The Senate on Thursday abandoned plans to vote on a budget and instead adjourned until June 10 amid a stalemate over a proposed budget deal and the massive income tax cut it includes.
The budget was initially supposed to go before the full Senate on Wednesday, but an inability to secure the support of all 16 Republican senators scuttled those plans, so Senate President Karen Fann, R-Prescott, re-scheduled debate and a vote on the budget for Thursday. But that was called off after several hours of negotiations were unable to produce an agreement that would get all members of the GOP majority on board. The House of Representatives did the same on Wednesday, tentatively adjourning until June 10, though both chambers could return earlier if lawmakers reach a deal.
Republicans have one-vote majorities in each legislative chamber and must vote unanimously to pass the budget unless they have Democratic support.
“We do not have the necessary votes to pass a budget. Looks like it will take at least a week to get everyone back on board,” Fann told the Arizona Mirror.
She told senators that “we’re further apart now than we were” when work ended Wednesday night, as new Republicans have begun to issue demands for the budget before they’ll support it.
Sen. Paul Boyer, a Glendale Republican, told the Mirror that he’s still opposed to the budget. Boyer has said he can’t support the massive income tax cut in the budget because of concerns about the amount of revenue cities and towns will lose, which he worries will lead to cuts in municipal law enforcement budgets.
The centerpiece of the $12.4 billion budget is a historic tax cut that would eliminate Arizona’s graduated income tax rates and replace them with a flat 2.5% rate. People who are subject to the 3.5% surcharge from Proposition 208, a voter-approved measure raising taxes on individuals who earn at least $250,000 a year and couples who earn at least $500,000 a year, would be capped at 4.5%.
Budget analysts estimate that the tax cut could cost as much as $1.9 billion by 2024 when it’s fully phased in. And because of Arizona’s revenue sharing system between cities and the state — cities are prohibited from imposing income taxes and instead get a share of the state’s income tax revenue — that will have a big impact on municipal budgets.
Boyer wants the budget to compensate cities for revenue they’ll lose from the tax cuts. And he wants to see smaller cuts overall. He said he’s in favor of Gov. Doug Ducey’s original proposal from the start of the legislative session for a $600 million income tax cut.
Revenues are high and the state has a lot of one-time federal money, which Boyer said lawmakers should use do things like pay off debt owed on state buildings, pay off the decade-old rollover in the K-12 budget, and pump more funding in higher education.
“I don’t trust the rosy projections and the permanency of the revenue that we’ve been seeing and also just the fact that we’ve got a lot of this momentary money in the system that won’t always be there,” he said. “I’m grateful that we’re flush with cash but it’s not always going to be there and we definitely have to prepare for a rainy day.”
Boyer isn’t alone. Rep. David Cook, R-Globe, is concerned about the revenue that cities in his district will lose, and said the overall revenue loss to the state is simply too much.
“I’m all for tax cuts,” Cook said, but he wouldn’t be comfortable with more than $500 million in income tax cuts. He said he also doesn’t want a flat income tax rate.
Sen. J.D. Mesnard, one of the primary architects of the tax cut package, said there are numerous issues holding up a budget agreement. Some GOP lawmakers have concerns about the tax cut proposal. Others dislike specific tax breaks and carve-outs. And others think there’s too much spending overall, or disagree with specific spending proposals.
“Obviously, there was a push to try to get a budget done, and we just weren’t going to get there. So, I think it was the right decision to hit pause, kind of take a step back, let things simmer down a bit and then regroup and try again,” said Mesnard, a Chandler Republican.
Mesnard couldn’t say how long it will take to hammer out an agreement that can pass both chambers. With only 16 Republicans in the Senate and 31 in the House, every Republican in the legislature, plus Ducey, has veto power over the budget, he said.
“There’s so many moving parts that I’m not really sure,” he said.
House Majority Leader Ben Toma, another leading proponent of the proposed tax cuts, said the legislature could come back sooner than June 10 if a deal is reached. Some lawmakers have plans to be out of town over the next week or two, but Toma noted that they can still cast their votes online via Zoom, thanks to rule changes implemented in response to the COVID-19 pandemic.
Toma compared the ongoing budget negotiations to a balloon: squeeze one side and you push all the air to the other side. Any change made to the budget in order to bring one holdout on board could lose a vote from someone else.
One focus of the negotiations has been a proposed “hold harmless” provision that would alleviate cities’ revenue losses from the tax cut.
“That’s still an area that we have to all get on the same page,” Toma said.
Cook said there was a proposal that would replace the cities’ lost revenue for three years, which wasn’t enough to get his vote.
“What happens after three years?” he asked.
Cook also wants to see changes to a proposal to increase unemployment insurance in Arizona, which has the second-lowest unemployment benefits in the United States at $240 a week. The budget proposal would increase benefits to $320 a week, but only if Arizona’s unemployment rate is at or below 5%, and only for 24 weeks instead of 26 weeks.
He said it doesn’t make any sense to only increase benefits if unemployment is at 5% or lower, and wants weekly benefits to go up without any triggers. He said he’s OK with reducing benefits to 24 weeks, but wants to go back to 26 weeks if the unemployment rate exceeds 5%.
Other Republican lawmakers have expressed opposition to a provision in the K-12 education budget bill that would give school districts authority to require students and staff to wear face masks for public health reasons.
Senate Majority Leader Warren Petersen, R-Gilbert, wrote on Twitter on Wednesday, “We should not pass the budget with a provision that allows school boards to mask our kids. It’s time to unmask our kids.” Sen. Michelle Ugenti-Rita, R-Scottsdale, told a Tucson radio show that she opposes the proposal as well.
Ugenti-Rita has other issues as well. She said the budget spends too much money in general, and that there are policies for things like tax credits that she’s opposed as standalone legislation and doesn’t want to be in the budget.
“It’s not ready. These bills are not ready for prime time,” Ugenti-Rita said.