In a rare split, nine Republican Senators voted Wednesday against a bill sponsored by a member of their own caucus, with one senator calling on Gov. Doug Ducey to veto the bill if it hits his desk.
Voters approved the one-half cent sales tax for transportation funding back in the early 1980s and again in 2004 as Proposition 400. It is set to expire at the end of 2025 unless voters approve an extension that will general billions over the course of the proposed new extension.
To understand the money at play, the Joint Legislative Budget Committee projects the current Maricopa County transportation tax will generate in $754 million in annual revenue in 2025 alone.
Senate Bill 1356 was introduced in January by Sen. Tyler Pace as the vehicle to get the choice in front of voters. It contains an emergency clause, so if signed into law by Gov. Doug Ducey then the extension option will appear on the 2020 General Election ballot.
Voters in Maricopa County would then have a chance to say aye or nay to another extension. They will also have a good idea for how the tax revenue would be spent during the next two decades thanks to a draft spending plan from the Maricopa Association of Government.
But it appears the rush to get the matter on the ballot this year was more of an objection to those senators voting against the bill than the extension itself.
For Sen. Michelle Ugenti-Rita, putting the matter before voters in 2022 does not make sense considering the sales tax extension can go on the 2024 ballot.
“We have some members that are requesting that we suspend the 18 cents gas tax,” she said in explaining her no vote. “We’re sending mixed messages. There’s no reason we need to do it now. We can do this in 2024.”
Ugenti-Rita pointed out that Republicans have been touting tax cuts the last several years and are now asking voters in Maricopa County to approve a tax increase that cannot be undone for 25 years.
“Coming up on an election, this is the worst thing Republicans can do, is mandate a historic tax increase be placed on the ballot,” she added while calling on Ducey to veto the bill if it gets that far.
Joining Ugenti-Rita in voting against SB1356 were Senators Nancy Barto, Sonny Borrelli, David Gowan, Vince Leach, JD Mesnard, Warren Petersen, Wendy Rogers, and Kelly Townsend.
For Mesnard, the inclusion of funding for “intolerable” light rail projects was the primary reason for his no vote even though he applauded Pace for the effort put into the legislation.
“The thing that I have just wrestled over is when I look now down 25 yeas in the future, what is transportation going to look like?” Mesnard said on the floor. “And so I have been uncomfortable with the idea that we would spend what I think is hundreds of millions, billions of dollars, on light rail.”
SB1356 also makes several changes to the distribution of the tax revenues, while modifying the budgeting process for the Maricopa Association of Governments which will have to create a Transportation Tax Plan. And it increases the tax period from 20 to 25 years.
Gowan explained his no vote is also tied to the inclusion of so much money for light rail projects, saying he thought the money would be better spent on the construction of freeways and maintenance of existing highways and streets.
“I think it is a better fit for those dollars that we would get for light rail to actually go into the roads…the highways that we all travel,” Gowan said Wednesday. “I do believe, no pun intended, it’s a bridge too far to go with the light rail. And that is why you see me voting no today, Madame President.”
SB1359 still passed out of the Senate on a 21 to 9 vote, securing the two-thirds votes required of an emergency clause. It has been transmitted to the House where its passage is not assured due to the two-thirds requirement of the 60 representatives.
Voters may be asked to approve the requirement of ID for early ballots, according to the Arizona legislature’s approval of a proposed constitutional amendment, SCR1012. The resolution, sponsored by State Senator J.D. Mesnard (R-Chandler) and now headed to Governor Doug Ducey for approval, passed 31-26 along party lines in the House on Monday and 16-12 in the Senate last Thursday.
SCR1012 would require voters to sign an affidavit including their date of birth and their early voter ID number: either their driver’s license number, their nonoperating ID license number, the last four digits of their social security number, or their unique identifying number. For security purposes, the legislation clarified that concealment measures must be undertaken when delivering or mailing the ballots. If a voter can’t mark the ballot themselves, they must include their assistant’s phone number and relationship to them.
Election workers must ensure that this additional information is present and accurate. Inability to confirm the information would first require election workers to contact the voter before disqualifying the ballot.
Additionally, on-site early voting locations must require voters to present their ID before receiving a ballot. The legislation prohibits the state from charging for nonoperating ID licenses required for registering to vote or voting.
The legislation would apply no earlier than the next primary elections in 2024.
