Lessons from Texas on Building an Economically Healthier Arizona

By Byron Schlomach, Ph.D., Goldwater Institute

During the recent recession, the experience of Texas provides a marked contrast to that of Arizona. Arizona’s gross domestic product (GDP) fell at more than double the rate in the nation while Texas’s GDP barely fell at all. Texas’s employment in 2011 was at an all-time high and even greater than in 2007; by contrast, Arizona’s total employment in 2011 was 10 percent below its peak. Although most of the nation has seen hard times like Arizona has since 2007, Arizona’s economic challenges did not begin with the Great Recession. In fact, Arizona’s inflation-adjusted per capita income has lagged the nation’s for decades and stands steady at around 87 percent of the national level. While Arizona’s per capita personal income growth was fifth lowest among the states, Texas’s was seventh highest despite a large influx of people without jobs.

Arizona performs poorly because it taxes and regulates as if it were a state with natural advantages that can absorb bad public policy. In a comparison of several economic policy indexes between Arizona and its six neighbor states, Arizona outranks only California and New Mexico. These policy indexes include measures of economic freedom, business friendliness, tax systems and burdens, and cost of living. Texas ranks first in one measure, ranks second in two measures, and receives eight top-10 rankings.

Although many think oil and gas are the secret of Texas’s success, energy production is half the relative size of Texas’s economy now compared to what it was in the 1980s. The real secret is Texas’s policies. Those policies include no personal income tax, relatively low business taxes, a mostly simple tax structure that is fairly easy to enforce and comply with, gentle regulation that allows its natural advantages to be exploited, and private ownership of most of the state’s land.

Arizona has its advantages, including mineral wealth, balmy winters, stable geology, an outsized allocation from the Colorado River, and an advantageous state constitution that protects individual property rights and liberties. Arizona’s natural disadvantages are significant and very costly, though. They include lack of access to a water port, remoteness from the majority of Americans who live near and east of the Mississippi River, relatively limited labor and energy resources, and geological features that are visually stunning but topography that presents a surface transportation nightmare. Lawmakers need to take these issues into account when formulating policy and not add costs in a state that is already at some cost disadvantages.

The experience of Texas shows that Arizona can best exploit its comparative advantages with lean, unobtrusive government. The state should adopt Texas-style policies that (1) lower taxes and keep them low; (2) simplify the tax system, especially sales taxes and property taxes; (3) restructure the tax system to eliminate income taxes; (4) reduce business property taxes; (5) reduce regulations such as licensing, land use planning, and zoning; (6) sell state trusts, increasing the stock of private land; and (7) reduce the size of government and end state revenue sharing with local government.

Read “Lessons from Texas on Building an Economically Healthier Arizona” 

New Report: The Myth of Education Cuts and Why Money Can’t Buy an A+

A popular myth claims we severely underfund schools in Arizona. For years, teachers unions and other education interest groups have led a successful “crusade” in the media and the state capitol to spread this idea. “We have reduced education funding levels to the point where they’re really not sustainable for our students and our teachers,” says Ann-Eve Pedersen, who is leading a voter initiative to raise taxes to increase education funding.

Here are some key facts about education spending in Arizona:

1. When you add up all funding sources, Arizona now spends $9,233 per student, a 9 percent increase from 2000, after adjusting for inflation.

2. During the worst years of the recession, 2009-2011, operational per student spending only decreased 5 percent.

3. When you look back just a few years, from 2006 to 2011, per student spending increased by 10 percent, even accounting for the 5 percent dip during the recession. Federal data show that any cuts to operational dollars have been restored by funding increases.

4. This year alone, education spending in the state budget increased by $28 million dollars.

5. Between 2006 and 2011, 183 of 218 Arizona districts experienced an increase in total per student spending. Only 31 school districts saw a decline in total spending during that time period.

