by Byron Schlomach, Ph.D.
Goldwater Institute
 
When government revenues drop during economic downturns, there are only three choices government officials have at the state and local levels. They cannot print money so they are left with reducing spending, raising taxes, or borrowing. Raising taxes is the worst option, with borrowing a close second.

Raising taxes assaults the very marrow of the economy; draining resources from the private sector at a time when it can least afford the loss. Borrowing money means an uncertain future burden. Both options make it harder to weather future economic storms. Right now, the state is spending $700 million more each month than it is collecting in tax revenue. All levels of Arizona government have a combined $41 billion in bonded debt.

Yet, many in government seem unconcerned. Everywhere one turns, new taxes are proposed. On Tuesday, Scottsdale and Tempe voters approved higher taxes on hotel room rentals. Phoenix just imposed a 2 percent food tax. The legislature is considering raising car rental taxes to pay for a new spring training stadium for the Chicago Cubs. The legislature also wants to raise license plate fees. Tucson is pondering a number of potential tax increases.

On May 18, voters across Arizona will consider an 18 percent increase in the state sales tax. Studies show that raising the sales tax by 18 percent will cut the state’s real economic output by $1.2 billion and that Arizonans will see their total after-tax income, already hit hard by recession, fall by an average of $300 per household.

What’s more, these proposals don’t take into account that the state’s property taxes went up this year, or the electricity tax passed by the Corporation Commission a few years ago.

This state has lost more than 10 percent of its private employment compared to its peak. State and local governments together have lost less than 6 percent of their workforces. The capacity of the private sector to pay higher taxes is at the breaking point. Even with an economic recovery, increased taxes will only feed an even bigger government that will be that much harder to finance in the next inevitable recession.

For now and for the future, reducing government spending is the only principled solution to the problem of shrinking government revenue.

Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.

by Matthew Ladner, Ph.D.
Goldwater Institute
 
Through the magic of public access television, I recently watched debate before the state House of Representatives on bills to reform the tuition scholarship tax credit program. I’m happy to report that legislators engaged in a substantive discussion and adopted amendments from both parties.

Congratulations to Representative Rick Murphy for bringing an important and helpful bill, HB2663, to the House. His bill will strengthen oversight through several steps, including empowerment of the state Department of Revenue to revoke the designation of “Student Tuition Organization” for rogue scholarship groups.

I was also impressed with the level of debate from House Democrats. In years past, I’ve had the impression many of these elected officials were content to complain about the scholarship tax credits, but they were not serious about doing anything to address their concerns. In this debate, I saw serious proposals offered.

For instance, Representative Steve Farley offered a floor amendment to allow the Department of Revenue to collect a fee from STOs to fund better oversight. Farley made a convincing case that state government is moving towards user fees during this economic downturn, and scholarship groups ought to be included. The amendment wasn’t adopted. But a fee of less than one-half of 1 percent on the total amount each STO raises each year should provide sufficient funding and merits further consideration.

Other amendments would have required that scholarships funded by the individual tax credits go to students from low-income families, and would have forbidden STOs from considering any recommendations from donors about who should receive scholarships. Reasonable people can and have disagreed on these subjects.

Only the Internal Revenue Service can ultimately determine the legality of donor recommendations. I’ve seen legal opinions going both ways. In the meantime, HB 2663 specifies that donor recommendations cannot be the sole reason any student receives a scholarship, and scholarship groups must consider financial need as a part of their criteria.

No one is getting everything they desire from these reforms. But this bill represents a positive step towards improving transparency and accountability in the program if the Senate and the governor also approve it.

Dr. Matthew Ladner is vice president of research for the Goldwater Institute.

A m e r i c a n P o s t – G a z e t t e

Distributed by C O M M O N S E N S E , in Arizona

With the state in desperate financial straits, Attorney General Terry Goddard has astonishingly agreed to turn over the bulk of the state’s proceeds in the Western Union settlement. Goddard initially went after Western Union for permitting illegal immigrants to send money to Mexico. The settlement was for $94 million, which Arizona could really use right now. But Goddard directed only $21 million of that to go to the state, which will be split between his office, DPS, and Phoenix Police. Of the rest, Goddard turned $54 million over to some nonprofit entity run out of New York,the Center for State Enforcement of Antitrust and Consumer Protection Laws. Why is this money going to some private organization in another state if Arizona won the suit? The settlement states that the nonprofit will then make the money available for grants to law enforcement agencies along the border – so agencies in Texas and California are going to be receiving money Arizona rightfully earned. Another $21 million of the settlement is going to be used by Western Union on itself to improve its anti-money laundering efforts. Western Union could simply use the money to upgrade its computer systems, add some fancy new offices, etc. Goddard is calling it a “historic settlement.” It’s historic alright, it’s the biggest settlement Arizona has ever flat out given away. In the middle of the worst budget deficit in history. And this guy wants to run for governor? Read Goddard’s spin on it here – http://www.azag.gov/press_releases/feb/2010/Press%20Release%20-%20Western%20Union%202-11-10.html

