As Arizona battles deficit, legislators OK hefty tax cut
Arizona Republic
April 9, 2008


Mary Jo Pitzl
The Arizona Republic
Apr. 9, 2008 12:00 AM

Lawmakers voted Tuesday to repeal a state property tax, triggering a business-backed campaign to persuade Gov. Janet Napolitano to sign the bill into law.

The move to do away with the education-equalization tax comes as lawmakers are struggling with billion-dollar shortfalls in the state budget. And although the tax revenue doesn't factor into the immediate budget situation, the issue of cutting a tax at a time of deficits has provoked a strong debate inside and outside the state Capitol.

Senate President Tim Bee, R-Tucson, said the move should provide businesses and residents "some certainty" about their tax bills in coming years because the state would no longer be collecting the estimated $250 million it raises.

The tax is in the second year of a three-year hiatus that would become permanent if Napolitano allowed the bill to become law.

But Sen. Tom O'Halleran, R-Sedona, argued that it is premature to cut off the tax. He listed statewide needs ranging from transportation to education to health care that lawmakers are not addressing as they focus on permanently repealing a tax that could help state programs.

"To take this $250 million this year . . . without any idea of how we're going to take care of these other issues, I don't understand," O'Halleran said. "I don't see where our plan is, as a body, as a state."

The education-equalization tax pencils out to about $95 annually for the owner of a home valued at $250,000. For a business property valued at $1 million, it equates to about $926 a year.

In 2006, GOP legislative leaders and the Democratic governor agreed to a three-year suspension of the tax, meaning it would not show up in property-tax bills until 2009-10.

In the meantime, money the tax raised for public education is replaced with dollars from the state's general fund, so schools do not lose revenue.

With Tuesday's 16-13 vote in the Senate, the bill moves to the governor. The measure had passed the House last month.

Less than an hour after the Senate vote, a coalition of business groups launched a series of automatic phone calls to "active Arizona citizens" urging them to call on the governor to sign the measure, House Bill 2220.

"The message is very straightforward," said Steve Voeller, president of the Free Enterprise Club, which pushes for tax relief. "With a recorded message, you can't go on for very long."

Voeller and other proponents have argued that, without the repeal, Arizona would be saddled with the largest tax increase in its history if the tax resumes.

"It is a tax hike," he said. "Right now, the taxes are lower."

If the property tax, which is about 38 cents per $100 of assessed valuation, were reinstated, property owners would pay more, he said.

Voeller is marshalling the backing of other key supporters of the tax repeal, such as the National Association of Industrial and Office Properties, the Arizona Chamber of Commerce, the National Federation of Independent Businesses and other local chambers.

Tim Lawless, president of the Arizona branch of NAIOP, said his board approved $50,000 for the campaign.

"We need to get the word out to the general public because we think the general public will support us," he said.

By day's end, the Governor's Office reported little activity, although staffers were aware of the phone campaign.

"We did get a call from one couple who was confused by the robo call," said Jeanine L'Ecuyer, the governor's spokeswoman.

The tax repeal moved through the Legislature largely along partisan lines.

In the Senate, O'Halleran and Sen. Carolyn Allen, R-Scottsdale, broke with their GOP colleagues to vote against the bill.

"I don't think this is prudent until we get the big picture," Allen said, adding that lawmakers have no idea what the state's budget will be next year.

But Senate Majority Leader John Huppenthal, R-Chandler, said the state's history of tax cuts has helped rev the economy, notwithstanding the current housing-induced slump.

"The property-tax burden is particularly damaging to our state's economic future," he said.

Sen. Ken Cheuvront, D-Phoenix, announced Monday that he would vote in favor of the repeal, citing it as a matter of tax equity. His vote gave the Senate the needed 16-vote majority to pass.