Three measures proposed by Arizona legislators this session would cut state revenue by more than $150 million.
That means that Arizona’s inflation-adjusted per-pupil K-12 education funding will decrease again – like it has for the past 10 years – and Arizona’s teacher pay will remain the lowest in the nation.
House Bill 2528, would increase the deduction on long-term capital gains from the sale of stocks, land or similar investments from 25 percent to 50 percent. Legislative budget analysis indicated the change would reduce revenues by $23 million a year.
Senate Bill 1392 and House Bill 2749 would ban sales taxes on digital goods like cloud computing software and digital streaming services, which The Arizona League of Cities and Towns estimates will reduce state and local revenues by more than $100 million on an annual basis.
“Collectively, the bills will reduce state revenues by more than $150 million per year,” said David Lujan, director of The Arizona Center for Economic Progress. “That is $150 million less in annual revenue to invest in public schools, community colleges, universities, childcare, healthcare and other priorities.”
The Arizona Legislature has cut taxes every year since 1990, and proponents promised the cuts would result in new jobs and economic growth for the state, Lujan said.
“Those promises never materialize, and instead tax cuts have cost Arizona’s general fund $4.4 billion in annual revenue when adjusted for inflation – revenue which could have otherwise been invested in public education and other priorities which strengthen our workforce and lead to better economic opportunities for all Arizonans,” Lujan said.
Bill to cut long-term capital gains would benefit 1,500 millionaires
About $5.2 million of the $23 million a year in long-term capital gains taxes that House Bill 2528, would benefit people who make $5 million a year or more.
HB 2528 was approved by the House in late February and had its second reading in the House on March 1. The bill is sponsored by House Speaker J.D. Mesnard (R – District 17), House Majority Leader Rep. John Allen (R – District 15), Rep. Mark Finchem (R-District 11), Rep. Anthony T. Kern (R – District 20), Rep. David Livingston (R – District 22), Rep. Darin Mitchell (R – District 13), Rep. Paul Mosley (R – District 5), Rep. Kevin Payne (R – District 21), Rep. Ben Toma (R – District 22), and Sen. Sonny Borelli (R – District 5).
“HB 2528 is a $23 million capital gains tax cut, which would primarily benefit about 1,500 Arizona millionaires,” Lujan said.
How schools would use $23 million to help 1,500 students
What could schools who serve about 1,500 students do with $23 million more a year?
“First, an additional $23 million in new revenue is hard to fathom, but for a moment I will dream,” said Dr. Howard Carlson, superintendent of Wickenburg Unified School District in Maricopa County, which serves about 1544 students.
“$23 million in new revenue would enable Wickenburg Unified School District to offer the highest teacher salaries in the state, and likely nationwide,” Carlson said. “We have 90 teachers and if we paid them $100,000 each, including benefits, this would only be $11 million of the $23 million in new revenue.
“If we were to implement a 1:1 Chromebook program for our 1,500 students it would cost another $500,000, bringing the total to $11.5 million,” Carlson said. “I guess I will end there, clearly you can see $23 million in new revenue for a district of 1,500 students would change student’s lives forever.”
Dr. Kevin Spiller, superintendent of Thatcher Unified School District, which serves about 1,685 students in Graham County, said, “Any extra revenue we might receive would certainly be used for infrastructure maintenance, teacher salaries, and additional innovative programs to meet the needs of our students as they prepare to face the challenges of a vastly changing world.”
“Conversely, if we lost additional revenue, we would have to cut even more staff and eliminate more programs,” Spiller said.
Bill to ban sales tax on digital services
Senate Bill 1392 which would have banned sales taxes on digital goods and services was held in committee, but a similar measure, House Bill 2749 was approved by the House in late February and transmitted to the Senate on March 1.
HB 2749 is sponsored by Rep. Michelle B. Ugenti-Rita (R – District 23), House Majority Leader Rep. John Allen (R – District 15), Rep. Vince Leach (R – District 11), House Speaker J.D. Mesnard (R – District 17), and House Speaker Pro Tempore Thomas R. Shope (R – District 8).
“SB 1392 would be a direct cut to K-12 funding because it will reduce Prop. 301 monies by an estimated $14 million per year. Those are dollars which go directly to teacher salaries,” Lujan said. “SB 1392 also reduces overall state revenues by an estimated $120 million per year.”
How schools would use $100 million from that bill
What could school districts do to benefit students if they received the $100 million a year that SB 1392 would cut from state revenues?
“$100 million would enable Wickenburg Unified School District to completely renovate all of its schools and transform them into world class facilities,” Carlson said.
“Students would have the best in innovative technology, performing and visual arts spaces and athletic venues,” Carlson said. “It would be amazing to see how these changes would increase student motivation and drive student achievement to new levels.”
Ways to increase state revenues
Education advocates say short-changing public schools must end now, and they have provided 10 ways the Arizona Legislature could increase the state revenue stream instead of reducing it.
In addition, AZ Schools Now, a coalition of business, faith and education groups, is demanding a plan to address Arizona’s education funding crisis and petitioning Gov. Doug Ducey to convene a working group with the leaders of both parties to find bipartisan solutions.
One way to increase state revenue would be to “clean up many of the special interest tax breaks that exist in our tax code and which make no sense,” Lujan said.
“For example, we currently do not charge sales tax for purchases of private jets, fine art sold to out of state purchasers, and horse vitamins,” Lujan said. “These exemptions and the many others that exist in our sales tax code add up to millions of dollars in lost revenue each year.”
Spiller said that when he spoke with his colleagues about ways to increase state revenues, three ideas stood out – a small increase in the excise tax – taxes paid when a person purchases a specific item – as well as a potential reduction of loopholes in the Transaction Privilege Tax and the possibility to find ways that all of Arizona’s state lands could be used to generate revenue.
Carlson said there are a number of ways which revenue could be increased without a major impact to Arizona taxpayers.
“Expanding the tax base to cover a broader base of products and services, if implemented strategically, could bring in a fair amount of new revenue,” Carlson said. “Another idea would be to tie a fee to various types of tourism activities which would go directly to K-12 education.”
Carlson also said that “innovative ideas, such as has been developed and promoted by Arizona Business and Education Coalition, would be important to explore more extensively.”
Taking a closer look at corporate tax cuts could really make a difference, Lujan said.
“At a time when corporate profits are soaring, the Joint Legislative Budget Committee estimates that this year’s Arizona corporate income tax revenues will be at their lowest levels since 1993,” Lujan said. “(It’s) not surprising since 74 percent of Arizona corporations pay $50 or less in state income tax.”
“This is an example of how year-after-year tax cuts are reducing Arizona’s tax base and are directly impacting the ability to adequately invest in the very thing that is so critical to our state’s economic prosperity – public education,” Lujan said.