by Clint Bolick
Goldwater Institute
 
It was like a scene from Atlas Shrugged: Polly Shaw of China-based Suntech told an Arizona House Government Committee hearing that massive solar production subsidies and even bigger consumer subsidies were not enough. If the Legislature passed House Bill 2701 and repealed the Arizona Corporation Commission’s rules that require utility companies to purchase increasing amounts of solar energy over the next 15 years regardless of the projected $1.2 billion cost to consumers, her company would pull its operations and a few dozen jobs from the state.

The Committee rejected her threat, approving the bill 5-2. But the next day, Governor Jan Brewer and Speaker of the House Kirk Adams, who co-sponsored the bill before deciding to kill it, successfully pressured the primary sponsor, Representative Debbie Lesko, to withdraw it.

Solar may be the most-subsidized industry in America, and is perhaps the only product that the Arizona government forces people to buy regardless of cost or technological feasibility. Solar doesn’t yet make sense as a wide-spread energy policy, and the mandates vastly exceed the Commission’s rate-making authority. That is why the Goldwater Institute is challenging the rules in court and 51 legislators co-sponsored the bill that would repeal them.

So, the solar lobby invoked the one word that will make normally sensible elected officials do crazy things: jobs. Yes, Suntech will employ 75 people. But between the lavish subsidies and costly mandates these may be the most expensive jobs ever created. Nevertheless, the strategy eventually worked; the bill is dead for now.

Suntech’s Shaw claimed the bill would “obliterate the demand for solar,” which may be true if that demand primarily is government-created. Mandate-based industrial policy didn’t work out well in the Soviet Union and it won’t work in Arizona. What’s especially perplexing, though, are the supposedly “pro-market” politicians who think its time has come.

Arizona should stop spending more and more in a frenzied competition with other states over who can give the biggest subsidies to solar and instead create a favorable tax and regulatory climate for all businesses, large and small, in any industry.

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

FOR IMMEDIATE RELEASE: Monday, March 8, 2010

JOINT STATEMENT BY SENATORS JOHN McCAIN AND JON KYL REGARDING PROP. 100

Washington, D.C. – U.S. Senators John McCain (R-Ariz.) and Jon Kyl (R-Ariz.) released the following joint statement regarding Proposition 100:

“We appreciate the hard work that the Governor and the Legislature have done to try to solve the state’s fiscal problems, and though we hadn’t planned to comment on what is rightly a state issue – the proposed increase in the state’s sales tax – we’ve been asked by various news media for our views.

“We support the right of Arizonans to decide the issue of a short-term sales tax increase on the local level.  However, as Arizonans and Americans across our nation continue to face perilous economic times, we fundamentally oppose increasing taxes on small businesses and working families.

“We recognize the difficult fiscal situation Arizona finds itself in and we appreciate the tireless dedication by our state’s elected officials to solve the budget problems.”

###

Please post the McCain vs. Hayworth comments on the prior post… here, let’s discuss what the Sonoran Alliance’s readership thinks of the prospects for passage of Proposition 100… and, for that matter, the prospects for Jan Brewer’s campaign to capture the GOP nomination for governor if the sales tax increase fails on May 18th?   — MBW    

Goldwater Institute
News Release

PHOENIX–As Arizona legislators convene for a special session focused on closing the state’s budget deficit, they could save billions by adopting recommendations made by various state agencies to streamline operations, says a Goldwater Institute policy memo sent to lawmakers last week.

Last fall, Governor Jan Brewer directed all state agencies to explain how they would handle a potential 15 percent reduction in funding. State agencies responded with lists of programs and services that could be scaled back or managed in ways that rely less on general tax dollars. In a December special session, the Legislature approved some of those suggestions and generally reduced funding for agencies not related to public education by 7.5 percent.