6. According to the state auditor general, these consistent funding increases have not led to more money being spent in the classroom. In 2011, Arizona districts only spent 54.7 percent of their funds on classroom expenses, “a record low since [the auditor’s office] began monitoring classroom dollars 11 years ago.”

Moreover, higher spending per student hasn’t bought students higher test scores. Arizona student achievement has been virtually unchanged for 20 years. Today, nearly 3 out of 4 fourth graders can’t read at grade level. And, although our scores still rank near the bottom on many indicators, Arizona students score as well as or better than students in some states where per student funding is double or almost triple what we spend. In short, there is not a direct relationship between money and achievement.

Voters should reject the latest attempt to raise the state sales tax to increase education funding, and Arizona lawmakers should commit the state to reforms that are proven to increase student achievement.

Click here to read The Myth of Education Cuts and Why Money Can’t Buy an A+

The Misplaced Priorities of the Prop 204 Campaign

Byron Schlomach, Ph.D., Goldwater Institute

When the Prop 204 campaign criticizes Arizona legislators for reducing education funding during the recession, they never explain what else legislators were supposed to do.

At the height of the recession state revenues had fallen by a third. With the money that was left, simple math shows that the legislature could not have maintained spending on education and social programs, which together make up 70 percent of the state budget. If they’d tried, it would have meant zeroing out prisons, the state legal system, State Parks, and several departments that protect public health. Even the 1-cent sales tax increase would not have prevented the closure of fundamental state agencies if the legislature had not reduced education and social service funding to some degree.

Support the NO on 204 Campaign

Even still, during the darkest days of the recession, school funding was only reduced by 5 percent.

By criticizing these reductions, Prop 204 supporters are implying that the legislature should have closed prisons, letting pedophiles roam free, shut down the Attorney General, leaving child support cases unsettled, and hurt kids by compromising recreation and public safety. Looking to the future, the legislature has wisely saved some money to avoid more budget reductions when the federal health care law fully kicks in and state health care costs skyrocket, but the Prop 204 campaign criticizes that, too.

The solution offered by the Prop 204 campaign is to permanently funnel $1 billion annually to schools with no strings attached. Here’s the irony. As education funding was reduced to cope with the recession, schools chose to direct less money to the classroom than ever before. They preferred to fire teachers than reduce the ranks of non-teachers on school payrolls. In 2011, only 55 cents of every education dollar was dedicated to classrooms.

When it comes to questioning priorities, I have to question those of the people running the Prop 204 campaign. Criticizing the legislature because they avoided letting pedophiles out on the street while rewarding with a billion-dollar blank check the very schools that fired teachers rather than bureaucrats sure seems backwards to me.

Dr. Byron Schlomach is the director of the Goldwater Institute’s Center for Economic Prosperity.

Learn more:

Goldwater Institute: Proposition 204: Not As Advertised

Goldwater Institute: The Myth of Education Cuts

East Valley Tribune: Census Shows Arizona School Districts Cut 10,000 Jobs

Will Arizona’s Proposition 121 Hurt or Help Political Parties?

By Clint Bolick, Goldwater Institute

Proponents of Prop. 121, the “top two” Arizona ballot initiative, contend it will lead to the weakening of the two major political parties. But the opposite is true. In fact, it would strengthen them while killing third parties, all to the detriment of voter choices.

Prop. 121 would create an open primary in which all candidates—Republicans, Democrats, independents, and third parties—would run. Only the top two would go on to the general election, and no other candidates would be permitted to appear on the ballot.

In California, this has led to multiple general elections featuring two candidates from the same political party. To Prop. 121’s backers, this is nirvana: the surviving candidates supposedly would have to appeal to independents and voters from the other party. To us, two candidates from the same party looks like no choice at all.

Nor would this necessarily produce two Republicans in Republican-leaning districts or vice-versa. To the contrary, the more candidates who run in a primary from the same political party, the more they will split their party’s vote—improving the chances that the other party’s candidates will move on to the general election.

