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February 2, 2010

Host: Ted Simons

Alternative Budget

  |   Video
  • An alternative budget has been introduced in the state legislature with fewer program cuts than leadership’s budget. Representatives Chad Campbell and Bill Konopnicki discuss the alternative budget.
  • Chad Campbell - State Representative
  • Bill Konopnicki
  • State Representative
Category: Legislature

View Transcript
Ted Simons: The Arizona state senate today approved putting a one-cent increase in the state sales tax on the May 18th ballot. The senate also voted for other measures to help close the state's budget gap, including borrowing, spending delays and a tax increase for non-residents.

Ted Simons: Also from the legislature -- a bipartisan budget plan is starting to make noise. It's being called the "orphan budget" because initially no one claimed credit for crafting the proposal. However, the orphan budget has been adopted, so to speak, by representative Bill Konopnicki, who is sponsoring the legislation. The proposal would have fewer cuts than leadership's budget and would do more to increase revenue. Here to talk about the alternative budget is Representative Bill Konopnicki and Representative Chad Campbell. Good to have you both on "Horizon."

Chad Campbell: Good to be here.

Ted Simons: Who is involved with this orphan budget? Are there cosponsors?

Bill Konopnicki: It's a bipartisan effort to deal with the real issues and at this point, I don't think we have cosponsors identified, but there will be some.

Ted Simons: In terms of numbers, how many involved?

Bill Konopnicki: Seven to 15 depending on which piece of the budget you're talking about.

Ted Simons: Understanding there's some local economists involved. Maybe some economists not even from Arizona, correct?

Chad Campbell: I think the key to the budget, as Bill and I talked about, it brings in a diverse viewpoint from different walks of life from the business community, from the legislature and community leaders and it's something that we've been lacking in terms of the process over the past year and it's a comprehensive approach to a difficult problem.

Ted Simons: It's six, eight, somewhere along these lines, bills would wind up out of this.

Chad Campbell: Bill would know better than I.

Bill Konopnicki: About eight bills.

Ted Simons: And a five-year plan, correct?

Bill Konopnicki: That's correct, a five-year plan with concise pieces to spell out what we need to do to get out of this situation.

Ted Simons: Let me tell what you I've heard. You tell me if I’ve heard wrong and maybe we can get some details behind it. It includes a healthcare tax and food tax.

Bill Konopnicki: That's correct, but the healthcare tax is what's called the bed tax. Other states do that. But we need a bed tax, a provider tax and those are federally matched dollars. Generates in the neighborhood of $1.2 billion for Arizona. The food tax is certainly one that brings a lot of grief to a lot of people, but there's no way to just work our way out of it without having a better tax base.

Ted Simons: Food tax would be difficult for Democrats to get behind.

Chad Campbell: Food tax is a tough one and there's a lot of tough choices in this package. I do want to point out, not saying we're going to have support for this. But built into the food tax is a $250 million offset for low-income individuals and any tax we're talking about has to have those offsets to get buy-in from both Democrats and Republicans.

Ted Simons: I was going to say on the Republican side, I'm guessing a call for the increase in the income tax is not going to go over well.

Bill Konopnicki: Any increase is not going to go over on the Republican side. We’ve already made decisions that have put us in a position that we’ve increased taxes we just haven't figured out how to pay for them.

Ted Simons: And you haven’t figured out how much of a income tax increase and these things? School tax credit, eliminate school tax credit?

Bill Konopnicki: It does. For the public and private school tax credits.

Ted Simons: And on the other side, something that the Democrats have to figure out how to support, reducing the corporate income tax starting in 2014.

Chap Campbell: Reducing business taxes is not a bad move as long as it's offset by other revenue increases somewhere else. The bills we voted on last week, were done in a vacuum. We can't go out and cut taxes and not find any other revenue. It's a comprehensive package.

Ted Simons: The speaker has said that you show him a budget and put it in bill form, he'll allow it to be heard. This sounds like it's close to or in bill form. Think it will get heard?

Bill Konopnicki: It's not in bill form yet. We're working on that. And I believe the speaker. We’re going to move forward and hopefully he'll hear the bills.

Ted Simons: We have Kavanagh saying he's not going to hear it.

Bill Konopnicki: His job is to be the keeper of the guard and that's probably a natural reaction and he hasn’t looked into the bill and it's something that needs a hearing.

Ted Simons: The concept has been talked about for a while. We've heard rumbling last week and maybe earlier. Was the initial plan to keep it quiet, so it couldn't get any opposition brewing or to keep it quiet so everyone knew something was happening, you best get your act in order?

Chad Campbell: I'm not sure we were that organized. I think the key was trying to get a variety of viewpoints into a process that wasn't going to be politicized and that's our goal and what we're dealing is with a political element. We need to set aside election year politics and look at the $4 billion deficit we're dealing with in the state and deal with what’s right for Arizona and not for our elections and I think that was the goal of the package.

