Ted Simons: Good evening, and welcome to "Arizona Horizon." I'm Ted Simons.
Ted Simons: Joining me tonight are Mary Jo Pitzl of "The Arizona Republic," Howard Fischer of Capitol Media Services, and Jeremy Duda of "The Arizona Capitol Times." The legislative session is over. Lawmakers wrapped up their work last night. Pretty much as expected, no real surprise there. Correct?
Mary Jo Pitzl: Right. No last-minute bills, there were a couple last-minute maneuvers, but no surprisees. It cleared the desk of a lot of the flotsam and jetsam. And spent their last couple hours working on tax cuts, the governor's personnel reform and a skirmish over Colorado city.
Howard Fischer: I think they wanted -- remember, this is an election year. A lot of these folks are hoping to get elected, and the longer they hang around here the less time they have to go out and beat the bushes.
Ted Simons: One of the softer landings of a legislative session in a while?
Jeremy Duda: This thing goes until 1:00, 2:00 in the morning sometimes, so it's pretty easy last night.
Ted Simons: Let's get to a variety of things. We'll start with the budget. Give us an overview, we had some modest increases in revenue, but we also had the legislature getting their way on things as well.
Mary Jo Pitzl: The budget got approved on Tuesday, the fine print came out Tuesday morning, and there was a vote by Tuesday afternoon. So the usual cries of lack of transparency and lack of preparation. But there is a little more revenue in the budget. They're going to spend a little more, there's differing estimates, depending if you talk to the governor's office or the legislative offices. But there are increases, the governor got money she wanted for some welfare programs, for seriously mentally ill, for reading assistance for young kids, a little bit for building repairs on the school front. The big win for lawmakers was they got the $450 million rainy day fund, the fund exists, they put $450 million into it, saying we need this cushion because remember that penny tax is going away, and then we've got federal health care reform, and who knows what else is going to happen.
Howard Fischer: And that's really the key. This was -- who won -- everybody asks, who won on this? The legislators wanted that savings account. To the extent that they recognized that they had to give something to the governor, sure, the 40 million for the K-3 reading makes sense. You've got laws to take effect in two years that say if you can't read to the third grade level you don't go to the fourth grade. That became an easy one for them. Everyone is worried. We saw a meeting of the finance advisory committee last month, and the economist said, you know, we're predicting big increase in revenues, well, we're not sure about 2015 anymore.
Jeremy Duda: I think that's probably one of the things that strengthens the legislature's bargaining position. A lot of folks feel like it. The governor has been insisting on her revenue numbers, and once that came up, they said OK, your numbers are realistic, so she kind of had to come to the table. She gave up some education money she wanted, and she acknowledged the other day, I didn't get everything I wanted, but I still got this money for DES, seriously mentally ill.
Howard Fischer: It's a lot of education money. When she want 200 million in soft capital, which is books, computers, everything else, and essentially there's a also 15 million capital money in there, just didn't exist. A lot of money she left on the table.
Mary Jo Pitzl: The trick here was that the democrats had come out with a budget, where they spent less than the governor. So the Republicans saw that and as they were going back and forth to the governor about how much did we spend this year, they threaten informed forge an alliance with the democrats saying, OK, we'll get a two-thirds majority and we could override you, governor, on a budget, if you don't come down on your estimate of how much money we got to spend. And that sort of brought the governor's position down, because you certainly don't want to be painted as a Republican governor spending more than those spend-happy democrats in the legislature.
Ted Simons: Was that a serious bargaining chip? At first people were saying -- The longer it went the more we heard about it.
Howard Fischer: Politics are the art of possible. We've seen coalition budgets in the past. Probably what Chad Campbell would want in return for his votes might be some of the quote unquote reforms in the tax system. But they would have done what they needed to do. There would be a price to pay. The democrats might have gotten 7 million for the kids care to restore that. They would have got more developmentally disabled money. Yes, if you give the democrats what they want, they're happy to provide the votes.
Ted Simons: Did democrats wind up having any input at all, other than this kind of peripheral thing?
