The Arizona Free Enterprise Club

Late last week the simmering dispute over teacher pay finally boiled over, and now the legislature and Governor Ducey are racing to meet the demands of angry educators. On Thursday, the Governor held a press conference announcing his commitment to fund a 20 percent pay raise for all teachers, to be implemented over two years.

The good news is that the Governor remains committed to raising teacher pay without raising taxes. The downside is that his administration may be relying on unrealistic revenue projections over the next couple of years, which if overstated could lead to a new budget deficit for Arizona. After fixing the structural deficit in his first year, it would be a major disappointment if his new proposal puts Arizona back in the same hole that Ducey inherited in 2015.

The Governor’s plan isn’t the only proposal circling the halls at the capitol. A small group of Republican lawmakers were pitching their own teacher pay plan, with one big difference—the 20 percent raise would be paid for primarily through middle-class income tax increases and an “undisclosed” tax hike in 2020.

Notwithstanding the fact that any spending plan that relies on mystery tax increases in the future isn’t a real plan, it is startling that some lawmakers support the idea to use tax conformity dollars generated through federal tax reform to pay for higher teacher salaries. Make no mistake, any revenue kept by the legislature as a result of tax conformity is an income tax increase.

Earlier this session a coalition of organizations sent a letter to the legislature and the Governor urging our elected leaders to return to the taxpayers any additional revenue generated by the State as a result of Federal tax reform.  Currently the Department of Revenue and JLBC have estimated that individual taxpayers will pay between $175 to $235 Million more in individual income taxes if action is not taken by lawmakers.

Despite the wishes of politicians, this is not new revenue generated by Jack’s magic beans. This is a looming tax hike that could undo the benefits of federal tax reform if not properly addressed.

If policy makers want to implement a 20 percent teacher pay raise, they should do it through other spending cuts and reasonable projections in future revenue. And if lawmakers do want to raise taxes to increase teacher pay, then they should at least be transparent in their actions and not hide their tax increase proposals in the shadows of income tax conformity.

In a historic vote, the Board for the Maricopa County Community College District voted to end “meet and confer” process at their meeting in February.  Meet and Confer is a form of collective bargaining by which the district’s faculty association has input into faculty benefits such salary schedules, code of ethics, and workload.

The decision was opposed by the faculty association and allies in organized labor and resulted in a frivolous lawsuit claiming damages in excess of $850,000. Lest anyone confuse the faculty board’s motivation with benevolent concern with ensuring the more than 1,400 full-time faculty members of the district get a fair shake – it is important to note that each of the four executive members are claiming $150,000 worth of personal damages for each of them.  The other $250,000 are claimed on behalf of the association which pays the board to negotiate on behalf of its members.  That’s a lot of upside for association board members.  It is less clear how the rest of the 1,404 faculty members benefit.

Although the faculty association isn’t an officially recognized union, their actions leave hardly any room for distinction.  When the district board was discussing the policy change as a way to streamline faculty policy-making and save valuable county resources – the association immediately ginned up opposition by spreading fears of the worst-case scenarios.  Which was a convenient ploy to boost association membership – and dues.

A bureaucratic and “labor-intensive” process like meet and confer wastes time, money and resources – all of which could be directed into better compensation for faculty members who deserve it. Many communities and political subdivisions have eliminated meet and confer, and the alternative has proved to be far superior.

Individual faculty members communicate their individual concerns, needs, and desires to their management team.  Under this more tailored approach of employer-employee negotiations, compensation is based upon the merit and accomplishments of individual faculty members, not from the collective bargaining of a few well-compensated representatives who must negotiate for the lowest common denominator.

At the end of the day the board members are the elected representatives of the people and all college policy decisions are their responsibility.  They must balance the use of taxpayer dollars with the optimization of educational outcomes.  Eliminating meet and confer is a proven, common-sense policy decision that will better serve students, faculty, and taxpayers alike.

What is worse than your elected legislators voting for a tax increase?  Your elected legislators voting to allow an unelected bureaucrat to raise your taxes.

SB 1146 and HB 2166 would do just that.  Both bills would grant the Director of Arizona Department of Transportation (ADOT) the authority to charge any Highway Safety Fee rate they desire as well as set the initial percentage rate of the base retail value of a vehicle that will be used to assess the car owner’s VLT.

As it relates to the Highway Safety Fee, the only ostensible constraint in the proposed legislation is the requirement that the Highway Safety Fee funds 110 percent of the Department of Public Safety’s highway patrol’s fiscal budget, minus any monies left in the fund that exceed 10 percent of the prior year’s fees.   In other words, the fee must directly and fully fund DPS.  However, this is not how the government appropriation process works or should work.

There is a good reason we don’t let the head government bureaucrat decide how much money they need to operate and then tell the tax payers to fork over the money.  Instead, our system has representatives of the taxpayer determine priorities for funding and evaluate what the taxpayer base can ultimately afford and require the government to conform to the funds available.  This proposal is an inversion of this process and circumvents these safeguards to promote spending restraint and ensure the taxpayers’ representatives are active agents in determining spending priorities.

This means depending on who is in political power as Governor, they could use their administrative appointment authority to push their policy agenda, game the State’s VLT and unilaterally pick winners and losers.  They could choose to charge more VLT for “gas-guzzling” suburbans that would disproportionally harm large families.  Or they could charge more VLT for non-American made cars or charge no VLT for two-door convertibles.  There is no requirement in the legislation to ensure the registration fee is uniform among taxpayers.

The broad support for this type of legislative gimmickry is baffling.  For years lawmakers have complained of too much power vested in the executive branch, yet here is a bill that willingly surrenders their constitutional taxing authority to the Governor.Shockingly this bill has generated a good deal of support among legislative members.  SB 1146 received a unanimous vote from the members of the transportation committee and HB 2166 sailed through its committee with a vote of 6-1 and passed the House with a floor vote of 35 Ayes and 24 Nays.

Additionally, it is clear that both bills are designed to sidestep Prop 108, which requires a 2/3 vote in each legislative body to approve a tax increase.  If lawmakers believe that this new registration fee is a good idea, they should identify and debate what that amount should be and set that amount in statute.  But many lawmakers want to disguise the fact that they are supporting a tax increase, so bad public policy is what taxpayers get stuck with.

The only question now is how and when this tactic will be used next. Perhaps we should allow the director of Department of Revenue to set our income tax rates? An idea that would have been considered laughable a few year ago is now a real threat to Arizona taxpayers.

It would seem many of our elected leaders have accepted the premise that the ends justify the means.  They so desperately want to put more money into infrastructure and roads, they care little about how it is ultimately accomplished.  Because raising taxes is difficult both politically and process-wise, this tactic allows them to side step the process to raise taxes and avoid political accountability.

But lawmakers shouldn’t think they are fooling anyone.  They may think this is a clever way to not have to answer to taxpayers about a tax increase.  But they would be wrong.