A procedural motion to clear the way for budget bills in the Arizona House of Representatives isn’t a sign that a deal is near.
The House on Wednesday approved a motion to allow the introduction of budget bills by House Speaker Rusty Bowers, Majority Leader Warren Petersen and Appropriations Committee Chairwoman Regina Cobb. But there isn’t yet a deal that would end the protracted budget fight between Republican lawmakers and Gov. Doug Ducey, which has led the 2019 legislative session to drag on into its 122nd day.
“Rep. Petersen’s motion was in anticipation of an eventual budget agreement,” said Matt Specht, a spokesman for the House Republicans.
However, GOP lawmakers say they’ve largely overcome one of the biggest stumbling blocks: the dispute over how to conform Arizona’s income tax laws with the federal tax code. Cobb, R-Kingman, said that leaves the size of the state’s rainy day fund as the largest unresolved issue standing in the way of a budget deal.
“I think we’ve ironed out the conformity part of it,” Cobb said. “That was our big hangup, I think, with really getting the budget moving forward.”
The fight over tax conformity erupted early in the session, with Ducey vetoing a bill that would have conformed Arizona’s tax code for the 2018 tax year, offsetting the loss of several itemized deductions by lowering income tax rates.
The current House and Senate conformity plans have some differences, but the major provisions are similar, according to Cobb and Rep. Ben Toma, R-Peoria. Moving forward, Arizona would raise the standard deduction for income tax filers to $12,000 for individuals and $24,000 for couples filing jointly, which would match the federal standard deduction established in late 2017. Arizona’s current standard deductions are $5,312 for individuals and $10,631 for couples.
And Arizona’s five income tax brackets would be reduced to either four or three, with minor cuts to the remaining brackets.
Toma said between 25 and 30 percent of Arizonans currently take the standard deduction, and he estimated that as many as 90 percent would take it under the conformity proposals. Cobb described the plan as a $300 million tax break to Arizonans.
Those breaks would be funded with the money generated by simple conformity, which Toma said would be about $217 million. In addition, the plan would generate another $85 million by imposing state sales taxes to online purchases, in accordance with the U.S. Supreme Court’s 2018 ruling in South Dakota v. Wayfair, which established that states can tax goods from out-of-state sellers that don’t have a physical presence in the state.
Ducey has long pledged that Arizona will conform to the 2017 federal tax overhaul, and has been open to passing on the revenue it generates to taxpayers in some manner. But he’s been insistent that the state use the extra money from the 2018 tax year to go into Arizona’s rainy day fund. He wants to boost the fund, a reservoir of cash that the state can fall back on during budget shortfalls, to $1 billion from its current total of about $462 million.
Instead, GOP lawmakers want to use the 2018 money, estimated to be about $155 million, to pay off some of the debt Arizona incurred by essentially mortgaging off the Capitol and other buildings during the Great Recession.
“I think that that’s a priority. It’s been a majority priority for all of us,” Cobb said.
Ducey has been insistent that Arizona will conform to the federal tax code, and that he won’t support any conformity plan that retroactively changes tax laws for the year that’s already passed. On those counts, the legislative plans give the governor what he wants.
But gubernatorial spokesman Patrick Ptak emphasized that Ducey is still committed to increasing the rainy day fund.
“We continue to work with the legislators … on a plan that meets these priorities,” Ptak told the Mirror.
However, that doesn’t necessarily mean any conformity plan that doesn’t include rainy day money is a non-starter. Toma said the legislature can still increase the rainy day fund without money from conformity.
Cobb said lawmakers and the governor’s office are still ironing out some other details, as well. A Senate Republican budget plan that became public in early May omitted several gubernatorial priorities, including nearly $100 million for new school construction, $60 million for a results-based funding program for K-12 schools and $1.6 million for Arizona’s KidsCare program.
“We haven’t come completely together yet,” Cobb said.
In addition, three Republican senators say they won’t vote for any budget unless certain conditions are met. Sen. Paul Boyer, R-Phoenix, is holding out until the legislature passes legislation he wants that expand the statute of limitions for victims of childhood sexual abuse to sue their abusers and others who permitted the abuse to occur. Sen. Heather Carter, R-Cave Creek, is siding with Boyer on the issue. And Sen. Michelle Ugenti-Rita, R-Scottsdale, won’t vote for the budget without a repeal of a $32 vehicle licensing fee that lawmakers and Ducey approved last year.
Ugenti-Rita told the Mirror no legislation is needed to repeal the vehicle license tax. She said Ducey could simply instruct Department of Transportation Director John Halikowski to scrap it.
“I’m a ‘no’ until something changes that deals with the repeal of the VLT,” she said. “The public is behind this issue, and it’s going to speak volumes if it’s not in there.”
Cobb said it’s unfortunate that Boyer, Carter and Ugenti-Rita set those conditions. With a 17-13 advantage, Senate Republicans can’t afford more than one dissenter on a party-line vote.
“Those three have now boxed themselves into a spot that I don’t know if they can move out of,” she said.
Cobb said the House is “pretty solid over here with our members.” House Republicans have a 31-29 advantage, meaning they can’t lose a single vote.