Ted Simons: How do you convince the fellow Democrats to do that?

Chad Campbell: What I just said, we have to convince everybody. Democrats and Republicans. We have to set aside politics and do what’s right.

Ted Simons: How do you convince fellow Republicans that this needs to be looked at seriously and taken care of?

Bill Konopnicki: We need to come together as Arizonans and deal with the issues and quit pretending we have solved the problems when really we've delayed the decisions.

Ted Simons: Is there a way to do that? We've had special sessions and nothing has been done. How can this get past that hurdle?

Bill Konopnicki: It may not. The interesting thing is that this budget is fluid and we're willing to work with anyone. The goal is to have a balanced built which we don’t have now and if you want to change things then change this but at the end it has to be a balanced budget.

Ted Simons: Let's be honest here. Are you optimistic this is going to get anywhere?

Chad Campbell: I'm optimistic this will start a conversation. It may not be this exact bill but starts the conversation towards the comprehensive package we can all get behind. It's a long run, but I'm an optimistic.

Ted Simons: Sounds encouraging. Thanks for joining us.

Chad Campbell: Thanks, Ted.

CityNorth Tax Incentives

  |   Video
  • What the Arizona Supreme Court ruling on a tax incentive agreement between the City of Phoenix and the developer of the CityNorth retail development means for the future of similar tax incentive deals.
  • Clint Bolick - Goldwater Institute
  • Tim Berg - Attorney
Category: Business/Economy

View Transcript
Ted Simons: A recent Arizona Supreme Court ruling allowed incentives given to developers to Phoenix's CityNorth project to stand, even though the court thought the city did not get enough in Return for the deal. But the ruling does impact future incentives to developers. Joining us to talk about the court's decision and where we go from here is Clint Bolick of the Goldwater Institute, which filed the suit against Phoenix. Also here is attorney Tim Berg, who represented the city of Phoenix in the case.

Clint Bolick: Great to be here.

Ted Simons: Thoughts on the Supreme Court decision?

Clint Bolick: The court got it almost entirely right. Basically saying that under our constitution's gift clause, that give-aways like the CityNorth deal are not going to be tolerated any longer. But kind of gave the city a Mulligan on the CityNorth deal saying we understand you could be confused by past decisions so we're going to let this go.

Ted Simons: Was it a clear win, loss in this, or seemed a little muddled?

Tim Berg: Frankly, we're very happy with the result in the case. We think the court did three things that are good from the point of Phoenix and cities generally. First, vacated the court of appeals for gift clause compliance which was a restricted and unclear test. Second, it adopted a clear view of public purpose. What cities can look at projects for. And recognized that it ought to be the city council that decide that's, rather than the courts. The last thing it did was set a framework for the courts to decide and frankly for cities and contracting parties to decide whether the deal they're putting together will pass muster under the gift clause. I think it's a positive development from that point of view.

Ted Simons: Is that broad view a good thing or are we going to have these cases flying up all the time?

Clint Bolick: It's unclear. Whether the city can read this decision and constrain themselves. They've engaged in incredibly destructive conduct by trying to outbid each other to give subsidies to developers. If they say there's things we can't do with taxpayer money, we're not going to have to sue anybody.

Ted Simons: You mentioned how broad this is in terms of the gift clause. What is the gift clause?

Tim Berg: The gift clause provides that the government, the state, cities, counties, shouldn't give money to private people. I mean, it forbids a gift or donation, essentially. And the test of whether something is a gift or donation then becomes was it for a public purpose or did the city or government entity giving the money get something back that's appropriate value back so that you have a real exchange of value between the two.

Ted Simons: I know the indirect benefit, the court said those cannot be considered. If you're talking indirect benefits being jobs, being tax revenue and these things, a lot of these deals are based on those, aren't they?

Tim Berg: Part of it will depend on how the deal gets structured. Jobs may be something where you may be able to structure it to make that a direct benefit by requiring the party to guarantee it will provide so many jobs. An example in the case we had, for example, is I think if the city had gone out and bought a parking garage and had gotten one in exchange for the money it was paying, Clint and I might fight about whether we paid too much or too little for the parking garage, but I think that's what the court says the new test is. Did you get something and was it of the right level of value.

Ted Simons: Interesting, the idea if the city were to pay a certain amount and get in return, 800 jobs. Would that have made sense?

Clint Bolick: If the developer can guarantee it and deliver it, that would be adequate consideration depending on how much the city was paying. But that's not what's happening in deal after deal and the CityNorth is a classic example. A Chicago developer comes in and says I'm going to build Shangri-La and it will produce so many jobs and so many wonderful benefits and we've seen what happened. It's a ghost town and a disastrous decision by the city and the court said if you're going to promise that other people are going to suddenly come forth and give you benefits, that's not good enough for forking over taxpayer money. In this case, $97.4 million.