This year in Congressional District 9, which has a slight Republican registration edge, there were fewer Democrats than Republicans running in the primary, so that under Prop. 121 the top two candidates moving to the general election would have been two liberal Democrats, Kyrsten Sinema and David Schapira, rather than Sinema and her Republican opponent, Vernon Parker. Which scenario offers a real choice? To ask that question is to answer it.

The only way to prevent a multiplicity of candidates from one party splitting the primary vote is to pressure candidates not to run; and the only entity that can do that is strong political parties. Thus Prop. 121 would lead to stronger political bosses and fewer electoral choices.

As for third parties, this measure’s impact is even clearer: it would make them extinct. Except in the rarest circumstances, neither Greens nor Libertarians—or even Independents—ever would appear on a general election ballot.

Though Prop. 121 calls itself the “Open Elections” initiative, it is anything but. Good thing for its backers there’s not a law requiring truth in political advertising.

Clint Bolick is director of the Goldwater Institute’s Scharf-Norton Center for Constitutional Litigation.

Learn More:

Arizona Week: Clint Bolick debates Paul Johnson on Prop. 121 (video)

Goldwater Institute: Prop 121’s Dirty Little Secret

Arizona University Students Unknowingly Contributed $120,000 to Prop 204 Campaign

Arizona university students have contributed over $120,000 in cash and funded countless man hours to support the Yes on Proposition 204 campaign, which would permanently raise the state sales tax, yet most of them probably don’t even know they’ve made a contribution. In fact, many of them may not even agree with the initiative.

In a Special Investigation released Thursday, Goldwater Institute Investigative Reporter Christian Palmer explains how the Arizona Students Association broke its own rules earlier this year when the student-funded 501(c)(4) organization applied its money and manpower to aid the Quality Education and Jobs Committee, a political committee formed to launch the statewide ballot initiative now called Prop 204.

This week, four students who sit on the ASA board as Arizona State University representatives resigned their positions, citing their inability to speak out against ASA internal politics, including how the organization’s funds are spent. Another representative resigned his ASA board post earlier this month.

One former ASA board member told the Goldwater Institute that when he tried to speak out against the organization’s actions last year, professional staff threatened to sue him.

Founded in 1974, the ASA is a student group representing the 130,000 students who attend ASU, Northern Arizona University and the University of Arizona. According to the ASA’s mission statement, the organization works to “make sure that higher education in Arizona is affordable and accessible by advocating to elected officials and running issue campaigns to engage students.” The ASA reaped more than $585,000 from Arizona university students in 2012. Over the course of the past five years, the group has received $2.6 million in fees.

The Goldwater Institute found that the ASA doesn’t have to get approval from students before it determines how to spend funds, but it is required to get approval from its board of directors, which is comprised of elected representatives of the student body. However, those directors’ one-year terms make board turnover nearly constant, which means significant power resides with the ASA’s professional staff members. According to former ASA board members interviewed by the Goldwater Institute, members of the ASA’s professional staff knowingly ignored the organization’s bylaws in order to help Prop 204.

This controversy emerged last spring, when several board members refused to support Prop 204, and took steps to ensure the ASA did not endorse the initiative. Having repeatedly failed to secure that endorsement from a majority of the board, the ASA’s professional staff proceeded to earmark organizational resources for the initiative campaign, including cutting a $20,000 check to the campaign, despite the fact that ASA internal financial policies require the board to review and approve all expenditures of $300 or more.

In June, having been almost entirely repopulated by newly elected board members, the ASA board voted to contribute $100,000 to the Yes on Prop 204 campaign, making the ASA a larger contributor to the campaign than the teachers’ unions and school boards association and second only to a contractors’ group.

The ASA’s contributions to the Yes on Prop 204 campaign raise legal questions about whether their actions constituted unconstitutional “compelled speech” on behalf of its student funders. The U.S. Supreme Court has ruled in cases on similar issues that people cannot be forced to fund political speech with which they disagree. Because all students are required to pay the fee to the ASA and the process for obtaining a refund isn’t advertised and is cumbersome, the fee may violate the First Amendment rights of university students.