Jeremy Duda: As usual, none. Whatever impact they have is probably the Republicans using it as leverage. I heard someone compare Chad Campbell to Charlie brown and the governor to Lucy pulling the football up.
Ted Simons: As far as kids care is concerned, soft capital, zippo.
Mary Jo Pitzl: Right. Kids care, there was an agreement with the hospital, so they're bringing back a lot of the coverage of kids care. But groups such as the children's action alliance, the democrats kept saying if we cut another 7 million we could restore it to the levels -- serve all the kids that we were serving before that number. And the governor's office would not budge.
Ted Simons: Let's now get to this tax cut package that passed late in the session here. We've heard some of the folks that wanted to see an increase in revenue regarding children's issues and health issues, and they're saying you're putting $450 million away for a rainy day and for all the stuff on the distance, and you're also putting more tax cuts out there, which is going to hurt revenue from their perspective as well.
Howard Fischer: And Linda Lopez said this one tax bill alone she figured by FY-19 we would be losing 100 million a year. The problem becomes how you look at it. You ask Steve Yarbrough, he'll say yes, we will not have these dollars, but if we cut the capital gains, people are going to have more money in their pocket. They'll go out and invest and that will create jobs, which will employ more people who will pay more taxes. The problem I've always had with this whole issue of capital gains is me buying and selling McDonald's stock, I haven't seen that creating more jobs in Arizona.
Jeremy Duda: You talk to a lot of economists, there's a -- you talk to a lot they'll say this has no impact, because a lot of times they're buying and selling stocks. It's not creating jobs for people. But that bill started off a lot bigger. Originally the plan was a total phase-out of capital gains taxes. The governor's office put its foot down from day one, and Andy Tobin, who was pushing the bill spent most of the session trying to find a way to make it palatable to the ninth floor.
Ted Simons: We're talking 25% individual capital gains cuts, cuts to businesses as far as their equipment is concerned, and this loss was a five years now goes for 20 years?
Howard Fischer: This is an interesting provision that may make some sense. Right now if you have a loss, you can carry it forward to offset for future profits for five years. If you're a new company you have losses for some period of time. If you can carry it forward for 20 years, given the level of your losses when you first started up, you can really offset your taxes. Is there a loss from that? Of course. They've got some one-time bonus depreciation figures, new tax credits they've expanded some tax credits, it used to be just for solar and other manufacturing facilities. I think the real concern was expressed by people like Ron Gould who said, wait a second, half of this bill came out at noon, it's 1:30. Why am I voting on this? This is how bad things happen. This is how we end up with mistakes. This is how we ended up with all fuels where we're giving credits for people to buy alternate fueled vehicles and everyone said we didn't put a cap on that? And I think that's a scary part.
Ted Simons: Is it a scary part to the governor do you think?
Mary Jo Pitzl: No, because this was an agreement worked out with her office on the understanding had been get the budget done, and then they create what they call the box, and the idea was there would be a total of about $20 million in tax savings in fiscal '14, and 40 in the year after that. There are no tax cuts of any substance that are supposed to take place next year because the governor's edict is that no tax cuts while my temporary sales tax is in place. That runs for another year.
Ted Simons: And so when the temporary sales tax conceivably ends, a lot of these tax breaks kick in, that's got some revenue issues there.
Jeremy Duda: Major revenue issues. That goes away as all the stuff from the Arizona competitiveness package, this massive omnibus economic Development bill, we might have to start implementing the affordable care act, which will cost a lot.
Howard Fischer: Again, it comes down to what do you believe in your economic theory? There are people who believe the tax cut package passed last year, which has not yet taken effect, has already created certain jobs with the companies saying, look. The corporate income tax rate is going down. I'm willing to invest here. There is something to be said for certain kinds of tax cuts do stimulate the economy, the question becomes which one? And there's a limit. If you take the -- the lower you take your marginal taxes the more revenues you build in, we go tax rate to say, we must be wealthy.
Mary Jo Pitzl: Partially because of these -- the effects of these tax cuts, that's why the rainy day fund becomes important. The Republicans won't say that, but they acknowledge that there is this cliff, and there's hoping as they love to say, to turn night a curb. Not such a tumble to go off of.