Arizona’s projected budget deficit for this fiscal year still stands at $700 million and could reach $2.6 billion in the next fiscal year that begins July 1, according to the Joint Legislative Budget Committee.

The Legislature could eliminate most of the deficit simply by committing to the full 15 percent in reductions and following through on other recommendations that state agencies offered months ago, writes Dr. Byron Schlomach, an economist with the Goldwater Institute.

“The state agencies themselves have provided a roadmap for Arizona to navigate out of its fiscal crisis,” said Schlomach. “Those recommendations coupled with a few additional steps that would lead to better long-term budget policy would allow the Legislature to eliminate more than $2 billion in spending, without crippling state government and without any general tax increases.”

In addition to combining some boards and commissions with existing agencies, in some cases, Dr. Schlomach suggests entirely new agency funding models:

· Allow the Department of Insurance to become self-funding and supported entirely by the industry it regulates, instead of supported by the general taxpayer. Total savings: $5.6 million

· Keep state parks open by allowing private companies to collect the gate fees and keep them maintained. Total savings: $20 million

· Eliminating the Automobile Theft Authority and allow the Attorney General to manage any required functions. Total savings: $5 million

· Give state government workers health care plans more closely matched to health care plans offered to taxpayers who work for private companies, like HSAs with high-deductible insurance plans. Total savings: $80 million

Read Dr. Schlomach’s memo on Arizona’s budget reduction opportunities here, or call (602) 462-5000 to have a copy sent to you by mail.

The Goldwater Institute is an independent government watchdog supported by people who are committed to expanding free enterprise and liberty.

Goldwater Institute
News Release

PHOENIX–Most Arizona families that receive welfare assistance have no one in the home working or training for a full-time job despite a federal mandate to do so, according to a new report from the Goldwater Institute.

In 1996, Congress passed a series of reforms commonly known as welfare-to-work, which reduced the number of people nationwide receiving direct welfare benefits from 4.4 million to 1.7 million by 2007. Welfare-to-work required states to motivate people on welfare to find at least part-time work or to enter job training to prepare for a new career.

Initially, Arizona had success with welfare-to-work. But once the state reduced its welfare enrollment by half, the federal government no longer held Arizona accountable for additional progress. In 2007, 9,662 Arizona families receiving welfare had at least one adult in the house who could work, but didn’t put in a single hour during the week. That made up 60 percent of all work-eligible welfare families.

In Making Welfare Work: Reforming Arizona’s Welfare System to Help Families and Save Money, Katherine K. Bradley, a visiting fellow at the Heritage Foundation, explains that other states continue to encourage welfare recipients to find work or job training with additional restrictions that go beyond the federal rules. “Arizona should consider reforms that would move more families into jobs and reduce the current welfare caseload in order to improve citizens’ independence and save millions of taxpayer dollars,” Ms. Bradley says.

Ms. Bradley suggests several steps that Arizona could take to move more people off of welfare, including:

· Set higher targets for getting welfare recipients into jobs or training. Hold staff at Department of Economic Security accountable for reaching those benchmarks.
· Require able-bodied recipients to immediately begin a four-week job search program. Recipients should report daily to a training site and log at least 30 hours a week of job search and training activity.
· Deny an entire welfare check the first time someone fails to report for work or job training.
· Require all parents of children receiving welfare payments to work. Illegal immigrants aren’t eligible for TANF checks, but their U.S.-born children are. U.S. citizens and immigrants alike should be required to work to support their children.
· Rely on private employers and community groups to manage work training and job placement.

Such requirements allowed Georgia to increase its work participation rate from 11 percent to 65 percent in three years, and Texas reduced its welfare enrollment by nearly half between 2003 and 2006.

Read Making Welfare Work: Reforming Arizona’s Welfare System to Help Families and Save Money online or call (602) 462-5000 to have a copy mailed to you.

The Goldwater Institute is an independent government watchdog supported by people who are committed to expanding free enterprise and liberty.

by Byron Schlomach, Ph.D.
Goldwater Institute
 
Last week, the House Committee on Natural Resources and Rural Affairs approved HCR 2040, a measure that would refer yet another tax increase to Arizona voters. The proposal would require every Arizonan to pay an additional $12 for each license plate registration. The money would be directed to the state parks agency in an attempt to reopen some sites and to fund improvements at others.