The Goldwater Institute is examining these recent events and is considering legal action on behalf of ASU students.

To read Welcome to the Real World, please visit: http://goldwaterinstitute.org/article/welcome-real-world

‘Won’t Back Down’—A Must-See Movie

By Jonathan Butcher, Goldwater Institute

Mark your calendar for Friday, September 28, when the feature film Won’t Back Down hits theaters. Based on real events in California, the movie depicts a group of parents’ efforts to reform a failing school.   Hollywood stars Maggie Gyllenhaal (The Dark Knight, Away We Go) and Viola Davis (The Help) play two devoted mothers who gather signatures for a petition to take over their children’s school, one that has underserved students for years.

California is one of four states with a “parent trigger” or “parent empowerment” law that allows parents to petition to convert a traditional school into a charter school or replace school leadership. Under these laws, at least half of the parents in a failing school must support the transition. California, Texas, and Mississippi passed laws in 2010 and 2011, while Gov. Bobby Jindal signed Louisiana’s law earlier this year.

The Arizona State Senate passed a “parent empowerment” bill last March, though the measure eventually stalled in the House. Lawmakers in at least 20 other states are considering the reform idea.

Two weeks ago, Businessweek explained how the parent empowerment law has given parents in Adelanto, California new hope. Doreen Diaz joined with other Desert Trails Elementary parents in 2010 and petitioned to turn their school into a charter school. With the help of Parent Revolution, a non-profit based in Los Angeles, Doreen gathered signatures and began a grueling battle with school and district leaders.

While the fate of Desert Trails remains unresolved, Doreen insists drastic action is needed to help its students. “I hope that more people see [Won’t Back Down] and are inspired to stand up and fight,” Doreen says. She can point to McKinley Elementary, where parent engagement spurred the creation of a charter school nearby—a school that outperformed McKinley in the first year it was open—or the dozen states considering parent empowerment laws.

I hope Won’t Back Down inspires lawmakers to give parents the freedom to turn failing schools into success stories.

Jonathan Butcher is the education director for the Goldwater Institute.

Learn more:

Goldwater Institute: Momentum Building for Parent Empowerment

Bloomberg Businessweek: In California, Public School Parents Stage a Coup

Parent Revolution: STAR Test Results Show Celerity Outperforming McKinley in All Subject Areas

IMDB: Won’t Back Down

The Hidden Cost of the Income Tax

By Stephen Slivinski, Goldwater Institute

Decades of experience have shown us that high taxes dampen economic growth. State policymakers hoping to encourage job growth are right to worry about their state’s tax load on the private sector.

What needs more attention than it gets now is what a state taxes. As it turns out, most states actually rely on the very tax that slows job growth the most: the income tax.

Most states, for instance, assess higher income tax rates on those with higher incomes. Not only does that penalize those who are most successful in the private sector, it inhibits job growth by making small businesses – which are typically the creators of the largest share of jobs in most states and pay their income taxes through the personal income tax code – pay higher taxes the more they grow.

States with graduated-rate income taxes, like Arizona, also tend to see government revenues grow faster than personal incomes and that means the government gets richer faster than the private sector. That’s always bad for long-term economic growth.

The best way out of the trap is to eliminate the tax that is the most damaging to economic growth. Eliminating the income tax in Arizona could not only remedy these problems but also help launch the state into the ranks of the economic powerhouses like Texas. This policy change could still create more than 20,000 new jobs in the first year because it gets rid of the hidden economic costs associated with an income tax.

Every state has natural advantages and disadvantages that policymakers cannot control. But they can control tax policy. Getting rid of the income tax is the only policy bold enough to fundamentally boost long-term economic growth in Arizona.

Stephen Slivinski is a senior economist at the Goldwater Institute.