Ted Simons: I like that one. We've heard a lot about the idea of a mortgage settlement fund that attorneys general around the country worked out, Arizona getting 97 I think, 97.7 some odd million as far as being able to use, to help folks who are hurt by the financial crisisis, the housing crisis, except --
Howard Fischer: not anymore. Here's the deal. This is like a $26 billion nationwide. Most of the money is going to the people who were foreclosed on either to help them refinance or if they were already foreclosed, to give them certain damages, up to $2,000 a person. We all see that 97 million, which was supposed to go for counseling people, helping them navigate these various programs. Giving them legal help. The legislature looked over and said, hey, this money is supposed to go for the state of Arizona, we're going to take half of it. Here's what gets real interesting. If you look at the contract that the attorney general signed when he took the money, it spells out what is supposed to be used for, and it seems to be fairly clear it's to help people. Horne is not going raise a stink, there's going to be a lawsuit. Guess who will defend taking the money out of his own fund? Tom Horne.
Ted Simons: I think people might be confused. The money was specifically designed to help folks for a specific purpose, the state is saying, we can help them to a certain degree with that purpose as well, and this money by constitutional edict is supposed to go to us.
Jeremy Duda: One of the things it says in the settlement is that the money is supposed to be use to emealor it a the effects of the foreclosure crisis. The governor is saying, one of the biggest effects of the foreclosure crisis, we've lost tax revenue, so the money is going to the state. Look at the things we would have cut otherwise.
Mary Jo Pitzl: And to make people feel even a little bit better, we'll try to direct that money to the department of real estate, the department of insurance, which has some kind of nexus with housing, but the problem is once something is in the general fund, it's all the same soup, this is why this gets caught up with an argument about this money is being used to pay for private prisons. That was an initial thought from around the negotiating table. Needed money for private prison, here's a place to get it. Once you dump that 50 million into the general fund could you argue it pays for whatever you want it to pay for.
Ted Simons: Sounds like a lawsuit waiting to happen.
Howard Fischer: Oh, it's going to happen. Tim Hogan has already been contacted. We know how much he loves to sue. I'm sure he told you how much he loves to sue the state.
Ted Simons: True or not, Missouri, I saw Wisconsin, they may have had the same situation. And they may have used the money in the same fashion. Is that true?
Jeremy Duda: A couple of months ago Missouri, Wisconsin both used their mortgage settlement money for that. Some other states, Pennsylvania and a couple others have used small parts of it. The problem, if you look at the settlement, it's a 48-state settlement and every state has different criteria for how it can be used. Some of them are very generic, some are very specific, like Arizona's.
Howard Fischer: That becomes an interesting issue. Tomorrow Horne signed it -- Tom Horne signed it and said this is what we're use can it for. And I asked him, does that make you in breach of contract? He said of course not! Typical lawyer talk.
Ted Simons: He seems to be on the both sides of the issue.
Howard Fischer: You've had him on and he's been on both sides of the issue.
Ted Simons: Let's move on. As far as Russell Pearce is concerned, and I mentioned Russell Pearce, but technically this wasn't supposed to deal with Russell Pearce. But the idea of reimbursing candidates who were recalled like Russell Pearce, this whole idea, this caught wind toward the end, again, didn't it?
Mary Jo Pitzl: If there was any last-minute surprise, or attempt, this would be it. And there is a provision in the state constitution, I think we said this last week on the program, that allows for reimbursement of reasonable recall expenses of a candidate. There's never been a statutory language that clarifies, how would that work? How would you do that? So heeding now this constitutional call decades after it was written, lawmakers sat down on Wednesday and tried to hammer out some language. But the way it was written, it would be retroactive till November of '11, and if you remember what happened in November of 2012, there was a recall of a certain senate president in the 2011. This drew lots of fire and although the bill got out after conference committee, it stopped there.
Howard Fischer: And it wasn't going to happen. Look. Do you want to be the one to go home and seek reelection and say, one of the last things we did, we made sure Russell Pearce is in line for $260,000. Even as we're cutting kids care and everything else.
Ted Simons: Yet, reports from capital reporters were that the caucus was pretty much split in half. It sounds like a lot of folks were willing.
