Gov. Doug Ducey rejected a Republican senator’s call to raise Arizona’s sales tax rate to provide more funding for education.
“We don’t need a tax increase. We’ve got available dollars right now. We’re going to have a nice, healthy, hearty debate about where we are going to invest and spend and save them,” Ducey told reporters on Friday after the Arizona Chamber of Commerce’s Legislative Forecast Luncheon.
State Sen. Sylvia Allen, R-Snowflake, who chairs the Senate Education Committee, turned heads with an op-ed in the Arizona Republic on Sunday proposing to raise a 0.6-percent sales tax that voters approved in 2000 as part of Proposition 301 to a full cent. Prop. 301 generates more than $600 million per year, and Allen’s proposal would increase that to around $1 billion annually, while redirecting some of the money to the university and community college systems.
Lawmakers last year approved an extension of Prop. 301, which was set to expire at the end of June 2021. The extension is good for 20 years.
Arizona’s sales tax rate is 5.6 percent. Once local sales taxes are factored in, Arizona’s sales tax rate is among the highest in the country.
It takes a two-thirds vote in each chamber of the Legislature to raise taxes. But Allen’s plan is to send the proposed tax hike to the ballot, which the Legislature can do with a simple majority vote. Ducey has pledged to never raise taxes as governor, but would have no say over a legislative ballot referral.
Sen. Kate Brophy McGee, R-Phoenix, told the Arizona Capitol Times that she’s also planning legislation to increase Arizona’s sales tax rate, while incoming Senate President Karen Fann voiced support for Allen’s proposed tax hike. Fann, R-Prescott, indicated support for a tax hike on Friday at the Chamber of Commerce luncheon.
“We all like to say, ‘No new taxes, no more taxes.’… But the reality is we all have to contribute to society,” Fann said during a panel discussion with legislative leaders.
Fann also mentioned tax conformity, which could be a major fight during the 2019 legislative session. If Arizona conforms its income tax code to the federal tax code, it will generate as much as $228 million in revenue by eliminating deductions that were scrapped at the federal level by the 2017 tax reform package.
Ducey has proposed using the first year’s worth of that money to pad Arizona’s rainy day fund in anticipation of the next economic downturn and resulting budget shortfall. Some legislative Republicans, who view the elimination of the deductions as a tax hike, want to fund a new tax cut with the revenue, while Democratic leaders have proposed using it to increase K-12 education funding.
Incoming House Minority Leader Charlene Fernandez, D-Yuma, said at the Chamber of Commerce panel discussion that she supports using tax conformity money for the rainy day fund in the short term, and putting the revenue into K-12 education in future years.
The state is also projected to have a budget surplus of more than $1 billion for the fiscal year 2019, though most of that surplus would be one-time money. Fann and incoming House Speaker Rusty Bowers, R-Mesa, have suggested using at least some of the money to pay down a nearly billion-dollar rollover in the state’s K-12 education budget. Bowers also suggested that some of the money could be used to pay down the debt the state incurred when it mortgaged off its Capitol buildings to help cope with the massive budget crisis caused by the Great Recession.