Learn more:

Goldwater Institute: A New Tax Plan for a New Economy: How Eliminating the Income Tax Can Create Jobs

Cato Institute: State Income Taxes and Economic Growth

National Taxpayers Union Foundation: The Economic Impact of the Adoption of a State Income Tax in New Hampshire

Arizona Should Not ‘Exchange’ Health Care Freedom for Government Control

By Christina Sandefur, Goldwater Institute

This summer’s Supreme Court ruling in NFIB v. Sebelius effectively made states the ultimate guardians of healthcare freedom. Although the Court allowed the federal government to tax individuals who do not obtain government-approved health insurance policies, the decision puts states in a position to prevent the federal takeover of the nation’s healthcare industry.

The most effective way states can defend their citizens’ healthcare freedoms is by refusing to establish state-run health insurance exchanges. The federal healthcare law devised these bureaucracies to facilitate the sale of federally-regulated health insurance. But a state need not set up an exchange – if it declines, the law authorizes the federal government to create one in that state.

Some state policymakers have been sold the false bill of goods that setting up their own exchanges would shield their citizens from federal control. But Washington bureaucrats have the final say even in state exchanges about which doctors and insurance plans can participate, and which benefits must be offered. What’s worse, states that create exchanges must surrender to the federal government sensitive information about their citizens’ healthcare choices.

There are other reasons to decline to set up a health insurance exchange, too. Through the state-run exchanges, private insurance companies will receive billions of dollars in direct taxpayer-funded subsidies. But these subsidies are not doled out in federally-run exchanges if states refuse to participate. Additionally, a state exchange would impose crushing burdens on local businesses. Employers of more than 50 people that do not provide federally-approved health insurance could be forced to pay fines of at least $2,000 per employee per year. But no such penalties exist if a state declines to set up an exchange.

States that set up exchanges are putting their taxpayers on the hook for carrying out these federal mandates. While federal funding for “startup” assistance is available now, after 2014, states will be fully responsible for shouldering the costs running their exchange.

Florida, Wisconsin, Texas, and other states across the country have rejected exchanges. Arizona should join these states in protecting healthcare freedom by declining to set up its own exchange. To learn more about this and other steps states can take to maximize individual choices in healthcare, download the Goldwater Institute’s latest Policy Memo: Next Steps on Health Care Policy.

Christina Sandefur is an attorney with the Goldwater Institute.

Learn more:

Goldwater Institute: Ten Reasons Arizona Must Reject Exchanges

Arizona Republic: A Welcome Mat for Obamacare in Arizona

New York Times: Liking It or Not, States Prepare for Health Law

Eliminating Arizona’s Income Tax Could Create 20,000 New Jobs in First Year

Phoenix, AZ—Eliminating Arizona’s state income tax could put 20,000 people to work in the first year alone and business activity in the state could rise by an additional $419 million each year, finds a new Goldwater Institute policy report released Thursday.

And Arizonans would have more money in their pockets to save, spend or invest.

In A New Tax Plan for a New Economy: How Eliminating the Income Tax Can Create Jobs, Goldwater Institute Senior Economist Stephen Slivinski argues that the income tax makes Arizona less attractive than our neighbors when companies want to expand and create new jobs, it takes hard-earned money out of worker’s pockets, and creates instability in state revenue levels. Slivinski recommends that lawmakers eliminate the income tax outright and shift to a broad-based sales tax.

“We are falling behind neighboring states in economic recovery, and just tweaking Arizona’s tax code around the edges will not bring about the long-term job growth that we need,” said Slivinski. “Eliminating the income tax is the only proposal bold enough to dramatically boost new economic growth and drive widespread job creation.”

Slivinski argues that Arizona’s tax structure is outdated, weighing the state down and getting in the way of long-term economic and job growth. Arizona lost nearly 300,000 jobs during the recession and has an unemployment rate of 8.3 percent, among the highest in the nation.

