Monthly Archives: May 2017

It has been a couple of weeks since Governor Ducey signed the FY 2018 budget into law, a $9.8 billion dollar plan that was the result of four months of tense negotiations with the legislature. And though there were a few crony capitalist giveaways to special interests included in the final package, overall the budget should be considered a win for fiscal conservatives.

Structurally Balanced Budget

Among the lesser talked about accomplishments is that the legislature passed what can be considered a structurally balanced budget for the third year in a row. If it seems like a low bar to give politicians credit for spending money they don’t have, consider that for a decade our elected leaders failed to pass a single budget without using accounting gimmicks and fake assumptions to paper over an ongoing deficit. Arizona finally has its fiscal house in order, which is good news for taxpayers.

Tax Cuts

When the preliminary budget was announced, many lawmakers were frustrated that regular taxpayers were left out of the plan. In particular, not a single tax cut was included for hardworking families.  That was changed when Representative Tony Rivero (District 21) and Representative Michelle Ugenti-Rita (District 23) led the charge to secure a $12 million tax cut by increasing the personal exemption by $100 through 2019.  It was tax relief that was broad based and will benefit low income families the most.

Consolidated Elections

Throughout the session, efforts were made by freshman lawmaker Kevin Payne to pass legislation that would require local government to hold all elections proposing a sales tax increase to occur in November of even numbered years.  After passing the House, the bill failed in Senate Judiciary.  However, conservative lawmakers seized an opportunity to include this major reform in the budget package.  This was a tremendous win for taxpayers as consolidating TPT elections will save money, yield greater voter turnout and prevent cities and counties from trying to sneak tax hikes through in low turnout elections.

Education

During the entire budget process, the Club encouraged lawmakers that if additional funds were to be spent on education, to direct it toward results-based funding and increased intellectual diversity at our universities.  Conservative lawmakers were successful in both efforts.

In the budget $38 million was allocated to “Achievement Districts,” whereby schools that meet certain academic targets receive additional funds.  The purpose of this program is to expand and replicate schools with proven effective outcomes, to increase every student’s access to a high-quality education.  The program also directs funds to partnerships between under-performing schools and excellent “A”-rated schools for mentorship.

Conservative lawmakers also successfully ensured funds designated for “Freedom Centers” located within the public universities were retained.  Not only did they secure the $5 million from last year’s budget, but were able to negotiate an additional $2 million this year.  These centers have proven to be bastions of intellectual diversity and provide students with much needed education on classical political philosophy and free market economics.

Overall, 2018 State budget reflected the education priorities of the Legislature and Governor, but did so with fiscal restraint.  Most importantly, the budget was structurally balanced and spending did not exceed inflation plus population growth.  Factoring in a solid tax cut for every Arizonan and consolidated elections, conservatives secured some major wins for tax payers this year.

Last month the Trump Administration released their budget proposal, which among many shifting priorities, included eliminating a long-standing federal program called “New Starts.”  New Starts was created in the 1990’s and has funneled hundreds of millions of federal monies to localities to build expensive transit projects, including light rail systems.

It was no surprise that many who have benefitted from the light rail gravy train over the past few decades reacted as if the fields were on fire.

Among the arguments made to attribute value to the New Starts program, was the claim that light rail in the Phoenix Metro Area has generated $9 billion in “real estate activity” surrounding the transit line in the last decade.  More than being overly optimistic, this claim has been summarily debunked.

Just a year and a half ago, light rail enthusiasts took credit for $7 billion in development.  Upon further investigation however, it was discovered that new development was actually $6.9 billion in development plans.  And these plans were mostly submitted prior to the financial crash and prior to the light rail line opening or even being announced.

Furthermore, many of these plans languished and never came to fruition.  Specifically, at least half a billion dollars’ were cancelled and as a result, assertions that a boon of development had occurred were pared back from $7.4 billion in 2009 to $6.9 billion in 2013.

Not only did many private developments fall through or cancel, much of the development that has occurred has been subsidized by the government in the way of low-income housing tax credits and other government programs.  In  many instances the government  has had to pay people to build by light rail.

And lastly Valley Metro has included in their figures, development that would have occurred anyway, such as the construction of a new high school and the expansion of the Phoenix Convention Center.

This isn’t just in Phoenix.  There is no evidence that light rail spurs development.

According to the independent study commissioned by the Federal Transit Administration itself, light rail does not create growth, but at best redistributes it.  The strongest correlation in fact, is the cities that have spent the most in transit have had the slowest growth.  Though not spending money on transit is not a guaranteed advantage, spending more on transit has consistently been correlated to slow or stagnate growth.

This should come as no surprise considering the amount of debt cities generally take on when building fancy rail lines.  Not only do many cities incur debt to fund capital costs to match federal contributions, but often cities fail to have the necessary funds for ongoing maintenance and operations costs.  Of all the rail lines in the country, only one has been built “on time” and “on budget.”  And it wasn’t Phoenix.

But set aside the apparent fact that Arizona has wasted hundreds of millions of dollars on a transit system that has increased congestion on the roads, cannibalized bus ridership, and failed to provide any external growth.  There’s an even more salient reason tax payers should be thrilled by Trump’s prerogative to eliminate the carrot for more light rail spending.

The country is on the verge of a transportation revolution.  The reality is no one knows what transportation, transit, or infrastructure will look like in the next five to ten years with the advent of autonomous vehicles.   Government incentivizes to incur long-term debt to invest in century old technology that is already obsolete is an absurd policy decision.

Rationalizing spending more money on a sunk system because we have already spent so much, is throwing good money after bad.  It’s past time the outdated New Starts program as well as the old transit line technology be ushered out to make room for the possibilities of the future.

Among the flurry of special interest tax breaks the Free Enterprise Club opposed this session, one was able to make its way to the Governor’s desk.  The Angel Investor Tax Credit program, a bill The Club fights every year, passed out of the House on the last day of session and is awaiting action by Governor Ducey.

Under HB 2191, $10 Million would be allocated in tax credits to wealthy investors to subsidize their risky business ventures.  In the words of Robert Robb from the Republic, “The state is stumping for a third of the investment but getting no stake in any returns.  That’s not really an incentive.  That’s being played for a sucker.”

This tax credit giveaway is even harder to swallow considering that the legislature allocated only $12 Million in income tax relief for all taxpayers when it increased the personal exemption in the budget. Why should special interests get $10 million in tax breaks when hardworking taxpayers only get $12 million?

The Free Enterprise Club urges Governor Ducey to VETO HB 2191. Taxpayers should not be in the business of subsidizing risky venture capital investments by wealthy investors. It’s a program that picks winners and losers among taxpayers, among venture capital investors, and among aspiring entrepreneurs.

***Update***5/23/2017

Unfortunately, Governor Ducey sided with wealthy investors over taxpayers and signed HB 2191. The Club will continue to monitor this giveaway very closely to see how our tax dollars are wasted over the next four years. The early prediction is that the Arizona Commerce Authority and the politically connected investors will identify the low risk/safest investments possible (ones that would have received funding regardless of the credit) in order to declare the program a success. Be prepared to see them at the capitol again pushing these “success stories” looking for more taxpayer cash.



Latest Tweets

@azfec
The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.