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Arizona budget deal includes $325 million tax cut, teacher raise

Arizona capitol
Posted at 6:08 PM, May 20, 2019
and last updated 2019-05-20 21:08:16-04

PHOENIX — Republican Arizona Gov. Doug Ducey will get the $1 billion rainy-day fund he wants, schools will see an accelerated schedule for restoring program cuts and taxpayers will get more than $325 million in tax breaks under a budget deal he worked out with GOP legislative leaders.

The $11.9 billion package for the budget year that begins July 1 became public Monday but faces pushback from minority Democrats who oppose tax cuts until funding to schools and social programs is restored to pre-recession levels. It remains unclear if Republicans, who are in the majority, have the votes they need to pass the deal without major changes.

The $542 million deposit into the state's reserve fund was a key demand of Ducey, who came into office in 2015 facing a $1 billion deficit and wants a similar amount in the bank in case of a recession.

Ducey proposed last year to restore about $370 million in cuts to an education fund that pays for textbooks, software and some capital spending needs over five years and got $100 million to start that plan. He proposed another $68 million for this year, but the deal boosts that to $136 million.

Ducey also wanted to keep an expected $217 million tax windfall the state expects because of the 2017 federal tax overhaul. But that was a non-starter for GOP legislators. Instead, they used that money plus cash from taxing internet sales and savings and from paying off state debt to create the tax cut package. The state believes it will get $85 million in the coming budget year by collecting taxes on out-of-state internet sales and save $24 million in debt payments next year.

Democrats call that short-sighted, especially for a governor who said he wanted to run the state more like a business. He noted that the state has unmet obligations, including completely restoring education and social services funding.

"I think looking at an over-$300 million tax cut in this budget is not being a responsible steward of your revenue, especially if you think a recession is around the corner," Democratic Rep. Randall Friese said.

Republican Rep. Anthony Kern said the GOP has come up with a good budget plan that provides millions of extra dollars for K-12 education.

"There's a ton of money going to education, and Republicans have been very good about making sure teachers are paid well, making sure schools are up to date, making sure the repairs are being done, the curriculum is correct," Kern said. "I think Republicans have done a good budget, and I think that the Democrats, if they were truthful, I think most of the Democrats would be happy with it."

The budget plan also includes cash for a 5% teacher raise, the second installment in a three-year plan prompted by last year's massive teachers strike. Teachers demanded pay hikes and a series of other steps, including no new tax cuts until Arizona per-pupil funding reaches the national average. The state remains near the bottom.

There is also $15 million to hire school counselors or campus police officers, funding for new schools and $25 million for building repairs, among other items.

A major sticking point for many Republicans was a $32 fee for registering vehicles approved last year.

The budget would phase out that fee, which pays for state police over five years, instead funding the Highway Patrol through the general fund. The fee would be $26 next year, $20 the following year and would decrease by $5 a year until fully eliminated.

Lawmakers created the fee last year to stop using highway construction money to pay for police. They thought it would be about $18 per vehicle. But many Republicans were angry when the Ducey administration set the fee higher.

Republican Sen. Michelle Ugenti-Rita said she would not vote for the budget unless it eliminated the fee. She declined to say Monday whether the five-year phase out satisfied her concerns, saying she hadn't been briefed on the budget.

Republicans hold just a 31-29 majority in the House, so they need every GOP vote to pass a budget without Democratic support. The Senate has a 17-13 GOP majority, but several Republican members have said they won't vote for a budget unless they get what they want.

Ducey Chief of Staff Daniel Scarpinato brushed off criticism of the tax cuts, saying the budget makes huge investments in K-12 education and calling the budget package a big win.

"We're going to be able to accelerate the restoration of Great Recession-era cuts, we're going to be able to fulfill the teacher pay raise, we're going to be able to get more dollars for school construction and get them faster," Scarpinato said. "And we're going to be able to put a big investment in career and technical education, not only at the K-12 level but at the community college level."