TED SIMONS: Hello, and welcome to "Horizon." I'm Ted Simons. Joining me tonight are Mary K. Reinhart of the Arizona Guardian, Mike Sunnucks of the Business Journal, and Paul Giblin of the Arizona Guardian. Finally an agreement on a state budget, right Mary K., there is an agreement?
MARY K. REINHART: We shall see. At least for now, for the moment. It could I guess between now and when this airs blow up, anything's possible. But yes, the legislative leaders and staff of the governor at about 1:00 this morning reached a budget deal that now they are shopping to the rank and file in the house and senate. And it includes in addition to the pieces of the actual budget, a referral to the voters in a special election this fall and something new that sprung up which is a being called a flat tax with an asterisk, it’s kind of new, it’s also been discussed in the house behind the scenes for most of the session. But it would put everybody at the same level basically in the state income.
MIKE SUNNUCKS: We've got five brackets now, the highest is 4 1/2 and they bring it down to three, 2.6, 2.8, the Goldwater Institute proposed this and it's meant to bring on conservatives who didn't like the sales tax increase. But have pushed for flat tax for forever. And they think it will help grow the economy. It's been kind of a long held conservative policy statement they wanted to get through and wow popped up out of nowhere kind of.
PAUL GIBLIN: One of the key points, while it's an agreement, only an agreement among three people this morning and as Mary K. said, they've been shopping around, whether it's an agreement people support, we don't know yet. We might find out tomorrow or we might find out later than that.
MIKE SUNNUCKS: We've been trying to figure out for a while where the governor would get her votes from. Moderate or conservative, she was trying to go with the conservatives with the tax proposals, cutting property tax, and she may bring in folks that may be able to hold their nose on the sales tax.
PAUL GIBLIN: That might be tough because I was talking to those same conservatives today and they were saying no, there’s no way they're going to vote for any budget that would require a tax increase, even if it's a vote for later on.
TED SIMONS: Now, these are budget bills with trailers. Explain what trailers are.
MARY K. REINHART: Trailers are really just new versions of the same bills that we saw the house and senate pass on June 4th. But they are reflective of the compromises and agreements that the governor's office and the house and senate have made over the last several weeks in budget negotiations, so they will in case of the governor's staff, she has apparently agreed to increase her budget actual spending reductions up to roughly the 600 million mark. That was sort of the line in the sand the legislative leaders had drawn. We don't know yet where the cuts are coming from. If you look at the original budget passed by the house and senate and if you look at the governor's numbers they're coming from very different places, so it remains to be seen, you know, what kind of cuts are going to be made to D.H.S., access.
MIKE SUNNUCKS: You can't tell where it's headed, just the reactions of folks on both sides. Teachers unions are going to have a big protest tomorrow. The Democrats seem very unhappy, then you got the anti-tax groups, who like Paul said don't like the sales tax increase at all, but they're looking at these other things, secondary property tax decreases, the equalization rate repealed, the flat tax, and they're kind liking that. So it's obviously a more conservative orient the budget.
MARY K. REINHART: Some of the deals though that have been struck over the last few days have brought on folks like cities and towns, home builders, universities, they're all pretty pleased now after a pretty intense set of negotiations yesterday with what they think is going to be in this budget deal.
TED SIMONS: The home builders we had the moratorium. They wanted the moratorium on impact fees instead of the moratorium they have a freeze on increases. Is that the idea?
MARY K. REINHART: That's correct, impact freeze for two years, freeze on construction sales taxes for two years, freeze on building code changes for a couple years. So that deal really was sort of the linchpin in this whole thing yesterday, and sort of hit a hiccup during the day and now appears to have been solved with some other language on definitions and procedures and things like that that I think the cities and towns and the home builders are now apparently in agreement on.
PAUL GIBLIN: And while that's all very true, but the thing that's real temporary, as you mentioned, there's trailer bills coming, an acknowledgement that this is not a good permanent budget going forward and meanwhile revenues continue to slide, so things are going to change. They might have an agreement today, they might have an agreement tomorrow, but it might not be there in a month or two.
MIKE SUNNUCKS: Yeah but questions about whether the sales tax increase is going to bring in a billion dollars. The economy's down, spending's down, real estate sales are down, they're talking 750 million, if it keeps dropping that puts a kink in the plans, they'll have to come back and deal with these things.
TED SIMONS: The sales tax vote would be November?