Ted Simons: Can it be fine-tuned to where there's a better idea, a better guess or what kind of development is going to happen and what success a development will have?

Clint Bolick: It's got to be more than a guess. It's got to be that these benefits are actually delivered. If a company says I will create 600 new jobs that didn't exist in Arizona before and I won't get a dime unless I deliver those jobs, that's fine. But if they come in and say, oh, you know, when we build this shopping center, you know, it's going to generate untold billions of dollars in tax revenue the and it's based on somebody's guess or forecast, that's not good enough anymore.

Ted Simons: You mentioned shopping center. It seems like spec projects and retail projects could be hurt by this decision, do you agree?

Tim Berg: I think it will depend on how you structure the transaction. I think what the city and future developer of a retail project are going to have do is sit down and come up with a way of guaranteeing it the city pays money, it get specific value back from the developer of the project. If may be in the form of a parking garage or in the form of jobs that the developer actually provides itself as part of the project. I think it depends and it's hard when you sit there with a court case it think of all the different ways you can do things. But the advantage of this court case is it gives the city and people who are contracting with the city, developers, more guidance on how to do that.

Ted Simons: The critics of the Goldwater Institute in this case --

Clint Bolick: There were critics?

Ted Simons: There were some. It's hard to believe. A lawsuit like this, it gives the image of Arizona of being difficult to deal with. At a time when we're trying to get business out here, incentives are part of some deals in other parts of the country, they're looking at the headlines and thinking, I don't know if I want to deal with that.

Clint Bolick: The problem was, it was too easy to deal with. Just about any corporation could come in and roll the state. What this state needs to do is establish sound economic policy. It's the entrepreneurs who are the backbone of our economy but they never get subsidies. They simply pick up the tab. We need low taxes and moderate regulation for all businesses, not the government picking winners and losers and using taxpayer money on a roulette wheel.

Ted Simons: How do you respond to that?

Tim Berg: I think the real answer, remains to be seen. I think there's an issue about us competing with other states. For example, if Arizona wants to attract a major employer and that employer is looking at a place like Las Vegas on Albuquerque, it's going to remain to be seen how it works and whether we're put at a competitive disadvantage. I think the court's opinion gives us enough room to continue to be competitive that will get jobs here and I agree with Clint to a limited extent. It's important to have all kinds of business flourish here. Whether it's small business, medium sized or large. But I think it's naive to assume we can continue to prosper as a state by tying one hand behind our back and let the other states attract the large employers that help drive the economy also.

Ted Simons: If you were to find out that certain deals, certain cities were working with regarding companies out of state had fallen through or slow to buy in constant pressure, no incentives or incentives in kind, does that help Arizona at its core?

Clint Bolick: The pick and choose benefits that are given to the largest corporations don't help Arizona, and, you know, the Goldwater Institute is second to no one in advocating business-friendly policies. But so many times these deals don't work out. They don't deliver. CityNorth is a classic example. They don't deliver the promised benefits and companies up and leave for the next best offer. We need a business climate, a tax climate, a regulatory climate that is consistent and consistently positive. And that way not only do you attract and you keep them here.

Ted Simons: So we don't have as many failed projects as we apparently had, was the decision a good thing?

Tim Berg: I think the decision is a good thing. One, because it reaffirmed that public purpose is broad. The government does have a role in things like economic development. And two, because it's made it clearer, I think, for both cities and developers when they sit down and try to make a transaction like this work. What it is they have to put in the transaction to make it work. I think anything that provides additional certainty, unless it's so draconian that you can't do anything at all, can be helpful for cities and businesses.

Ted Simons: Last question, so many of these are based on tax revenue, is Arizona too dependent on the sales tax? Would this thing solve itself if we did a different code as far as our tax structure is concerned?

Tim Berg: I'm not a tax lawyer or economist, so I don't know what an optimum tax structure would look like. I think it's reasonable to assume that some kind of sales tax is going to be part of a tax mix in a state like Arizona and, therefore, you have to be able to structure these kinds of transactions in ways that is development produce bad results under tax policy.

Ted Simons: What do you think?

Clint Bolick: I think absolutely. Our sales taxes are already too high. They destroy jobs and cities are too dependent on them which makes them do crazy things and that's why we have to file lawsuits.

Ted Simons: We have to stop it there. Thanks for joining us. Appreciate it.

