Ted Simons: Good evening, welcome to "Horizon." I'm Ted Simons. Arizona Governor Jan Brewer made it official. She's going to run for governor. Governor Brewer said her decision to run was based on wanting to help people. She says she's never run for office just to seek a higher office. She announced her co-chairs -- and grant woods. Whoever wins the governor's race will have to deal with the continuing budget mess. The budget and the tax reform were the topic of the 95 Arizona Town Hall. The participants came up with a report on possible solutions to our budget problems. Here now to talk about the report is Dennis Hoffman, an ASU economics professor, Ken Strobeck, of the League of Arizona Cities and Towns. And political consultant Jaime Molera. Good to see all three of you. Dennis, this is not your first rodeo up there. Did we get something tangible out this?
Dennis Hoffman: I think we did. I think we had definitive recommendations, we had a town hall that's very, very diverse. Have you ever been to one, Ted?
Ted Simons: I reported on one.
Dennis Hoffman: They're fantastic events, a cross section, I think of business leaders, government leaders, education, represented, but big business, small business, legal fraternity and that kind of thing. Some very, very important recommendations.
Ted Simons: And all looking on tax policy and how it will get us out of the mess we're in and keep us out of the mess in the future. Tangible results?
Jaime Molera: I think so. At least in the short term, there was almost unanimity. We need the tax now and need it fast and to prevent cuts from happening, everybody got together and said, we have to do two things. Put a temporary sales tax in place and need to look at a bigger, longer term solution that will take time. Put the sales tax in place and look at what things we can reduce right now.
Ted Simons: The uniformity of agreement. Was that a little surprising considering the topic as volatile as tax policy.
Ken Strobeck: I think it was. As Dennis said there was such a broad section represented and not just on the business versus government side, but also the entire political spectrum was represented and what came out of it very strongly was very much frustration with the system going on right now, with the inaction by the legislature, the difficult partisan, the bickering and all of that kind of thing. A call for action from the legislature and if that's not going to be done by the legislature, then by the people.
Dennis Hoffman: Emergency is what I heard. They recognized we're in an emergency situation with respect to fiscal policy. The governor's office's been talking about this all month. We saw it in the paper by President Bob Burns the other day. They strongly recommended immediate action on sales tax and by the way, not a referral by the voters. Immediate action by the legislature -- make it happen.
Ted Simons: Ok. Those words, "make it happen," we're going to discuss the recommendations and how likely these things are going to happen. Jaime, start with you. Broadening the tax base, that idea didn't fly the last go-round. Why do you think it's -- is it a good idea as far as where you sit?
Jaime Molera: Me, personally, think it's tricky to get there. When you broaden the tax base, it's still regressive and one of the things that I thought was a healthier discussion, look, we can't do this piecemeal. Can't say we're going to broaden the tax base in isolation of other things. What was said, more comprehensively. Let's get political leaders to start thinking about a comprehensive approach. What will need to happen long term. But the thing before that, which I thought was very, very important, what kind of government do we want to have? Do we have a state that's continuing to function on dependency on growth or do we want a state whose tax policies allow for multiple industries to come in so we're not dependent on one sector.
Ted Simons: So broadening the tax base, not necessarily agreement there, but you've got things like reinstating the property tax and expanding -- by the way, the property tax, reinstating that, I think -- I can think of one prominent Republican who likes that and announcing today she's running for governor. Doesn't seem like a popular plan.
Ken Strobeck: In addition to the property tax piece, we're more and more over time becomes dependent on just the sales tax and the town hall said we need to look at personal income tax and property tax and get back to the three-legged stool concept and there was recognition that some taxes are too high. Business corporate income tax. There is a call to reduce those in order to make the state more competitive to attract business and smooth out the economic cycles we're going through. That's what is killing us when we have the boom and bust cycle.
Dennis Hoffman: This is recommendation, we have to be clear. There's a call for immediate action. That's with a temporary sales tax. That's a get me over, let's get it down the road to avoid draconian cuts. Not all cuts. There's going to be some reductions in state government. A sales tax isn't going to close this gap. But while that's happening, the term that is used in here is a blue ribbon commission, an extension of the CFRC, maybe get Bill Pulst back from retirement to chair this again. One the recommendations of this commission have clear teeth in them. Listen to this, after careful study -- and we talked about broadening the sales tax base or a statewide property tax. Some complex issues that need careful study. After we study this, we hopefully, I can support some technical advice to this commission. After the citizens of Arizona study this and it calls for a broad group of input, after they study this, they take the recommendations to the legislature for a clear up or down vote on those recommendations.
Ted Simons: You take -- and a saw the recommendations, and we've talked about a couple of them so far. Almost every single mention of taxes is increase or raise. How is that going to get past?
Jaime Molera: Dennis is right, there was talk about long term tax restructuring. And in some areas, it might be an increase, others a dress. The point is we need to create a vision of what kind of state we want and develop a meaningful tax structure behind it. One the things I was very happy with, it does not bifurcate the issue of tax policy with a lot of political policies that lead to these kind of siloed systems. Like public finance and the redistricting process which tends to be skewed. All of those things have to come into play.