According to Slivinski, eliminating the state income tax would make Arizona more attractive to companies who want to expand. When job-creators can keep more of their earnings to reinvest in their businesses, they are more likely to expand and hire new workers. Under this tax plan, Arizona workers will enjoy not only more opportunities to find work, they will also keep more of the money they earn.

National economic data shows that states without an income tax see substantially stronger economic growth than the national average and states with income taxes. In Texas, for example, where there is no income tax, the state gained over 400,000 new jobs between May of 2007 and May of 2012, and the state has regained all the jobs that it lost during the recession.

Besides creating jobs and letting families keep more of their paychecks, eliminating the income tax will also help stabilize the state budget. Having a budget dependent on income taxes make state revenues more vulnerable to economic ups and downs, according to Slivinski. Income taxes make up nearly half of all state revenues and they are much more volatile than sales taxes. During a boom period in the economy, as incomes spike, so too does tax revenue, which allows for large increases in government spending. But when a recession hits and incomes dive, so too do tax collections and there is a big reduction in state revenues. This was a major cause of the most recent budget deficits and sent policymakers scrambling to cover the new spending they took on during the boom period.

In his report, Slivinski shows how to eliminate the income tax, keep the sales tax at the rate it is now, and still bring in the same amount of government revenue we see today. The report also recommends reforms to maximize this tax plan’s effectiveness, including unifying the sales tax base statewide and creating a constitutional amendment to stop state and local governments from creating an income tax in the future.

“By taking steps to eliminate the income tax, Arizona will signal to job-creators around the country that we are open for business and committed to making our state competitive,” said Slivinski. “The faster a plan to eliminate the income tax is enacted, the stronger the economic boost our state will receive.”

To read Stephen Slivinski’s biography, click here.

To read the report, click here.

The Goldwater Institute protects America’s greatest inheritance—the liberty and economic freedom of the individual—by holding government accountable and standing up for regular taxpayers just like you. Lear more about the Goldwater Institute at www.goldwaterinstitute.org.

Judicial Watch takes its eye off the ball

By Clint Bolick, Goldwater Institute

Judicial Watch, the Washington, D.C.-based group that describes itself as a conservative watchdog, has taken on all types of government corruption and waste.

Among them is the scandalous practice of union release-time, in which government employees are given paid time to perform union work, including lobbying and campaigning.  Judicial Watch condemned Miami-Dade County, Florida Mayor Carlos Alvarez for allowing “public transit workers to be excused from their regular duties while still collecting taxpayer salaries.” Among Judicial Watch’s bill of particulars against the mayor was the “1,300 union police officers who make over $100,000 at the department Alvarez worked in and headed for years.” Outrageous, said Judicial Watch.

So imagine our shock when Judicial Watch announced it would try to intervene in the Goldwater Institute’s challenge to release time in Phoenix—to defend the practice that diverts six full-time police officers and thousands of hours of police time for “union business,” including lobbying and campaigning.

Why the sudden shift in principle?

The explanation appears to lie in Judicial Watch’s recent hire of Mark Spencer as its “Southwest Projects Coordinator.” Before joining Judicial Watch, Spencer was the Phoenix police union’s president and lobbyist, where—you guessed it—he was on release time, receiving the pay and pension benefits of a full-time police officer while riding a union desk.

Release time is widespread among Arizona municipalities (Scottsdale is a notable exception). Phoenix’s release time provisions in contracts with its seven government worker unions cost taxpayers $4 million per year, according to a Goldwater Institute investigation released last year.

Seems like just the type of scandal Judicial Watch would sniff out—if it hadn’t compromised its mission.

Clint Bolick is Vice President for Litigation at the Goldwater Institute.

Learn More:

Goldwater Institute: Money for Nothing: Phoenix Taxpayers Foot the Bill for Union Work

Goldwater Institute: Cheatham v. Gordon

Judicial Watch Release: Judicial Watch, Phoenix Police Officers Seek to Protect Officers’ Employment Agreement

Judicial Watch Blog: Union Workers Campaign For Mayor On Taxpayer Time