Special session expected for plan to “repeal-and-accelerate” tax cut package

Lawmakers are preparing for a possible special session to make changes to last year’s historic income tax cut package in a way that would avert a statewide vote on it in November, and to try to reverse a recent law that temporarily eliminates elections elections for political party activists.

It’s unclear when Gov. Doug Ducey might make that call or whether Republicans would have enough votes to accomplish their goals. 

The biggest issue on the potential special session agenda would be a repeal-and-replace plan for the income tax cuts that Ducey and GOP lawmakers included in this year’s budget. Ducey spokesman C.J. Karamargin said the plan would actually be to “repeal-and-accelerate” the cuts, which are phased in, with some phases dependent on state revenue hitting certain benchmarks. 

When or if Ducey will actually call the legislature into a special session is up in the air. Karamargin said the governor is open to any ideas that advance his agenda and reduce the tax burden on Arizonans.

“When these ideas will be implemented, that is something that we can’t say with any certainty,” Karamargin said. 

Under the tax cut plan adopted in the final days of the 2021 legislative session, Arizona’s graduated income tax rates, which range from 2.59% to 4.5%, would drop to 2.55% for people who earn up to $27,272 annually and 2.98% for everyone else. If state general fund revenues are at least $12.8 billion in 2022 and $13 billion in 2023 and subsequent years, Arizona would move to a flat 2.5% income tax rate. 

But Democratic opponents of the tax cut package collected enough signatures to refer it to the November 2022 ballot through a citizen referendum, which would give voters the final say. If Ducey GOP lawmakers repeal last year’s plan and replace it with a new one, the vote will be called off. Opponents would again have three months to collect enough signatures to refer it to the ballot. 

The repeal-and-accelerate plan now being considered would move up the implementation dates for tax cuts. Karamargin didn’t have any details on exactly what the plan might look like. 

Last year’s package phased in the tax cuts in order to ensure that Arizona could afford the full cut without depriving the state’s general fund of too much revenue. House Majority Leader Ben Toma, one of the architects of the tax cut plan, said it’s clear now that the state can afford to implement it sooner. 

“The original concern with the old one “was we weren’t quite sure if we could afford it and if it was the right thing to do. I think now that we’re seeing record revenues, the triggers that were in there have already been met. So it’s the time to give people relief right away,” said Toma, a Peoria Republican. 

Toma denied that the purpose of the proposal is simply to head off the referendum. He said the referendum organizers forced the legislature’s hand because they’re only sending one bill from the tax cut package — the bill that actually lowers the income tax rates — to the ballot. Organizers originally targeted three bills, but didn’t collect enough signatures to trigger public votes for the others.

Most notably, Toma said that would leave in place a change to the formula that distributes state tax revenue to cities and towns. In order to offset money the cities would lose from the tax cuts, the state increased their share of the state’s income tax revenue from 15% to 18%. 

“The cities get hundreds of millions more in state revenue, regardless of what happens with the rest of the bill. They would have never gotten that if it weren’t for the tax cut,” Toma said. 

Rep. Reginald Bolding, the House minority leader, said he believes that the entire purpose of the repeal plan is to avert the November vote. He said the people of Arizona should have a chance to vote on the tax cut package. 

“This gaming the system to thwart their efforts, it’s wrong, it’s deceptive, and I think that it’s headed in the wrong direction for Arizona,” said Bolding, a Phoenix Democrat. 

Lawmakers were unsure exactly when the governor might call a special session. Senate President Karen Fann said she didn’t know if it would happen this week. Rep. Travis Grantham, the speaker pro tempore in the House, predicted that it won’t happen until next week. 

Possible dissension in the Republican ranks

One potential holdup could be that not every GOP lawmaker is on board yet. Republicans hold only a one-vote majority in each legislative chamber. Without Democratic support, they’ll need every member.

In the House, Rep. David Cook, R-Globe, is undecided. Cook was the holdout in his chamber last year who forced a compromise on changing the shared revenue formula for cities. 

Now, Cook is concerned that accelerating the tax cuts might be taking risks with revenue that the state will need down the road. He said he wants to ensure that the state can afford to reduce debt, increase salaries for Department of Public Safety troopers and correctional officers, and secure the state’s water future. 

“I want to make sure that the needs of the people can be met with actual incoming revenue and the state’s needs,” Cook said. 

Cook said he’s still reviewing financial projections and other materials from the Joint Legislative Budget Committee.

