Arizona Legislature schedules budget debate as deal solidifies

PHOENIX (AP) — The Arizona Legislature has scheduled a debate on a $12.8 billion state budget plan for Tuesday as a pair of Republican lawmakers who had blocked it because of concerns over massive tax cuts and their effects on city finances said they now mainly back the plan.

Republican Sen. Paul Boyer said Monday that changes to boost cities’ share of state income tax that will ensure municipal budgets are not overly harmed by the budget’s tax cuts have satisfied him.

“I’m optimistic for the first time since about two weeks ago when I thought we had a deal and then we didn’t,” Boyer said,

And GOP Rep. David Cook said he also is satisfied with changes, although he needs a day to review the language that is part of the legislation. He also won much bigger payoffs of state debt.

“I’m on board with the proposal, which I gave the Senate and the House on Friday,” Cook said. “I have not seen anything in writing. So I’m just waiting to see it in black and white.”

The changes include a much larger paydown of state debt and smaller tax cuts than the $1.9 billion a year initially planned until actual revenue comes in above projections, both have said.

The deal excluded Democrats who Ducey said in recent weeks he was willing to work with to get a budget deal. Republicans hold just one vote majorities in each chamber, so any one Republican could halt the process at any time, since no Democrats back the huge tax cuts. Several other Republicans have previously said they have some concerns with the budget, so it remains unclear if there are the votes to pass it.

Cities appeared satisfied, with Republican Gov. Doug Ducey posting a letter on social media signed by leaders saying they now support the deal.

The changes negotiated by Boyer and Cook limit the planned tax cuts to $1.3 billion by delaying implementation of the flat 2.5% income tax in the proposal in favor of two slightly higher rates. The deal still shields high-earning Arizonans from the full impact of a new voter-approved surcharge of 3.5% on income above $250,000 for individuals or $500,000 for couples by creating a maximum tax rate of 4.5%, which is the current top tier rate without the surcharge in Proposition 208.

The apparent move on the budget comes after weeks of stalemate. And it came as teachers who worked to boost school funding by getting Proposition 208 on the November ballot came to the Capitol on Monday to oppose the tax cuts and other provisions in the budget.

“Voters have been clear in their support for investing in public education by passing Prop 208 last November,” Arizona Education Association President Joe Thomas said in a statement. “This budget is a slap in the face for educators and voters.”

Cities would get 18% rather than the current 15% of state income tax collections, and start receiving those payments in two years instead of three, Boyer said. That solved an issue that prevented a budget deal last week, when it appeared the two Republicans had a deal with their leaders.

Lawmakers face a June 30 constitutional deadline to enact a spending plan, and House Speaker Rusty Bowers has threatened to pass a bare bones spending plan if a deal wasn’t in hand by Tuesday.

The initial deal struck between Republican leaders of the House and Senate and Ducey paid down much less of the approximately $14 billion in state debt than the $1.9 billion Cook said is now part of the deal. And it left the city share of income tax unchanged, prompting concerns that cities would be forced to make budget cuts because their revenue relies so much on state-shared income tax.

Cook and Boyer also said that the tax cuts relied on rosy projections that were clouded by massive amounts of federal coronavirus recovery money. They also were concerned that the deal essentially ignored the large load of debt that the state is carrying, much of it accrued since the Great Recession.

Concessions they won delay the 2.5% flat tax, which won’t go into effect unless revenue triggers are met. New payouts in the budget deal would erase large amounts of the Department of Public Safety’s pension debt and some of the debt in the prison guard pension plan by making a $1 billion payment. The state would also put aside money to pay off nearly $1 billion in bonds backed by state buildings and lottery revenue.

The debt payoffs free up cash now used to pay higher pension and bonding costs. Along with another payoff already in the plan, they will save the state $270 million a year.

Voters passed Proposition 208 in November to boost education funding, with the new money dedicated to pay more to teachers and support staff, for teacher training and education and for career and technical education. Protecting wealthy Arizonans from the new tax will cost the general fund $827 million in the coming year and $487 million a year going forward; schools will still get the extra money.

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