Howard Fischer: There is a constitutional argument to be made. The constitution says that the legislature shall make provisions, there was a law in the books until the 1970s, I think it had $500. A flat amount. They repealed the law, they never fixed it even during the Micham administration -- and there is a legitimate reason. Doing it right now, or as Ron Gould said to me, if we were took this absent something else, it's just an academic thing, I'm all for obeying the constitution. But to do it now in one situation, not a good idea.
Ted Simons: Is this -- does this go to anyone who faces a recall, or does it go to an incumbent who wins the recall and because it could be considered somewhat much a nuisance effort, they get reimbursed? Is it just go to anyone who is recalled? That doesn't seem to make a lot of sense.
Jeremy Duda: We don't know. It's never been used. That's part of the problem. Russell Pearce said this would go straight to my campaign, other people aren't so sure. People don't know if it would violate campaign finance laws. People don't know how it works, it's never been done.
Mary Jo Pitzl: I thought the way the constitution is written would it apply to any elected official who is recalled. So it wouldn't apply to Jerry Lewis, who was a challenger.
Ted Simons: But if Russell Pearce had won the election, it seems like that would make, wouldn't it --
Howard Fischer: that's not what the constitution reads. Here's what really gets interesting. Russell Pearce spent about $261,000. At of which came either from his leftover 2010 money, or other donations. He did not spend any of his own money. Let's assume for argument's sake he were not going to run for election in 2012 and just had all this money. He had already got his expenses paid for, it seems to me you want a gift clause, now you are giving him $260,000 to reimburse him for money he never spent. I think that complicated the matters.
Ted Simons: Not personal money, either.
Jeremy Duda: It was all raised from individual contributors, political committees, lobbyists. And I was pretty surprised when I talked to Pearce last week, he said I don't know if I would take it, I might, they have a constitutional duty to offer it. That goes over great with Republican primary voters. Giving government money to people's privately funded campaigns.
Ted Simons: All right. Personnel reform, we mentioned it, that was a biggie toward the end. Give us a --
Ted Simons: basically easier to hire and fire?
Howard Fischer: Essentially the idea of the governor, I want to make government more like private industry. In other words, you go to work at capitol times, the republic, if I had a staff of my own perhaps, at Capitol Media Services, I don't like the job you're doing, I can fire you. I don't have to give you procedural due process, I don't have to give you a hearing, there's no independent personnel board reviewing that. And the argument is that there's certain people who are not doing a good job, the other half of the argument is there's certain people doing a great job, but because of the way the system is structured, if you're an administrative assistant three, you get paid the same as every other administrative assistant three. This allows somebody to be rewarded. Flip side of that, if you kiss somebody's tush long enough you're more likely to get rewarded and that's that whole cronyism issue.
Ted Simons: Or if you're a number three and you're doing a bang-up job but your supervisor doesn't like you, adios.
Howard Fischer: And that is the question that's raised. The governor's argument is we have state agencies that operate like that right now. Office of tourism, department of gaming, and we haven't had issues of cronyism there. But there's still the fear the reason these systems were put in, the people who remember Chicago style politics, the people who remember hey, you helped me get elected, would you like to become a department head?
Ted Simons: Democrats were asking why the sense of urgency on this.
Jeremy Duda: Democrats, I think they probably would have opposed that no matter what. Brewer tried to get this through last year but it never got much traction. She didn't push very hard, and by the end of the session no one was happy with her anyway.
Ted Simons: Do we know why this is so important for her? She's pushed this pretty hard twice now.
Mary Jo Pitzl: I don't know her.
Ted Simons: She hasn't real -- she just basically wants to make that change.
Mary Jo Pitzl: She says to make it more ease of hiring and firing, being able to reward good workers. We've heard the talking points. I don't know if there's any motivation beyond that. This will apply to all new hires. Going forward, for people that are already in the system, the budget contained a one-time bonus for anybody that's willing to switch over. And lose their protected status. It winds up being about a 3.75% one-time increase in your pay.