HCR 2040 would establish this new tax at a time when few can afford the luxury of paying for other peoples’ recreation. Not everyone benefits from the state parks any more than everyone benefits when my family dines at a restaurant.

This new funding mechanism would place state parks in a position of unaccountable financial independence somewhat similar to the state transportation department and the new Early Childhood Development & Health Board. Self-funded agencies often are not particularly responsive to those they are supposed to serve.

One of the biggest complaints from legislators as they work on the state budget this week revolves around Proposition 105, the 1998 initiative that protects voter-approved spending. The repeated excuse for failing to respond to falling tax revenues has been that much of the spending is off-limits to legislators.

HCR 2040 would make this problem worse, placing more of a financial burden on Arizonans that cannot be easily offset and would further erode our tax-paying capacity. Tax revenues should be spent according to current circumstances and constitutional limits, not momentary whims that later become inflexible mandates.

There is another solution on the table to keep parks open: let private companies manage them and pay the state for the privilege. Last week Fox News commentator Glenn Beck interviewed a local business owner who wants the opportunity to keep our parks open. Until the legislature gives this idea a fair shake, a tax increase shouldn’t even be discussed.

Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.

[The following “Dear Voters” letter will appear in the official Secretary of State’s Ballot Proposition Voter's Guide that will be mailed to Arizona’s 3,116,089 registered voters before the May 18, 2010 special election. It’s ironic that Randy Pullen paid the full $100 to submit this argument rather than saving $25 and paying only $75 had he provided the text in electronic format. But hey, it’s only money!  MBW]

Dear Voters,

As you consider Proposition 100, I think it is important to look at Arizona’s budget crisis in context:

In just 3 years, state tax revenues have declined by over 35%. This is the worst recession the state has ever faced. Arizona’s state revenues are at or below 2004 revenues [sic] levels. At the same time, since 2004, Arizona has grown – adding over 140,000 students to K-12 and the University system, over 11,000 new prisoners and over 475,000 Medicaid enrollees. The result is Arizona is trying to do more today with less – to serve a growing population.

Arizona must continue to attract new businesses and new talent to the state, as well as support our existing small businesses throughout the state. With new business, future tax cuts for individuals and businesses will help attract investment and grow our future economy. Making Arizona as business friendly as possible is the key to our long-term economic success.

However, in the interim, it is appropriate for Arizona to look for a temporary revenue source to maintain critical government functions such as public safety and education services to our growing population. As such, a temporary one-cent sales tax increase is a reasonable solution to this problem. A majority of Republican legislators, along with Democrats in both state houses voted to place Proposition 100 on the ballot.

Combined with a comprehensive tax reform package that reduces future taxes for both individuals and businesses, Prop 100 would be an appropriate tool to help Arizona build towards economic recovery and meet the needs of a fast growing state.

Sincerely,

Randy Pullen

by Byron Schlomach Ph.D.
Goldwater Institute
 
Today, the Arizona Senate Committee on Appropriations will consider an important measure from Senator Jonathon Paton which would require all levels of government (including cities, towns, counties, school districts) to disclose in detail how they spend taxpayer money. It would also require the state to maintain a website where anyone could get quick access to information on every government in Arizona that has the power to levy taxes on them. Those governments would post details on a website about every expenditure and tax revenue collected, like an online checkbook register for city hall or the county courthouse.

This bill also would require government agencies and departments to establish performance benchmarks and list them for the public to review. Accurate crime statistics and details about county prosecutions would have to be reported as well.

For little cost, information about government operations can be made available 24 hours a day to people researching on their home computers or even on their cell phones. Most local governments have websites now, but the information they post often is so general that it doesn’t provide any real insight into how it conducts the people’s business.

The primary objection to these websites is that they will be costly to create and maintain. But experience proves otherwise. State Treasurer Dean Martin launched a transparency website in the midst of budget cuts, and states like Virginia, South Carolina, Kansas and Texas put spending information online using only existing resources. Nebraska created its spending transparency website, which does much of what this bill would require, for only $40,000. Some software companies, like ProcureNetworks, are even offering software to government agencies for free.

I have a question for those who use cost as a reason to oppose spending transparency: considering the recent declines in government revenue, how can we afford not to engage citizens more comprehensively in determining spending priorities and hunting down new efficiencies?

Taxpayers who foot government’s bills deserve the widest possible access to information on how their money is spent. Perhaps then Thomas Jefferson’s vision will be fully realized.

Dr. Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.