MARY K. REINHART: Yeah, it would be we think early November and then the actual cash that the state coffers may not see until sometime in March, by that time we may see revenue he go so far south that no matter what kind of deal is struck, and this is all still in play, whether we'll be able to use some of the tax revenue, assuming voters approve it, the governor would like to see that tax revenue used to offset some of these budget reductions she's agreed to in the 2010 budget year. What we don't know is whether a, voters will approve it, if the legislature gets it on the ballot, and b, when that money comes in what kind of shape the state's going to be in, whether we're going to have to again fix another hole that develops between now and then.
MIKE SUNNUCKS: It will be interesting to see what happens over the next few days in terms of the spending cuts. We're all getting a sense on the tax side of things what these things may look like, what may be included, the freeze on the impact fees, but we haven't really seen anything on what some of these cuts are going to be, and that's when you're going to maybe lose some votes in things because they're going to cut something too much and it's going to turn people off.
TED SIMONS: Do we even know if lets say the vote goes through in November, we don't know the deal right now whether or not you could backfill it, correct? Like you were saying, they may -- the agreement may be you can't use this for 2010.
MARY K. REINHART: I think as a practical matter most people think if the legislature goes, when they go back into session in January and let's say voters approve the sales tax increase, there's a pile of money there. Folks are going to say hey, you know what? Let's just use it. We kind of need it. I think it's a practical matter that probably will be able to be used for the 2010 fiscal year.
TED SIMONS: The flat tax idea, 3%, something along those lines, does anyone have any idea what this does as far as revenue is concerned? I mean, is this revenue neutral? Is this going to bring in more money? Less money to the state? How does it hit individuals? Has this all been thought out?
PAUL GIBLIN: The thinking is they'd like it to be revenue neutral. Meaning the new flat tax would replace existing taxes and the same collections at the end of the day would be the same but it would be coming in different proportions. Right now richer people pay a higher portion of their taxes and poorer people pay a lower percentage of taxes. So if you even it all out, the poor people would pay a greater percentage, rich people a lesser percentage but it would all be the same. So the end result is the same but the people contributing would be different.
MIKE SUNNUCKS: There's also talk about making exemptions for lower and I think 2.6% is our lowest rate for the poorER folks. So they put some kind of exemption in there so they would maybe not have their taxes raise. I don't know if they would really that people would go for that even on the conservative end, to raise poor people's taxes directly like that. So you could see something like that, but they are trying to make it revenue neutral. The argument the conservatives make, Goldwater Institute, you'll lower taxes, increasing spending and investment. They may look at trying to lower corporate income taxes too. There's a little talk of that, not at 7% now, they may try to bring that down a little bit, in the out years obviously.
PAUL GIBLIN: And the other argument in support of a flat tax, it's an incentive to earn more money because you won't be taxed more as you earn more, you won't lose the money you're gaining in essence. That's the other argument.
MARY K. REINHART: It further destabilizes already unstable tax system, you know, and hits a group of people in the middle lower incomes that are already hit hardest during this economic crisis.
MIKE SUNNUCKS: Go back to what Paul said before, there's a lot of skepticism from conservatives, anti-tax folks on this, because they're getting a billion dollar tax increase right now in exchange for a flat tax in 2012 and they're saying that's not exactly what we think the economy needs right now.
TED SIMONS: The equalization rate, the state equalization rate, seems like a little compromise here as well. A phasing out as opposed to completely getting rid of it. Is that -- ?
MARY K. REINHART: Well, if you're talking about the property taxes, the governor I'm not sure exactly where that one is. That property tax state equalization rate as it's called, the governor had proposed phasing it out, the legislature wants that $250 million tax repeal altogether. The piece they've agreed to though is the assessment ratio piece, which would have gone, which would have gone from 22 straight down to 10 and equalize the assessment ratio for property owners both business and homeowners, now the deal that they apparently reached yesterday is to step down 1%, one percentage point at a time over time so the burden eventually. homeowners are going to be as burdened as anybody else, but they will -- it will take a while.
MIKE SUNNUCKS: Depends on who you talk to on the equalization rate. The folks that want it cut, the real estate and business folks, they think it's going to be repealed and think it's still in there, and you talk to folks against it and they're kind of questioning where it's at right now. So that's something we'll probably find out in a couple days.
MARY K. REINHART: There are a whole lot of pieces that aren't out there publicly yet. In fact, to find a piece of paper right now at the legislature with anything on it is a real challenge. So tomorrow morning 9:00 A.M. appropriations committee meetings in both the house and senate, hopefully there will be some paper before then that people will be able to look through.