During last week’s vote on the bill, Senate Democrats argued that the bill would cause severe lags and disruptions at best and outright voter suppression at worst. Senate Republicans responded that signatures alone weren’t a sufficient identifying measure.
State Senator Martín Quezada (D-Quezada) noted how after a similar bill was enacted in Texas, a rate of 40 percent of ballots were rejected in the largest county, Harris County, to the tune of thousands of ballots. Quezada said that the potential rejection rates were too great to pass the bill. He argued that it would be “suppressing the vote.”
In response, State Senator Kelly Townsend (R-Mesa) rebutted that signatures alone weren’t enough. She declared that about 90 percent of signatures from the 2020 election were obvious mismatches, along with 39 percent of those being probable mismatches. Townsend raised the greater concern of accountability for the election workers who decided to approve those ballots with mismatched signatures, questioning whether they would also rubber stamp ballots with missing, unmatched, or incorrect ID numbers or birth dates.
“Why are we wasting our time on this? What’s the point? May the best cheaters win. You know? Because no one’s going to hold you accountable. So maybe that ought to be the new narrative: whoever can outplay the system the best is the one who wins the election,” said Townsend. “You guys say ‘voter suppression’; we need cheating suppression.”
State Senator Sean Bowie (D-Chandler) argued the bill was unnecessary. He said that over 80 percent of his district’s voters vote by mail. Bowie said that people weren’t capable of adapting to the changes of additional requirements on their ballot.
State Senator Vince Leach (R-Tucson) pointed out how Democrats weren’t insulted at the idea of IDs for other parts of public life, including traveling, but expressed displeasure concerning elections.
“It’s beyond the pale that when it comes to a ballot box that, all of a sudden, everything goes out the window of everyday life. The world is changing because of one small card the size of a credit card. It’s unbelievable,” said Leach.
Senate Bill 1783, legislation that further reduces and streamlines taxes, was signed by Governor Doug Ducey on Friday. Sen. JD Mesnard and Rep. Ben Toma led the fight for the bill in order to protect small businesses from the threat of a 77 percent tax increase.
“This tax cut will keep Arizona competitive for small businesses already operating here and new businesses flocking here every day,” Ducey said in a press release. “After a year as tough as the last, we should not be raising taxes on our small businesses — we should be cutting their taxes. That’s exactly what Senate Bill 1783 does. Arizona has now passed the largest tax cut in state history and will have the lowest flat tax in the country. My thanks go out to Senator J.D. Mesnard and Representative Ben Toma for their leadership on this issue.”
Senate Bill 1783 establishes a new and lower alternative small business income tax structure. Under the plan, “small business income” is defined as interest, dividends, profits and certain capital gains.
“Small businesses are the backbone of our economy and integral to the future success of our state,” Mesnard said. “Small businesses should be able to grow and reinvest in themselves without being forced to pay astronomical taxes. Rather, government should get out of the way so that they can thrive. That’s why I’m so grateful for the support of Governor Ducey and my colleagues in the Legislature.”
This tax relief will ensure small businesses continue to choose Arizona to start, expand or relocate operations. Small businesses are a core component of our state’s economy, making up more than 99 percent of Arizona’s businesses and employing more than one million people. Because of the structure of the 3.5 percent surcharge on individual income tax under Proposition 208, small businesses will not be subject to this crippling tax hike.
“It’s a no-brainer to have a separate tax structure for small businesses,” said Toma. “It should be our goal as public servants to make filing taxes easier for Arizonans. This session has been a massive win for Arizona taxpayers. Thank you to the governor and the many who supported this bill.”
The bill allows taxpayers to exclude small business income from their total individual income. Instead, small business income will be subject to an alternate small business income tax. A flat tax on small business income will phase in over time:
3.5 percent in 2021
3.0 percent in 2022
2.8 percent in 2023 and 2024
2.5 percent in and after 2025
Governor Ducey signed this year’s budget on June 30, which fulfills his commitment to ensuring working families, small businesses, veterans and all Arizona taxpayers get to keep more of their hard-earned money.
The budget implements the largest tax cut in state history. Arizona taxpayers will see a 2.5 percent flat tax phased in over three years and subject to certain revenue thresholds being met beginning on January 1, 2022. The tax plan saves money for every Arizona taxpayer no matter their income, eliminates income taxes on veterans’ military pensions, and increases the optional charitable contribution deduction over time to 100 percent.