Howard Fischer: And that is going to be interesting, because the original plan by the governor was a permanent 5% increase in your base, to give up your rights. Now, if I'm a state employee and I'm not so sure about what my boss is up to, OK, so I get a 3.7% increase over the course of a year, but then guy back to my other wages and I'm still stuck with the boss. I do really want to give up these protections? I think it's going to be a hard sell.
Jeremy Duda: This underwent one significant change this week, law enforcement, DPS, highway patrol, they had been excluded from this. No one wants to mess with cops, but they're politically popular. But the police agencies, unions had been arguing for months saying this should not affect our civilian employees. The governor had been resistant to changing that. There have been Republicans in the legislature who wanted to, and finally they gave in and excluded them as well. So they're not under this new system either.
Ted Simons: If it's such a great idea, shouldn't everyone be involved?
Howard Fischer: Politics playing a role? I'm shocked of you, Ted.
Ted Simons: All right. Not so shocked the Republicans seem to be going after the independent redistricting commission yet again. And it sounds like -- explain, give me the authority now for the legislature to sue.
Mary Jo Pitzl: Right. Both the house and senate gave their respective leaders the authority to either intervene in existing lawsuits that were filed last week or to file their own suit. Speaker Tobin, who has led this charge, has said he wants to challenge the congressional map. Will he doesn't want to mess with the district lines for this year's election. But he believes that the U.S. constitution has only the state legislatures can draw the lines at least for congressional races.
Howard Fischer: and this is going to be a fascinating argument. It does -- article 4, part 1 of the U.S. constitution says that the job of drawing these lines is so the legislatures of the several states. Well, here's the problem. In Arizona in 2000, the people of the state of Arizona voted to give legislative authority to draw the lines to the commission. And you could make the argument that there is not just one legislature in Arizona, but that for the purposes of redistricting there's actually a separate legislature.
Jeremy Duda: And the Supreme Court, the U.S. Supreme Court for 100 years has recognized since the advent of the citizen initiatives and the progressive states in the west, that a citizen initiative is a legislative function. So there's a lot of debate over what does it mean by legislature. The Supreme Court has said, a citizen vote is a legislative act.
Ted Simons: OK. So basically we've got the possibility of what, one-time election with the current maps, then something changes, the current maps could still be changed?
Howard Fischer: Well, you've got a situation, and this happened a decade ago, where a three-judge federal panel said, one set of maps for the 2002 election saying, these are close enough, we really want to you fix them and a different set of maps for 2004. In fact the lawsuit that's playing out in federal court over the legislative maps is asking for a three-judge panel to draw different lines for the legislative races. The problem they're going to have is -- the deadline for candidates to file is may 30th. They haven't even gotten a response from the state to the lawsuit to set the lie. I don't know what point a court will say, you've already filed for this district, but we're going to change the lines.
Ted Simons: Very quickly, give me a headline for this legislative session.
Mary Jo Pitzl: The fleeting 50th. We had a lot of members who left, either to pursue other offices or because of scandal, and we've got a lot more at the end who will leave many at the end of the super majority.
Ted Simons: Headline?
Howard Fischer: Special morality legislature, wasn't guns or budgets, it was issues of abortion and contraception, and bible studies. The moral majority took over at the capitol.
Ted Simons: Headline?
Jeremy Duda: So long super majority. We hardly knew you. They were very excited about this when they got elected in 2010 and they didn't do much with it.
Ted Simons: Interesting. All right. Good stuff. Good to have you here. Thanks for joining us on "Arizona Horizon."
Ted Simons: Monday on "Arizona Horizon," business experts talk about what state lawmakers did to help, or hinder Arizona's business and economic growth.
Ted Simons: And encouraging news regarding a just-released jobs forecast for Arizona. That's Monday at 7:00 on "Arizona Horizon."
Ted Simons: Tuesday, how the state budget and new laws could impact K-12 and higher education, Wednesday the senate president and speaker of the house talked about their legislative accomplishments. Thursday the artistic director and founder of childs play takes us inside the organization, and Friday we are back with another edition of "The Journalists' Round Table."
Ted Simons: That is it for now. I'm Ted Simons. Thank you so much for joining us. You have a great weekend.