PAUL GIBLIN: There were a lot of legislators walking around today with no idea what was on the deal. We were asking about the deal and they said you tell me, I don't know, many we spoke to today.
TED SIMONS: What we know of the agreement, there has to be obviously some give and some take on both sides, who took more and who gave more?
MIKE SUNNUCKS: It looks like the governor, you know, really worked hard to bring on conservatives. There's a lot of tax provisions in there. She kind of gave on the spending cuts and went along with more on that. I think what she wants in exchange is the sales tax and we'll see if the legislature gives on that. I think the leadership is ready to go along with that. Rank and file, we'll see.
MARY K. REINHART: I think if you just look at the fact that they're working from the legislative budget bills that were sent up, they didn't start working from the governor's bills. They started working from the legislature's, and worked a little bit toward the governor's, but I think, you know, for her to come up that far in budget reductions, she really sort of put her eggs in that sales tax hike basket and if she's going to get it that's what she wanted.
PAUL GIBLIN: This all goes back to the court case she lost when she was trying to force the legislature to pass up their budget so that she could veto it and start over and she lost that and that's why the legislature won.
MIKE SUNNUCKS: I think we'll have a much better, a much clearer view when we see the spending cuts, what got slashed, what didn't, what she was able to save, or backfill, and what she was able to do. We'll see who gave the most I think
TED SIMONS: You mentioned the state supreme court decision. Talk about first of all, did that help goose the process as far as negotiations, and secondly the fallout, the reaction from a curious decision by the court.
PAUL GIBLIN: I think it did goose the negotiations, remember, they've been going out for six months one form or another and nothing happening really because they didn't know the starting point was, whether it was the legislators' budget or the governor's budget. So the court clarified that and the court essentially said the legislature didn't have to pass their budget. The governor couldn't veto it so it made the legislature's budget the starting point and that's what got it going. Another opinion.
MARY K. REINHART: I kind of disagree, they were negotiating the day she announced she was going to sue, they were negotiating the day she sued, they were negotiating the day the supreme court announced their decision, I think we're waiting for the supreme court's more detailed opinion. They issued a very brief order, this is what we think. It did seem to sort of say you guys win and you guys win, it was sort of splitting a baby if you will. But it did say that we think you violated the constitution by hanging on to those bills as long as you did. Doesn't say how long is too long, but from now on the lawmakers appear to think this will affect further negotiations. What it means is, you know, they just won't final read stuff this until they're ready to send it out.
MIKE SUNNUCKS: I don't think it had a real impact on the budget negotiations. It’s the usual, whether we like it or not, it's a bum's rush at the end. They wake up June 25th, oh, my God, we’ve got a $4 billion deficit and we’ve got to do this in five days, they'll try to force it through as fast as possible and we were talked in the green room about keeping people around and tiring them down and letting them go home over the weekend, if they do that, might not work.
PAUL GIBLIN: You just said a minute ago the governor reached down to the legislature's standard, so how can you say it was an equal split on that?
MIKE SUNNUCKS: I mean, they always do. This is when Janet was in there, they come down at the end of the session and everybody's tired and they run out of time, nobody wants a government shutdown, so they reach a deal so they both move a little bit. But in terms of the policy planks in the budget, the governor did give in a little bit.
MARY K. REINHART: The idea that with a budget bill. If you find your 31 and 16 at 4:00 in the morning and you say wait a minute, we can't vote that yet, because we don't want, to you know, we're not sure when we're going to send it up, your 31 and 16 is gone. You've got to lock those guys in when you got them, which now according to the Arizona supreme court decision means there is going to be a limited amount of time then to transmit those bills to the governor, which will have changed the dynamics next year, not changing anything now.
TED SIMONS: Exactly. And the 31 and 16 -- do they, a, another kind of bifurcated question here, do they have those votes and secondly where are the Democrats in all this? If you don't have the republican votes, do they finally after all these years in the wilderness are they going to have anything to say? No, no.
MARY K. REINHART: They're disgusted by this latest deal, they truly are. They're calling this the worst state budget in the history of Arizona and made worse by this flat tax. This to them is one final kick in the pants to say we don't need you, don't want you, we're going to do this.
MIKE SUNNUCKS: How many votes was she going to pick up anyway? They didn't show indication of them coming, might have gotten a couple. How they came down on the sales tax when they panned her proposal and came out with this other thing that had no chance of passing, I think that kind of sealed their fate in terms of bringing up even a decent amount of Democrats on. Could have got one or two maybe, but they weren't interested in that.