The Washington Post and the Wall Street Journal’s editorial board published columns about the tax plan and the positive effects it will have on Arizona. Additionally, Governor Ducey, Senate President Karen Fann and House Speaker Rusty Bowers authored a joint op-ed about the historic tax reform in the Phoenix Business Journal.
UPDATE: At approximately 8:30 p.m., the Senate passed the primary budget bill and worked until 2:30 a.m. to pass all of the 11 budget bills including the tax cut.
Arizona lawmakers are nearly halfway toward approving what Sen. JD Mesnard calls a “once in a lifetime overhaul” of the state’s tax system, but whether the other half get approves this week is still in question.
As of 10:30 p.m. Tuesday, the Senate had passed 8 of the 11 budget bills on a 16 to 14 margin in a marathon day of amendments, commentary, and votes which was continuing as of press time. Among those eight were appropriation bills for higher education, criminal justice, health, environment, capital outlays, and transportation.
It also included the tax omnibus and revenue bills which are two of the three priorities of the legislature’s majority Republican caucus. And among the legislation were several amendments offered by senators which matched a variety of bills that failed to pass earlier in the session.
One amendment offered to the health budget bill, SB1824, came from Senate President Karen Fann to codify Gov. Doug Ducey’s recent executive order prohibiting COVID-19 vaccinations for community college and university students. It appears, however, that the prohibition is only valid while those vaccinations are offered under “emergency” approval.
That is one of the amended bills the State House is expected to consider on Thursday. None of the budget bills were discussed by the House on Tuesday because 28 of the 29 Democrats in the chamber failed to show up.
The maneuver by the minority party caused a lack of quorum due to the fact four of the 31 Republicans were participating remotely. House rules allow members to vote remotely but for purposes of determining a legal quorum there must be at least 31 representatives present on the floor or in their official House office.
In explaining his support of the budget bills, Mesnard cited several features, including an appropriation toward paying down state pension liabilities. He also noted income taxes will be cut “at a significant amount” which in turn will put Arizona in a positive competitive position.
Throughout Tuesday’s floor session, most of the 14 Democrats in the Senate proposed numerous amendments for how to spend Arizona’s $2.3 billion surplus. Many of the options involved additional funding for lower income residents but were voted down on a 16 to 14 margin.
And some supporters of the Democrats’ amendments suggested the tax cuts contained in the budget bills were disproportionately beneficial to higher income residents.
Sen. Sonny Borrelli said he took many of the Democrats’ comments “as contempt for the rich.”
Earlier in the day the House Committee on Government & Elections gave due pass recommendations to two bills, including SCR1010 which would promote a three-day States’ Convention in September. All seven Republicans on the committee voted for the Sen. Kelly Townsend sponsored bill but indicated they would likely vote against it on the floor.
However, the bill never made it to the full House due to the lack of quorum. The same problem affected Sen. Michelle Ugenti-Rita’s attempt via SB1431 to bring changes to the citizen advisory committees utilized by flood control districts.
Ugenti-Rita explained there is currently no restrictions on who sits on those committees, which has allowed city officials to hold seats on what is supposed to be a citizen committee. The bill would also mandate all counties with a population of 1.5 million or more must have a citizens committee; the only county which would be impacted by that provision is Maricopa County, even though Pima, Pinal, and Yuma also utilize citizen committees for their flood districts.
After months of meetings, crunching numbers, and compromises, the group of legislators and state staff tasked with hammering out Arizona’s $12 billion budget could be ready to roll it out this week.
Rep. Regina Cobb (R-LD5) told AZ Free News that after numerous meetings this session the fine-tuning of the budget package “is down to the last few items.” As a result, legislators could be presented with the package in a few days.
The two most anticipated features involve whether Arizona’s current multi-rate income tax structure will transition to a flat tax rate, and what types of immediate tax cuts will be divvied out of the state’s budget surplus of between $1 billion and $2 billion.
Cobb, who chairs the House Appropriations Committee, said tax relief via tax cuts was on top of the House’s budget wish list heading into budget negotiations, and now that all sides have come to “a general agreement on how much there is to spend” that income tax cuts for all Arizonans are part of the budget.
The other priority was a proposed flat tax which could drop Arizona’s four income tax brackets (which range from 2.59 percent to 8 percent) into one flat tax. According to Cobb, that plan is would get all Arizonans to a 2.5 percent income tax by 2024. A flat income tax has been supported by Gov. Doug Ducey although he had not proposed a rate plan.
