The Farley Report from Phoenix #264 - 2-7-17

It’s February already and the legislative days are heating up with bills flying fast and furious in committees, caucus, and floor. Tomorrow I’ll be supporting the fourth of my bills to be heard in a Senate committee this year and there will be plenty of drama, I’m sure.

Read on to hear more after the Farley Report Pledge Break…

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A week ago Sunday at a community event in Tucson attended by nearly 300 people, an audience member asked whether I would be announcing a run for governor in 2018. My answer and the audience reaction was captured on video. 

Click to watch and share. If you think I should run, please contribute today. I want to know if you are with me on this journey — it’s going to take all of us pulling together to move our state forward again.

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—> First off, I want to call your attention to yet another problematic education bill — Sen. Steve Smith’s (R - Maricopa) SB1281, that would make a series of revisions to the Empowerment Scholarship Accounts (ESAs), the program which offers debit cards worth somewhere between $5,000 and $20,000 in taxpayer money to parents of school-age children to be spent on private school, online school, or home school. That money comes directly out of the local public district school, leaving fewer and fewer resources for the kids who stay there. And the enforcement provisions — to make sure no one commits fraud with these debit cards — are lacking or woefully underfunded.

[There is another bill this year to expand this program to all 1.1 million students in the state, SB1431, sponsored by Sen. Debbie Lesko (R-Sun City), which could destroy the entire public school system and must be stopped as well. But for this report I want to focus on just one particular feature of the Smith bill.]

His bill expands the maximum age for students to use the ESA debit cards to 22 years old, with no requirement for testing or adequate yearly progress. Let’s think about that a minute — a clever parent could “enroll” their four children in homeschool at the age of five, then keep them in homeschool till they each turn 22, collecting 17 years of taxpayer-funded debit cards for each child. 

Doing the math, that could gain that family a grand total of between $340,000 to $1,360,000 over the period of time that their children were in homeschool, all of which would be deducted from their neighborhood public school. That’s a pretty inviting, and legal, incentive. SB1281 is headed to the Senate floor soon. 

—> As I mentioned earlier, another of my bills is being heard in Senate Finance committee tomorrow, SB1263. As drafted, it creates a dedicated funding source to end homelessness in Arizona and assist first-time homebuyers with down payments. And it does this without raising taxes or using existing revenues from the General Fund.  

What is this magic, you may ask? It was an idea brought to me a few years ago by a constituent who is also partner in a large accounting firm — David Cohen. He noticed that — unlike other states like South Carolina, Alabama, Maine, and Mississippi (all intensely red states) — Arizona does not recover income taxes owed by out-of-state real-estate investors on real estate sales in Arizona. 

Current law already says that people who gain profits from such sales owe Arizona income taxes. But the Department of Revenue does not track down and claim what we are owed due to a lack of personnel and the difficulty of doing so. Many of these folks are out of the country — Canada or China, for example — which makes the task of collecting doubly hard. So we lose out on between $3.4 million and $10 million annually.

The simple solution? As an escrow item at closing, collect 2% of each sale of more than $100,000 by an out-of-state investor. That puts the collection ball in the owner’s court. If the owner does not owe those taxes, he or she can file an Arizona income tax form and claim a refund. This is NOT a new tax or a real-estate transfer tax — it is an improved method of collecting an existing income tax, so it does not require a 2/3 majority to approve.  

Note also that only Arizona investors currently pay income tax on these sales, since they already file their taxes in Arizona and are required to show such profits as income. Out-of-state investors avoid these taxes without consequence. So the current situation is blatantly unfair to Arizonans and perversely incentivizes people who invest in Arizona real estate to locate in California or some other state to avoid these taxes. 

My bill would invest the money collected from these out-of-state investors into a fund that would be distributed to two key programs: 1) The existing (but underfunded) Arizona Housing Trust Fund to be spent in an effort to end homelessness the same way Utah did — building affordable housing for them; and 2) The existing First-Time Homebuyers Down Payment Assistance Fund to enable young families to get their first self-sufficient step on the economic ladder through home ownership, helping our real estate market along the way. 

It’s not magic, it’s just a good idea mixed with some legislative alchemy to solve real problems. There may yet be some bumps in the road on the way toward the committee tomorrow and beyond — there are lots of stakeholders with varying interests who are wanting to amend the bill to move it in different directions. That is part of the legislative process. I’m grateful to Chairman Farnsworth for agreeing to hear the bill, and I hope the discussion leads to more excitement among members of both parties to move it forward. 

If you read this before Wednesday morning at 9am, please contact members of the Finance Committee here and urge support, including the distribution to the Housing Trust Fund and the First-Time Homebuyers Assistance Fund.  I’ll post the committee results on my Facebook page tomorrow midday. 

—> Some more good news — last Wednesday I shared with you that Senate Finance Committee heard my bipartisan bill SB1144 that requires each one of the 331 corporate sales tax loopholes to be brought back for debate and possible elimination every ten years. These exemptions cost us more than $12 billion annually, and are part of why we have high sales tax rates and not enough money for education. If we could eliminate $2 billion of those, we could reduce the sales tax rate by a full percent, and still raise $1 billion annually for education. 

As I had hoped, the bill passed unanimously out of committee, then passed out of caucus today and is ready for floor action as early as this week. Even in our new national political era, it is still possible for leaders from both parties to work together on significant policy. 

—> Finally tonight, I need to share some sad news with you. One of our newest and most wonderful State Senators, Jamescita Peshlakai (D-Cameron), lost her father James last Saturday. 

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I am blessed to have spent some time with James Peshlakai last summer while campaigning for Jamescita in the Navajo Nation. His was a soaring spirit with a wonderful sense of humor and a towering leader for the Diné people, sharing their stories and struggles with all who were interested and fighting in court for Navajo rights for decades. We are blessed that his sprit of service lives on through his daughter in her service to Arizona in the State Senate.

To read more about James Peshlakai’s life, the Navajo Times has a good article here.  To honor his legacy, the family is collecting contributions to a memorial fund here.

Thanks for your continuing faith in me as your Senator. 

Steve

Steve Farley

Senator, District 9, Tucson

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