PAUL GIBLIN: Mary K. is right, their going to get no democratic votes now. If they can’t get this thing through with Republican votes, their not going to pick up a single dem.
MIKE SUNNUCKS: If they would have reached out and reached out and reached out, they could have gotten maybe two, three.
MARY K. REINHART: That might have been all they needed, you know?
PAUL GIBLIN: They would have lost four or five maybe off the far right and picked up a couple.
MIKE SUNNUCKS: I think they made the calculation they had better chance of bringing in more right wing republicans with the flat tax.
MARY K. REINHART: I frankly think that calculation was made before today, when they just flatly didn't -- there was no negotiating. Democrats, you know, put out in the house anyway two separate budget proposals and one of them had a lot of pieces that frankly the republicans also advocated. No one bit. From the governor who said I'm probably going to need your votes but I'm not going to negotiate with you, to republican leadership, there really was no effort made at negotiating in a bipartisan manner this session at all.
PAUL GIBLIN: The governor had a couple meetings with the Democrats but meetings were not negotiations, they tossed ideas back and forth but didn't move on them at all.
TED SIMONS: Let's talk about bills and the speed of light. How fast are they moving through the legislature, pretty close?
PAUL GIBLIN: It's crazy, I’ll tell you what. I was at, what is it, a retirement and rural development committee hearing and in that hearing there were things on day laborers, photo radar, guns in the trunks of cars, toll roads, all kinds of crazy bills going through there, I mean they were moving very quickly.
TED SIMONS: How many bills are we talking about here? What are committees looking at on an average day?
MARY K. REINHART: The senate is doing, you know, 10, I don't know, dozens, maybe not 24, but the house is moving a little more slowly, methodically, pragmatically I might say. The senate because they've been bollocksed up for the last five months, has sort of had this flood and gotten the flood from the house of all the bills they've passed in the house and now it's third read and sent to the senate, the senate on Monday set a record. I don't know if it's something to be proud or not, but 81 bills. You know, in a matter of some of the bills were going through, this is debate. This is not just third read. This is debate on the floor of the senate. 81 bills in four hours I think.
TED SIMONS: Is there concern that things are happening that people don't know about now but will find out about later when problems arise?
MIKE SUNNUCKS: Oh, sure you have strikers and amendments examine bills that get pushed through real fast and people are ready to go and vote on them and it happens. But when they're there forever and look at stuff, do they do a better job? I don't know if Congress does or legislature. It's a huge win for conservatives if you look at what's good going on. Anti-abortion bill passed, all the things Janet vetoed routinely, they may do some immigration things, some gun things. We're talking a flat tax in this state. That's a huge win for conservatives, and as down as the republican party is kind of nationally and in a lot of places, this is a big conservative win going on right here and it's kind of a quick wave of stuff going through, we'll see what else they can get through.
PAUL GIBLIN: You're right about the speed of the hearings, I was at a hearing yesterday, and during the hearing they're walking around with amendments and passing it out to the members and saying now you've read it. Let's take a vote. It's very fast. People are not reading them.
TED SIMONS: I was going to say, sounds like they're going to work through the weekend? Don't some of these have to get three reads.
MARY K. REINHART: A lot of bills will fall by the wayside, anything that needs conference committee won't get to the governor's desk. The bills in committee right now they're hearing today, forget about it. You know, unless they're struck and there's all kinds of maneuvers and ways to get your bill back into the swing. But, you know, in addition to the number of bills I think there are a lot of lawmakers that are very concerned that they're doing any bills right now. All they should do is get the budget out and go home.
MIKE SUNNUCKS: It’s interesting to see this is republican budget. Not any Dems on this at all. It’s interesting to see the social issue bills, immigration, gun bills, that they're going to do alongside of the budget to try to get some of these conservatives along with it. You're going to vote for a budget you don't like but we're give you this single issue you've campaigned on and your primary voters love and see how they play that.
MARY K. REINHART: New issues are coming up as we speak, today, because there are lawmakers who say as they always have time immemorial, I will give you my vote on the budget if you give me this. This is a dangerous time at the legislature right now, stuff is popping up like mushrooms and who knows what will be on the agenda before the weekend's over.
TED SIMONS: All right. English, we got to move away from the legislature for a second here. Court case states, the U.S. supreme court looks at E.L.L. in Arizona and basically says butt out, feds.