Credit Union Lending Cap

  |   Video
  • A bill that would allow credit unions to lend more to businesses has been introduced in Congress. Scott Earl, CEO of the Arizona Credit Union League, will talk about the bill.
  • Scott Earl - CEO,Arizona Credit Union League
Category: Business/Economy

View Transcript
Ted Simons: A bill has been introduced in Congress that would allow credit unions to lend more to businesses. The bill is supported by the Arizona Credit Union League, which says the new law will help create jobs. Here to talk about the bill is Scott Earl, CEO of the Arizona Credit Union League. Good to have you here.

Scott Earl: Great to be here.

Ted Simons: Promoting lending to small business act. What's it all about?

Scott Earl: Credit unions is a not for profit cooperative. I think the first was organized 1929 here in the state. We traditionally made business loans to our members and but we're under a 12.25% cap -- 12.25% of our total assets is the most we can have in business loans. That's hamstrung us a little bit and with the worsening economy, small business finds it tougher to find credit, lines of credit loans and we believe we can step up and make a difference there.

Ted Simons: This would raise the cap to 25%.

Ted Simons: There's a bill in the house and senate promoting lending to America's small business act and enhancement act in the senate. They raise the cap to 25%. That cap raising, we believe in the first year, would mean here in the state of Arizona, would mean an additional $120 million in new capital would be available to small businesses. And that could mean as many as 1300 jobs. At the national level, as much as $10 billion and 108,000 jobs.

Ted Simons: And the max limit as far as the loans are concerned jumps from 50 to 250,000 before --

Scott Earl: Before it starts to count toward the cap.

Ted Simons: The law which puts you at 12.25.

Scott Earl: Yeah.

Ted Simons: Folks thought it was necessary then. Why not now?

Scott Earl: From our inception ‘til 1998 there was no limit on what we could do in business lending. In 1998, there was a credit union membership access act passed. That defined a few things about how credit unions attracted membership and how they set up their fields of membership in the process of all the horse trading that went on back then, this was put in place. Primary at the urging of the banking lobby.

Ted Simons: Ok. The banking lobby is not particularly enamored with the fact that credit unions are not for profit and tax exempt. Is it fair for the credit unions to get this much involved in business lending?

Scott Earl: I think the bottom line, we're still just lending to our members, there's no profit motive for us and we believe that that tax exemption flows to the credit union members and can flow through to small businesses. It’s a win for small businesses.

Ted Simons: Critics of the bill say if a small business needs a certain amount of money, they can go to the banks. The banks right now are restrictive in lending for a variety of reasons, which we're aware of, but still restrictive considering the climate. Why should we feel confident that the credit unions will sail the waters any easier?

Scott Earl: I think one of the reasons that banks are reluctant to lend right now, in many cases, regulators are stepping in saying you've got too much concentration in business lending. We're in the opposite position. A majority of our loans are in consumer loans. This allows us to diversify our portfolio and at the same time help small business.

Ted Simons: The idea -- you can see the storm clouds from those who would oppose this, staying banks got in trouble with risky lending and not enough oversight. Whatever the reasons are. What keeps credit unions from again, going down that path?

Scott Earl: I think credit unions have proved we're prudent business lenders. Our numbers stand on their own. Let me share those with you quickly. If I can find them in my notes. You know, even in these tough economic times our lending loss rate are lower than even our consumer loans. In -- and we have much smaller delinquency. You can compare that to our counterparts at the banks. September '09, which is the most recent figures, banks delinquency was at 2.28%. Ours at .44%. We're doing the loans and doing them right and we've got the money to lend. And if congress allows us to move the cap and those dollars become immediately available. $10 billion nationally and no cost to the taxpayer, that's what is great about this bill. It's a simple no cost to the taxpayer. Today, President Obama did a press conference saying he wanted to give $30 billion of the tarp money to help them lend to small business. That's a plan to some may support but at the same time we've got an option that's $10 billion right now that doesn't cost the taxpayers anything.

Ted Simons: And yet another concern here would be that you've got these not for profit co-opts and some folks call them the best secret in banking right now in terms of investment and these things. And sailing off choppy waters and I don't know what metaphor I can use now. Or cliché. But why do you want to -- is there a chance of overreaching here?

Scott Earl: That's a good question. I don't believe so. I think the credit unions that can do it will do it well. Those that don't feel comfortable will stay out of it. The safety net, we're run by volunteer boards of directors. If you use a credit union, you're an owner and can be on that board. That board sets the direction for that credit union. The course. And if they're not comfortable with business lending, it's not going to happen. That's a great safety net.

Ted Simons: Timetable for the legislation?

Scott Earl: There's a committee hearing on February 12th, Friday, February 12th, and they're going to be talking about small business lending and we'll testify there and we're starting to feel momentum on this bill. But congress needs to hear from us by next Friday. If a small business owner is interested in getting this passed, they need to write a letter to Barney frank. And if you need help you can go to our website.

Ted Simons: You got it in, you son of a gun. Thanks very much for being here. We appreciate it.