details won’t be released until all GOP House members have had a chance to review the plan this week, but allowed that “there may be some similarities” to previous proposals, which included corporate and personal income tax cuts, and repeal of the statewide equalization tax.

Insanity. Mr. Pollack, surrender your credentials as an economist. You are a hack. This is an ideological  package of proposals that offers more of the same foolishness of conservative economic policies that put Arizona in this hole in in the first place. This is the same right-wing foolishness this state has endured for years from the Goldwater Institute and Tom Jenney at the Arizona Federation of Taxpayers and Americans for Prosperity.

In 1990, Governor Rose Mofford and the Republican-controlled Arizona Legislature passed a bipartisan tax hike — a menu including income and property tax increases — that helped narrow a structural deficit that was tiny by today’s standards. The economy took off soon after, pumping new revenue into state coffers. Fife Symington was elected governor in 1990, and a series of income and property tax cuts followed soon after, reducing the tax base.

In 1992, voters approved Prop. 108, requiring a two-thirds super-majority vote of both chambers of the Legislature to increase taxes or to reduce tax exemptions or tax credits. Taxes have not been raised by the Legislature ever since. Numerous tax exemptions and tax credits have been enacted since then, however, further reducing the tax base.

In 2006, Governor Janet Napolitano agreed to the Republican-controlled Legislature's plan to cut income taxes by another 10% over the following two years, and to suspend the state equalization property tax, further reducing the tax base. Politicians do foolish things when they want to be reelected.

To date, Arizona has lost 280,000 jobs and has revenues that match 2004 levels. But since 2004, the state has gained nearly 150,000 additional public school students, 18,000 more university students, 11,600 more prisoners and a whopping 475,000 additional AHCCCS members.

“We’re now in a situation where there’s just not enough revenue for the state to take care of its basic obligations to its citizens in the areas of education, health care, transportation and public safety,” said Cunningham, a former Tucson Democratic lawmaker who has advised the Arizona Budget Coalition, a collection of human-service advocacy groups.

Without new revenue, he said, “you’ve either got to borrow or cut. And further cuts at this point are very difficult to do, both in terms of the financial impact and in terms of the political cost.” Key budget meetings this week include tax-cut package

"To keep paying the bills, the state is borrowing nearly $1 billion a day. State Treasurer Dean Martin has said Arizona may have to begin issuing IOUs if the lease-purchase of state buildings, expected to bring in $735 million, is delayed beyond late January."

The nonsense Arizonans have endured for much of the past year over The Accidental Governor's proposal for a temporary sales tax hike was wholly unnecessary. The Legislature could increase the sales tax today with a two-thirds vote of both chambers of the Legislature. A costly special election to pass the buck for making hard decisions to the voters is not required. (Suspension or repeal of the Voter Protection Act, however, does require a vote of the people).

Most of the one-time budget gimmicks have been exhausted. But there are still a few left in the bag, along with some recycled options, Key budget meetings this week include tax-cut package that could minimize further budget cuts this year, including:

• Push off some of the debt until the following year. The state remains about $450 million in the hole from 2009 and the so-called constitutional requirement to have a balanced budget doesn’t seem to have fazed anyone.

• More K-12, university and state agency rollovers, again pushing debt into the next year.

• “Monetizing” or borrowing against state Lottery proceeds and tobacco settlement monies. Both of these ideas were proposed by former Gov. Janet Napolitano a year ago before she left for Washington, D.C., to run the Department of Homeland Security. The lottery idea has broad support in both parties.

• Imposing a health care provider assessment, essentially a tax on hospitals, nursing homes or other providers in exchange for additional Medicaid dollars that could be used to offset likely cuts to AHCCCS reimbursement rates, graduate medical education and so-called disproportionate share providers that serve a larger number of Medicaid patients. The tax could generate hundreds of millions of dollars.

Or the clowns in the three-ring circus of the Arizona Lege could demonstrate true courage and leadership and do what is pragmatic and necessary to increase tax revenues. Here are some other options:

• Repeal the income tax rate cuts (at least on upper income brackets) going back to the first Symington income tax rate cuts. Corporate income tax rates do need to be adjusted, but not on the terms currently under discussion.

• Eliminate all tax credits, including tuition tax credits (the Arizona Constitution is very clear about the Legislature's duty to provide for a "nearly free" public education and restricts subsidies to private and parochial schools, despite the fiction created by certain judges). Income tax exemptions and deductions could be adjusted accordingly.

• Enact an estate tax on inheritances that piggy-backs onto the federal estate tax. Arizona does not have an estate tax on inheritances. (The federal estate tax affects only 1.6 percent of the population, Unless you are a multi-millionaire, it will never affect you).

• Eliminate tax exemptions from the transaction privilege (sales) tax and extend it to services, with the exception of groceries and medical/pharmaceuticals. This would allow for the state sales tax rate to be reduced from the current 6.3% but it would still generate more revenue because of the broader tax base. (The Democrats proposed this last March).

• Restore the state property tax on land (Arizona does not have a property tax, local jurisdictions do) but eliminate the personal property tax on business equipment. This has unfairly benefited land owners over manufacturing or equipment intensive businesses for years. Eliminating the personal property tax on business equipment would do more to attract new business to Arizona than any other tax measure. The state property tax on land could be dedicated to infrastructure improvements – think of it as a development fee.

• As for the school equalization property tax, it seems everyone has forgotten that this tax originated as a result of a court order requiring Arizona to equalize spending among the state's school districts. That remains good public policy. Repealing the tax will result in school districts poor in taxable property bringing a lawsuit to enforce the existing court order or refile the same action.

• Raise the fuel tax. It hasn't been raised from .19 cents/gallon in years.

• Amend the motor vehicle license tax. It is currently based on an assessed value of 60 percent of the manufacturer's base retail price reduced by 16.25% each year the vehicle is licensed in Arizona. The rate is $2.80 for new vehicles or $2.89 for used vehicles for each $100 of assessed value. Why so complicated? Many states charge a flat annual fee. Make it a graduated fee based upon the assessed value of the vehicle and age of the vehicle.

• Raise the "sin tax" on alcohol and tobacco. This has already been done to the point that we may be on the downward side of the bell curve – so many people have quit smoking that tax revenues are expected to decline.

• An alternative is a "deposit law" on beverage containers. Democrats introduced HB2760 in the 2008 Legislature. Currently the states of California, Connecticut, Delaware, Hawaii, iowa, Maine, Massachusetts, Michigan, New York, Oregon, and Vermont all have some version of a deposit law. Several other states are considering it. HB2760 would have returned the 5-10 cent deposit on redeemed containers plus a one cent incentive payment. BottleBill.org

Of course, none of these options are likely to occur. These craven GOP ideological extremists, who have sworn allegiance to their dark lord and master Grover Norquist, are intent upon shrinking government to the size that they can drown it in the bathtub. The mandates of the Arizona Constitution and their oath of office be damned. This goes beyond mere incompetence or misfeasance in office – this is malfeasance in office.