Ken Strobeck: The immediate issue, right now there's not enough money to pay for the services of the state government we're $2 billion in the hole. But again, it's more of a broadening and smoothing and let's take care of the issues we need. The town hall specifically did not ask us to address spending but talk about a structure that would be a revenue system and the level could go up or down. So it doesn't have to be just more and more revenue. As Jaime said, there will have discussions about what do we want to spend the money on. But we were working ton a structure that would work in good and bad times economically, that would fund the essential service of government.
Dennis Hoffman: We have $2 billion of a problem right now, but we get down to two, taking federal stimulus and selling buildings. It's more like 10-plus spend and revenues are about 6.5. If you go to a revenue structure that begins to pay more of the burden, I think you're going to find out very, very quickly how much government Arizonans really want. I think it will really help to right-size government if you ask people to pay for the services they apparently want.
Ted Simons: And that gets into --
Ken Strobeck: And tie the revenue to the services you're going to get.
Ted Simons: So you're saying unfunded mandated no more?
Ken Strobeck: Right.
Ted Simons: With that in mind, we know how the initiative process works. You put something on there as an expenditure and people will vote up. You put something on there, we're going to tax you, they're going to vote it down. How do you get past that?
Ken Strobeck: You're never going to see an initiative that says pay for the building -- that's not something that people will pass and support. All of the things, the entire package, needs to be part of the restructuring. A lot of the report focuses on the restructuring the initiative process and term limits and some of those other structural matters.
Ted Simons: The idea of making -- the report, the recommendation was make it more flexible for the legislature to go after voter approved -- what does that mean, more flexible?
Jaime Molera: When you have a situation where you have a $10 billion budget and within a year's time, it drops been to a $6.5 billion budget, a lot of voter protections are impossible to get to. Because right now you have voter protections on K-12 education, about 40-45% of the budget. Protections and health through the prop 204, which protects the Medicaid structure. Those two things can cost between 65% of the budget. You take those of the table, there's not much you can cut the rest of the government. You shut down university systems and open up the correctional facilities and let folks out. Let's be flexible in times when it's impossible to balance the budget.
Ted Simons: Do you go ahead and say, fewer initiatives per ballot? I know the recommendation is put sunset provisions on some of them. Make sense to you?
Dennis Hoffman: What about a constitutional convention to clean all of this business up. It's actually in one of these recommendations. These folks -- I don't know if it was in the water at the Grand Canyon, these folks were energized. So they see these problems that Jaime just articulated and suggesting maybe a limited constitutional convention focused at the fiscal challenges the state faces coming from the legal process, the referendum process, the tax structure, spending limits. Directions, all of that could be attacked.
Ken Strobeck: Going through the death by a thousand cuts. Whether it's initiatives or tax cuts that can be implemented with a simple majority. Where a tax increase takes two-thirds. All of this has led to the system that we have that's the big problem and as Dennis said, it's the consensus of the group we need fundamental changes through a limited constitutional convention.
Ted Simons: You open up that can and all of a sudden, you may not know what flies out. Are you ready for that?
Ken Strobeck: There was quit a debate about that. It started out a lot more broad than what ended up in the final report.
Jaime Molera: I have to admit, I think there's a can of worms, but the thing where the recommendation came out, let's look at whether or not it's needed and the legislature has to be serious and look at all of the components and the few of used that problems [inaudible]
Ted Simons: I know you had a couple of California lawmakers speaking to the group and, boy, things are bad over there. Did you learn something from these guys? I know bonding was one of the recommendations but they're saying borrowing is the worst of all options. Do you agree with that?
Dennis Hoffman: I think they have a serious gap over there. They're not addressing it realistically at all. They put huge tax burdens on the very wealthy in California and clearly illustrated that to us. The benefits are -- they're not asking the lower income tax to pay much of the burden. I think the lesson I learned, that you get more efficient government, you get government right-sized, when, again, Ted, you ask people to pay for the public services they apparently want.
Ted Simons: If you ask people to pay for the public services they apparently want right now, what response will you get?
Jaime Molera: It will be difficult. Very difficult. But that's -- but that's the kind of honesty that needs to happen and one of the things I was heartened by, is that I anticipated a lot more of the opinion -- you know, we need to raise taxes and just leave everything status quo but I think there was a healthy balance between if we do need to raise taxes, let's have a hard look at the kind of activity that is government performs and whether or not it's something that the public wants and I think Dennis had a good point. If you tax people for those things, they have to decide do they really want to do those.
Ted Simons: They have to decide, the legislature plays a major part in that. They're rigid on either side. How do you get past that?
Ken Strobeck: We talked about the bipartisan and the safe districts and the struggle to get things done. But the people who elect these folks have asked them to make the decisions and let the chips fall where they may. If they're out of office, lose the re-election, so be it. But there was a great deal of frustration, of legislative inaction. So there's a strong call that the legislature should enact, especially the short term fix and take a look at the recommendations of the commission. If they review, the recommendation is take it to the people and let me them enact it.
Ted Simons: Thank you for joining us.