The Farley Report from Phoenix #214: 1-14-15

The onslaught is upon us. The 52nd Legislature is open for business once more as I enter my ninth session serving you at the Capitol (and my first as Assistant Minority Leader of the Arizona Senate). It never ceases to amaze me just how quickly we are swept into a whirlwind of activity up here as soon as we are sworn in. 

The action tipped off with Governor Doug Ducey's first State of the State speech given to the assembled House and Senate on Monday afternoon. I had been looking forward to hearing his words and was hoping he would flesh out some of the vague statements he had given on the campaign trail and during his inauguration speech the previous week.

He started out promisingly -- he stated that it was important that we all work together in a bipartisan way to solve the state's problems. Sadly, it went downhill from there.

Right up front he demonstrated his central policy passion -- corporate tax cuts. I had hoped we would hear as much or more passion for rebuilding our public schools, but we did not. The only line in the sand he drew, the only time he said "not on my watch," was when he stated that he would never even consider suspending the remaining corporate tax giveaways that have not yet gone into place.

Here's a bit of background to refresh your memory. Two years ago, on the top of the $3 billion annually in tax cuts enacted in the previous 20 years, the legislative majority voted for and Governor Brewer signed into law a package of corporate tax handouts dubbed hopefully "The Jobs Bill". 

Two years later, we have received none of the benefits we were promised -- in fact, the Arizona economy is still lagging the rest of the nation (including states with much worse tax climates than ours) in economic activity, job creation, and wage growth. 

By 2018, these cuts will have eroded our corporate income tax base alone by more than 44% within four years. What have we received in return? We are facing a $500 million budget deficit in the current fiscal year ending in June, and over a billion-dollar deficit next fiscal year. 

One would have thought that once we recognized our surroundings as a deep hole, we might well have decided to stop digging. But if the legislative majority succeeds in their lawsuit to overturn the Medicaid expansion spearheaded by Governor Brewer along with moderate Republicans and Democrats, we will be facing another $1.4 billion in red ink per year while 300,000 Arizona citizens in poverty lose their healthcare. 

And if the legislative majority refuses to settle the lawsuit in which a judge has already ordered them to pay the inflation adjustments to our public schools approved by voters fifteen years ago, we could end up having to pay $1.6 billion in back pay to schools. Yes, that would mean that next year's budget deficit could be $4 billion out of a budget that amounts to only around $9 billion total. This is fiscal conservatism? What happened to deficit hawks? 

The folks in charge can't blame the deficit and the economy on Janet Napolitano anymore. This is all their making.

Arizona starts to look like the libertarian dream of DC lobbyist Grover Norquist come true -- we are shrinking our government (schools, universities, roads, transit, public safety, public health, child safety, etc.) to a size "where it can be drowned in a bathtub". 

This doesn't have to happen. The suit to stop Medicaid expansion can be dropped. The suit to pay back our schools the inflation money that we stole from them can be settled. The corporate tax giveaways that aren't doing a thing to help our economy can be suspended -- as Governor Brewer herself suggested on her way out of office.

Then we can really get to work reinvesting in the things our economy needs to recover and thrive. Great public schools. Top-notch universities. High quality transportation infrastructure. And a truly balanced budget that ends deficit spending. 

It is clear to many thoughtful people that true economic development needs more than simply low corporate taxes to succeed. Businesses need well-educated employees and a great transportation system to get their people to work and goods to market. We all need a new generation of entrepreneurs to graduate from our universities and start world-changing businesses to fire up our economy and help us compete in the global economy.

If we keep giving away taxpayer dollars to out-of-state corporations based on outmoded theories of voodoo economics, leaving us without the money to fund our schools, universities, community colleges, and transportation system, it won't matter how low taxes go -- no businesses will want to come here or grow here. A healthy economy requires balance. We are currently dangerously unbalanced. 

We need to invest in our state's future prosperity, not just give taxpayer money away with no accountability.

Back to the speech: In the end, I don't think I knew any more about his direction after I heard Gov. Ducey's talk than before. That will have to wait till Friday morning, when the Governor briefs Democratic leadership on his budget, and we can examine his spreadsheets in detail to find out what's really going on.