Sen. Paul Boyer, R-Glendale, who, like Cook, was initially a holdout on last year’s tax cut package, also has concerns. First, Boyer wants to ensure that the cities are held harmless and that nothing changes for them. He shared Cook’s concerns last year about the revenue loss to cities. 

In a broader sense, Boyer worries about whether the state will be prepared for the next economic downturn. He said he wants to add another $500 million to the state’s billion-dollar rainy day fund. And he opposes a plan being proposed by Sen. J.D. Mesnard, R-Chandler, that would drop the 2.5% rate to 2.3%. He questioned whether the state would see much economic benefit from that additional cut, and said the revenue would likely be better used on K-12 education or other priorities. 

Boyer recalled that he was a legislative staffer during the massive budget cuts of the Great Recession in 2009-10, and wants to ensure that the state is prepared for future shortfalls. 

“We are going to have a downturn. We’re sitting at 10% inflation right now. It’s just a matter of when we’re going to have a downturn,” he said. 

Boyer and Cook both said they’ve discussed the tax cut issue with the governor’s office. 

Mesnard said the additional cut would redirect $400 million that the state budgeted last year to offset the effects of Proposition 208, an income tax surcharge on wealthier Arizonans that voters approved in 2020 to provide additional funding for K-12 schools. The Arizona Supreme Court said the measure would violate the Arizona Constitution if the new money would exceed the aggregate expenditure limit for school districts, which a Maricopa County judge affirmed in a ruling last week. 

Boyer and Cook said they’ve both discussed the tax cut plan with the Ducey administration. 

Sen. Michelle Ugenti-Rita, a Scottsdale Republican, also isn’t committed to voting for the repeal-and-accelerate plan. Ugenti-Rita said wouldn’t go as far as to say she has concerns with the proposal. But she wants some time to study the plan, and wants to ensure that the legislature explores other tax relief possibilities and other Republican priorities. 

“There’s no reason to rush through, do something haphazard, because once it’s done, it’s done,” she said. “I like to be deliberative. I think that always yields the best result.”

It’s appropriate for the legislature to look at a repeal-and-accelerate plan, Ugenti-Rita said. But legislative Republicans should “look globally” at their agenda and make sure they’re considering other priorities, such as averting future school shutdowns and school mask mandates like the ones that occurred during the height of the COVID-19 pandemic, reforming the governor’s emergency powers, providing additional tax relief, cutting spending and enacting responsible election reforms, such as expanding the automatic, partial hand recounts of ballots after elections.

Ugenti-Rita also voiced her opposition to a proposal in the legislature for a 25-year continuation of a half-cent sales tax for transportation in Maricopa County. 

Despite some potential trouble spots, however, Sen. T.J. Shope, R-Coolidge, said he believes most Republicans are on board with the tax plan. 

“I think it’s actually going to be, obviously, not as much drama as it was last year, potentially,” Shope said. 

Restoring precinct committeeman elections easier said than done

A second issue that’s widely expected to be part of a special session call is a bill attempting to restore elections for precinct committeemen, the elected, voting members of political parties’ legislative district-level organizations. 

As part of a bill to streamline requirements for the number of signatures legislative candidates must collect to qualify for the ballot, lawmakers temporarily eliminated elections for precinct committeemen, or PCs, as they’re often known. Instead, PCs this year would simply be appointed by their respective county political parties. County election officials proposed the change as a way to deal with problems caused by delays in census data and redistricting. 

Many lawmakers didn’t realize that was in the bill, however, and especially on the Republican side, they’ve faced intense backlash from their PCs. 

The problem for the Republicans is that they lack the Democratic support they need to enact a change immediately. The bill that eliminated PC elections passed unanimously with an emergency clause, meaning it went into effect immediately, rather than 90 days after the end of the legislative session, like most bills. But Democrats, whose activists haven’t expressed the same kind of anger as the Republican PCs, mostly aren’t supporting proposals to reinstate those elections. 

Restoring PC elections in a special session would move up the 90-day window. Rather than beginning at the end of the regular legislative session, which could theoretically end anytime between this month and late June, that timeframe would instead begin as soon as the special session ends. 

But without an emergency clause, which requires a two-thirds vote in each legislative chamber, the law won’t go into effect in time to allow county election officials to actually accept the nominating petitions that PCs need to submit to qualify for the ballot. That deadline is April 4, and the deadline for people to file as write-in candidates for PC positions is April 18.