Ted Simons: Good evening and welcome to "Horizon." I'm Ted Simons. Joining me tonight are Mary Jo Pitzl of "The Arizona Republic," Howard Fischer of Capitol Media Services, and Mike Sunnucks of "The Business Journal."
Ted Simons: A job creation bill that includes an array of tax cuts for businesses is signed into law this week. Mary Jo, what exactly -- we've gone over this so many times. Let's try to condense what this bill does.
Mary Jo Pitzl: Well, in a nutshell, it cuts a variety of taxes aimed at businesses with the idea that this will provide an incentive to bring more business and more investment capital to Arizona and it also authorizes the Arizona commerce authority, a private-public partnership that they believe is going to be the way that Arizona gets good businesses and keep the ones that are here.
Howard Fischer: The real key behind the bill is a big drop in corporate income taxes. We have a 6.96% corporate income tax rate which puts us among one of the highest, this would bring it down to 4.9%. Starting at 2014 Phased into 2018 and probably make us among the lowest in the region and that's important for some companies. The other key piece, they're going to change the form that companies can use to compute your income tax. Based on how much of your product is sold, you can do that entirely on sales. So let's assume you make missiles. Probably not a lot of sales of missiles in Arizona. You can take the corporate income taxes down to zero.
Ted Simons: What was it before this?
Howard Fischer: 80% would be based on sales, the other 10% divided between property and payroll. None of that will matter and sales are somewhere else, no corporate income taxes.
Mike Sunnucks: They did for Intel a few years ago and Intel announced a big plant in Chandler, a thousand jobs and they pushed for that and you could see -- in Tucson, they did this. They expanded the exemption on business equipment and machinery which has been headache for businesses for a while. This is something that the business folks pushed and hoped to get it over the past few years and got it in one big bill.
Howard Fischer: With today's announcement by Intel of the new fabrication plant, how much of this was necessary? I don't question that our corporate income tax rate needs to go down and probably business tax exemptions. We tax your land and buildings and every piece of equipment. But Intel had been planning this plant probably for six to 12 months and willing to come here with a different sales tax ratio and now you have the situation we're giving away the store. The price tag is $538 million.
Mary Jo Pitzl: Included in the bill is something that Intel would qualify for, we don't know if they'll apply for, it's a tax credit that goes -- it's the quality jobs program. $3,000 tax credit for every job that a project brings up to 400 jobs, you can take it three years in a row. There are a lot of people running around at the capitol saying why does this need to be in there? It's aimed at getting good-paying jobs. Companies that can pay 65% of the healthcare cost above the median wage and they're not going to come to Arizona for a $3,000 credit. But guess what? Intel qualifies for it.
Mike Sunnucks: And we complain we don't have high-wage jobs. Wal Mart is a big employer, a lot of service jobs, retail jobs. And so one of the things was to get those types of jobs here and you're going to see the folks who back this bill. Whether Intel comes because of that, or not, here's the types of jobs we're going to create and we're competing with China and the Asian countries that can beat us on costs and I think we have the pressure to do things like that.
Howard Fischer: I've never questioned our business property tax rates and things are competitive. But the question becomes how much are we giving away? We've done this year after year, we do elephant hunts. We were going to get amusement parks and give breaks to them or the movies and we think if we throw new money at it. And that's my concern, somewhere there, there's a happy medium.
Mike Sunnucks: We have attracted Intel here and Intel has suddenly or directly tied those things to sales. In the past we created a foreign trade zone for them to give property tax breaks for when they first came to Chandler> And so I think semiconductors have worked out. Where you're right, some of the others --
Howard Fischer: That's my point. They were going to expand here. At an 80% sales factor, they have an 80% break already and yet we felt the need to throw in more. We're cutting K-12 and cutting people off healthcare, where is the line there?
Ted Simons: Let's talk about the line that -- the phase-in line 2014 for the cuts and builds through 2018, where you get -- whatever -- this is by design, supposed to kick in after the sales tax goes away. So --
Mary jo Pitzl: Yeah.