Cobb has been involved in the budget or appropriation side of the legislature for five of the seven years she has been in office. Normally the House and Senate hammer out their differences and then bring the plan to the Governor’s Office. This year, however, the budget process differed in that the executive side became involved earlier.
“It was clear our philosophies between the House and the Senate were different, so we made it a three-way negotiation sooner than expected,” Cobb said, adding that the “majority of the negotiating and give-and-take is complete.”
Among those working with Cobb on this year’s budget is House Majority Leader Rep. Ben Toma, as well Sen. David Gowan, the chair of the Senate Appropriations Committee, and Sen. J.D. Mesnard, chair of the Senate’s Commerce Committee. A few issues remain, which is not unusual at this stage.
“The last items are always the most controversial items,” Cobb said.
Ducey introduced a budget for consideration by the legislature when the session started in January. The governor’s budget included discretionary spending and revenue changes necessary to enact a balanced budget, with a forecasted $350 million surplus.
That surplus prediction continued to exponentially grow every few weeks. In mid-April, the Joint Legislative Budget Committee and its Finance Advisory Committee of public and private sector economists pegged the surplus at $1 billion, while some economists put it closer to $1.5 billion or even $2 billion.
The budget discussions are also addressing the impact of Proposition 208, which mandates a 3.5 percent income tax surcharge for thousands of Arizonans, many of whom are small business owners. Those subject to the surcharge are being “walloped” by the tax and need relief, according to Scot Mussi, president of the Arizona Free Enterprise Club.
“We currently have an uncompetitive tax rate structure, which needs to be a priority for the legislature,” Mussi told AZ Free News. “We need a simpler tax code, we need to correct the damage from Prop 208, and we need to push for a $1 billion tax cut to return that money to the taxpayers.”
Another priority, particularly for business owners, is for Arizona’s income tax code to better conform or match up with the federal tax code. This limits the potential for double taxation of income, Mussi explained.
Mussi also noted none of the tax cuts or additional spending due to the surplus will impact Arizona’s rainy day fund, which was established in 1990 as a reserve of funds the state could turn to during economic downturns.
Once the budget bills pass the House and the Senate, Ducey will have the option to sign them, veto them, or let them take effect without his signature. He also has authority to do a line‐item veto of appropriations, although any veto can be overridden by a two-thirds vote in each chamber before adjournment.
But how long it will take for the budget to get approved is not very clear. Traditionally, the legislature will sine die after the budget is approved. Sine die marks the adjournment and end of the session without setting a date for reconvening. It also terminates any unfinished legislative business.
However, Sen. Kelly Townsend has suggested there should be no sine die in case the Senate’s election audit of Maricopa County requires some type of legislative action. She has also been critical of the fact several of her 18 election reform bills never made it out of a Senate committee this year.
It is possible Rep. John Kavanagh, as chair of the House Government & Elections Committee, will introduce strike-everything amendments to others bills in an effort to force the Senate to support Townsend’s legislation, thus potentially ensuring her vote on the budget.
None of the budget surplus being considered by the legislature involves COVID-19 funds, as Arizona is one of a handful of states in which the executive branch controls federal funds issued to the state. That means Ducey has control of his own multi-billion purse derived from federal monies.
Making matters even trickier is that approving the budget will require the support of all 16 Republican senators and 31 Republican representatives unless a Democrat or two cross the aisle. Such uncertainty means it is unclear how much time will be needed by the leadership in both chambers to be ready for a vote.
Another shadow hanging over the budget negotiations is whether Arizona will be punished by the U.S. Treasury Department if it approves tax cuts which the Biden Administration later considers were “directly or indirectly” offset by federal COVID-19 funds.
Attorney General Mark Brnovich has filed for a court order declaring part of the recent COVID-19 relief package unenforceable. That provision prohibits states from using COVID-19 federal monies to essentially underwrite tax cuts, but the language needs to be clarified, according to nearly two dozen attorneys general.
“The fact that those politically allied to enact the Act cannot even agree with each other as to what the Tax Mandate means provides powerful evidence that it is subject to multiple potential interpretations,” Brnovich argues in a lawsuit filed in March in U.S. District Court. “Indeed, the language of the Tax Mandate is patently ambiguous, and even borderline incoherent.”