I'm hoping that his comments were simply sugar for his base so that he could help some medicine in the form of moderate reforms in his budget get through the legislative majority. I fear I may be too optimistic. I'll let you know the results on my Facebook page on Friday after the budget is released and give you more details in next week's Farley Report. 

My hopes that the Phoenix-area business community would be a reasonable moderating influence were also dashed when the Arizona Chamber of Commerce's 2015 Legislative Priorities were released last week. 

The number-one item, "Encourage a Fiscally Responsible Budget" stated that we should only settle the K-12 inflation funding lawsuit if we could force the money to be earmarked to be spent in ways the Legislature approves (not the way the districts may decide) and if big corporate interests get to keep their corporate tax giveaways. 

The number-two item, "Further Improve and Maintain Arizona's Competitive Tax Climate," demands again that all tax giveaways stay in place and another one be enacted, thus slashing more state revenues with nothing in return for Arizona's citizens.

Then the number-three item is the punchline: "Provide Arizona Students with a World-Class Education System." 

Yep, the first two items involve slashing state revenues and state spending even beyond the existing busted budgets, and the third concludes we need an excellent education system, presumably without any need to fund it. 

Our universities and community colleges are especially at risk -- I have heard rumors that some in the Legislature are aiming to zero them out from state funding. They are our original economic development tools, and the business community should be doing everything they can to demand full funding, not more cuts.

The Arizona Chamber offers no suggestions for how to fund our schools, just very specific suggestions for how to continue to give away hundreds of millions of taxpayer dollars to folks who have not created new jobs, increased wages, or grown their Arizona businesses. They seem to have socked it away in their offshore tax shelters while we pay the price.  

I'd like to see the Arizona Chamber tell us clearly, "Thanks for all the tax cuts, but our taxes are plenty low enough now. Let's switch to investing in education and infrastructure."

It's time for some basic accountability for Arizona taxpayers. Corporate tax cuts have done NOTHING for the economy. IT IS TIME TO INVEST IN REAL ECONOMIC DEVELOPMENT, NOT VOODOO. If we continue down this path, we can just sit back and watch the rest of the world pass us by while we eat their dust. 

Meanwhile, tomorrow we are debating an "emergency" bill which Gov. Ducey proclaimed he wanted on his desk immediately. We are suspending rules to get it through both chambers in one day. What is this first bill of the year that is demanding all our attention and is billed as the central tenet of the Governor's first year?

A poorly-drafted bill to require all Arizona students pass a high-stakes exam of basic civics knowledge before they graduate.  

Sure, civics education is important -- that's why all AZ students get taught this in both 4th and 8th grade anyway. It would be nice if more students appreciated the importance of voting in our democracy, and what it all means. 

But to cram an unfunded mandated test of rote memorization (no analysis or thoughtfulness required) through our public schools already struggling with funding issues and time crunches in the classroom doesn't seem to me to be the first overarching priority we need to address, given that we just got rid of the high-stakes AIMS tests, and given the huge fiscal crisis our state faces right now. It is insulting to the citizens we serve.

I sure wish Gov. Ducey had demanded a bill to settle the education inflation funding lawsuit as the first bill he signs. That would be a real statement of support for education and economic development.

So while I strongly support teaching civics to our kids, I will be voting No tomorrow against this half-baked unfunded mandate, knowing that perhaps in a couple of years some dark money organization may fund a mailer attacking me for what they might portray as voting against teaching democratic values. But it's worth suffering a hit piece if in return I get to stand up for our schools, our teachers, our future, and fiscal sanity.  

While this may all seem pretty bleak, there are a few good things happening up here. In future Farley Reports I will tell you about a new bipartisan effort Sen. David Farnsworth (R-Mesa) and I are cooking up in his Financial Institutions committee to increase capital investment in entrepreneurial small businesses in Arizona, creating jobs and higher wages. There is definitely hope when two people like us, who disagree about a whole lot of things, can find common ground on something really important. 

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Thanks for your continuing faith in me as your Senator. 

Steve

Steve Farley

Senator, District 9, Tucson

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PS: If you'd like to read the story of my debate with President Biggs and Speaker Gowan on fiscal policy in late November at the business-led Arizona Tax Research Association (ATRA), you can read the ATRA newsletter here.