Ted Simons: -- that's a lot of revenue that's not there anymore.
Mary Jo Pitzl: I don't know if you want to be in the legislature in 2014. And trying to balance a budget. The sales tax expires, the temporary increase expires in June of 2013, and six, seven months later, the bigger tax cuts phase in so the sales tax brings in about a billion extra a year, that's going to go away and then the taxes will start to go away as well. In terms of taking away revenue. The hope is it will attract new business it will make up for that, but that's -- that is unproven, nobody at the capitol can tell you how many jobs this bill will generate.
Ted Simons: I did want to bring this up, obviously, there's political ideology going on. Trickle down supply side economics. Arizona is going to get a chance to see if this things holds the way it is, get a chance to see if it will work or not.
Howard Fischer; We're an interesting laboratory. Or Colbert calls us the meth lab of states here. If you're going to do this test, you have to have a control. The fact is as the excess of homes dries up and people move here and the 401(k)s get better, and people move here again, our economy is going to improve no matter what, how do you have control for what otherwise would not have happened. I don't question in 2014 we'll have more revenues even with a billion dollars a year of sales tax going away, the question is how much this would have happened anyway?
Mike Sunnucks : Semiconductor and solar, that's the ones they want to attract. Texas gave big incentives to auto plants. The big manufactures don’t have to pay. What happens when you have all of these other company, they pay taxes and the folks who work there pay taxes and buy homes and pay taxes and they're hoping that if Intel here the supply chain grows here-- that's to be the big determination there.
Ted Simons: You mentioned the commerce authority and the public-private partnership, I should say, some weren't all that excited about this and doesn't like the fact they saw not enough legislative oversight there?
Mary jo Pitzl: Yeah, sort of blew up in the senate Republican caucus earlier this week where they said, we're reading this and looks like the head of the commerce authority by himself can decide how to allocate the deal-closing money. $25 million a year. Well, why are we going to let one guy decide that. Lawmakers don't like to give up control and this commerce authority is all about giving up control. The governor has historically overseen the commerce department and Brewer said I'm willing to give up some of that authority and phase it into a commerce authority. I'll keep a hand in it but bring in business interests as well and both sides of the aisle how much transparency there will be in the operation.
Mike Sunnucks: The idea was to not have it be a state agency. States like Virginia and Florida that attract a lot of jobs have these. The governor has a board and they move faster and in the past, the state commerce has been a mix. Economic development folks and then bipartisan political appointees on both sides and want to get their fingers in the pie.
Howard Fischer: The other piece which needed to be done, the commerce department handles housing and the monthly unemployment statistics and a bunch of things that makes it hard for them to focus and a lot of that will be farmed out to other agencies. Clearly it will help them focus on what they should be doing.
Mike Sunnucks: The folks on the board are the same good old boys. Sports owners, university presidents and the folks on all of these groups and it will be interesting to see how much they do give to new industries and companies.
Ted Simons: Mary Jo, this was a concern that it was fast-tracked and no one knew what they were voting on and those who did couldn't get answers to questions.
Mary Jo Pitzl: It's hard to believe that almost anyone read the 214 pages in the bill and granted, it was not all new language, but to understand the new language you had to read the old language in which it was embedded. And this was a three-day special. It ran really, really quickly and during one of the busiest weeks that the legislature had. The committees were -- bills had to get their first hearing done this week and there was a heavy workload and almost through it off the rails for a bit on the senate side and even stayed on tract, grousing about the speed.
Mike Sunnucks: They moved fast on this and had their ducks in a row. They didn't allow a lot of changes to it.
Howard Fischer: That was the point.
Mike Sunnucks: They did a good job.
Howard Fischer: Ron Gould was saying, wait a second, the Democrats get to offer amendments but me as committee chairman can't offer changes?
Ted Simons There was a question why these things had to be set in stone, the phase-in factor, starting in 2014, moving to -- whatever. Why they had to be set in stone. I know the pro side, businesses need to know what they're getting into. But the other side says a lot of businesses look for financial stability as well when they relocate and you have to have that financial stability. Critics say this doesn't necessarily offer financial stability.