MIKE SUNNUCKS: Yeah, they sent it back to the ninth circuit and basically told the courts in this long standing case about spending on English language learners in Nogales, in 1992 it started, conservative side of the supreme court sent it back and said you guys are kind of legislating from the bench, it's another big win for all the conservative folks, republicans who argued this for years, that the judge down in Tucson and the appeals court in San Francisco was setting policy, and we would come with is this how much we're spending on this and they would yea or nay it and they had these $200 million fines and the supreme court sided with the legislature and governor Brewer on this and sent it back and said you need to look at what they're doing, if they're following the law, not just the money part of it. And so it's been a long case and it's not over yet, but it's kind of a win for the conservatives that kind of did this activist judge's argument that they like to come up with.
MARY K. REINHART: It was a 5-4 decision I should add.
TED SIMONS: Indeed. And the case is not over yet, basically. But it does tell the state you have a more leeway and more authority to spend your money as opposed to waiting for the court to tell you what to do.
MIKE SUNNUCKS: Yeah, it gave the legislature, it’s a win for them, and it was the usual four conservatives along with Kennedy versus the four more liberal justices.
TED SIMONS: Jim Peterson says he's not going to run for governor. Is that a surprise?
PAUL GILBIN: That is a surprise. He started this new advocacy group called stand up for Arizona a few months ago and everyone thought and everyone believed that the reason he did this is to give himself a platform to run for governor, to talk about state issues and that sort of thing. But then just this week he said he reconsidered and he's out, which was a surprise.
MIKE SUNNUCKS: I don't know how many people were paying attention to that, and that website. And, you know, he'd have to run against Goddard who's pretty strong, state attorney general, all right. He's a stepping stone to this. Versus Jim Peterson who gives a lot of money to the democratic party and is a shopping center developer and I don't think the real estate industry has a good image right now and I don't think Jim has a good image within the party. People are questioning why do you do this, do we need a primary, were you going to take on, kind of, the heir apparent, where Goddard has a chance to win, you're going to spend all this money and go after him.
PAUL GIBLIN: You're talking to different people than I'm talking to in the democratic party. The people I talk to in the democratic party respect him as a guy who kept the party afloat with his money all these years and he did spend 11 million bucks on the failed campaign against Jon Kyl.
MIKE SUNNUCKS: He lost in 2006, a year when the Democrats won everywhere else, and he lost to Jon Kyl, who is not exactly the most charismatic guy in the world and sided with Bush and lost in a year when everybody was anti-bush.
PAUL GIBLIN: Absolutely, but Goddard lost twice when he ran for governor, so both guys and the Democrats I talked to say he was just as entitled to it as Goddard was.
MIKE SUNNUCKS: There were people who thought if Juliano ran Peterson could finish third in the primary.
TED SIMONS: This does open up the possibility it's a wide open lane now for Goddard, correct? Are there other folks thinking of nudging their way in?
PAUL GIBLIN: Well as Mike just mentioned, Neil Juliano.
TED SIMONS: Former republican, turned Democrat?
PAUL GIBLIN: Right, former republican mayor of Tempe, went to GLAAD, the gay and lesbian alliance or some organization like that, national organization, now he's back in town and going to run for governor so he says.
TED SIMON: Mayor of Phoenix a possibility or is that still a longshot?
PAUL GILBLIN: I spoke to him some time ago and he said he wouldn't even think about it if his good buddy Jim Peterson was running but his good buddy Jim Peterson isn't running anymore, so who knows.
MIKE SUNNUCKS: One thing there is talk about Peterson running for Phoenix mayor at some point. He could do that. So that could be a stepping stone. The thing for Peterson is he's been around the game enough, but you can't run for U.S. senate or even governor from being a shopping center developer. You need to have something on your resume besides that.
PAUL GIBLIN: Didn't we have a developer run for governor?
MIKE SUNNUCKS: You saw how that turned out.
TED SIMONS: All right thank you very much. We'll stop it right there. Thanks for joining us on the Friday edition of "Horizon." Coming up Monday on "Horizon," some are saying the recession's bottomed out, others not so sure. Hear what three local economists have to say Monday at 7:00 on "Horizon." Later in the week on Wednesday, Arizona Capitol Times reporter Jim Small joins us for an update on the legislature. Thursday A.S.U. professor Paul Bender takes a look at the United States Supreme Court's current session, and Friday we are back with another edition of the Journalists’ roundtable. Coming up, using foreclosures to help find homes for the homeless. That's next on “Now.” That is it for now, I'm Ted Simons, thank you so much for joining us. You have a great weekend.