Howard fischer: We haven't done a budget yet. We've decided by 2018, get rid of in a static model, $538 million, What about the income side of that? what about the business model. Some of what the business community seen cut in terms of higher education and perhaps additional K-12 funding, whether it's a cut or not fully funding in terms of where the money is going, I think bothers them. Particularly if what businesses tell me, we need a high-quality workforce. Well, ok. Do you expect that to come out of your universities? Well, ok. You can raise the tuition to a certain point but at a certain point, people are going to go somewhere else.
Mike Sunnucks: I really think the business folks look at taxes and tax rates before they look at how much a state spends on education or social welfare stuff. Somebody in California, they're going to look at taxes and what the cost is and we've got to be more competitive.
Mary Jo Pitzl: I think that's another argument for the proponents, why you need to do this now. Everybody points to California and it's believed that California is going to hemorrhage jobs and Arizona wants to be able to catch them on their exodus east and this is a wave. You're seeing Republican governors, new Republican governors coming into states such as Michigan and Wisconsin and doing tax cut packages and this is part of the trend happening in a lot of states that have GOP governors.
Ted Simons: Similar attempt last year at this type of a jobs bill. Doesn't make it. This year -- what happens?
Mary Jo Pitzl: NO Bob Burns? Probably senate president bob burns is no longer there. He was the one that most articulated the argument that the state has to get its own affairs in order by having a balanced budget and show businesses we can operate in a sane manner in Arizona and he held that bill up last year and also in the senate this year, almost half the senate are members of the house and they passed it easily last year.
Mike Sunnucks: Don't have much of an opposition last year. Last year, you would have seen Goddard and the teachers' unions out there with more force.
Ted Simons: Quickly, the impact on property taxes. This was a question as well because the whole idea with businesses getting the tax cuts it would be shifted on to homeowners and the rest of us. That was supposed to be taken care of in the bill. Was it taken care of?
Howard Fischer: Theoretically, yes. As you point out, it's not the state that depends on property taxes. They depend on income taxes and sales taxes. It's local governments. Because of the way the budgets are prepared, they get to raise X amount of money, if a business is paying less, it's a balloon, you squeeze here and it comes out somewhere else. The state pays 40% of homeowners primary property tax for schools. We'll allow that to float to the extent we can keep it even. There will be a net loss to the state but we can make it up by cracking down on the folks who don't deserve the homeowner's rebate and the vacation homes and cabins in Flagstaff. So there will be a $39 million a year loss cost to this thing but they think they can make it up.
Ted Simons: The second homes and vacant lands and these will get hit as opposed to owner-occupied?
Howard Fischer: That's the theory. Here's the trick. It used to be it was automatic you got the rebate. Now, every two years when you get the notice of valuation in the spring, here's what your home is worth, you also get a postcard and say you have to swear you're in the home. If you forget, you lose the rebate.
Mary Jo Pitzl: Part of the intent is you're only supposed to claim the state subsidy for property taxes on the primary residence. That's not enforced well and this is a way to shake out people who are claiming on multiple residential properties.
Ted Simons: Senate race -- Janet Napolitano -- no dice?
Mike Sunnucks: She's not going to run. She was one of the DEMs that people looked at. Former governor and homeland security. Big name ID.And doesn't leave on the best of terms and she's a no, which leaves the democratic field open.
Howard Fischer: As you point out, this is a woman within her own party -- let me see if I got this right. You high-tail it out the door one step ahead and left Jan here and the nature of the job at homeland security, it's a no-win job. If you succeed in preventing something, nobody knows. But if you screw up and your staff puts out a memo saying people with guns and the white supremacy are going out-- I don't think she was electable.
Ted Simons: Jim Peterson saying he wasn't going to run. What are we looking at here.
Mike Sunnucks: PASTORE, and Gabrielle Giffords, she would be the wildcard and depends on her health and capabilities and willingness to run and if she were to get in there, obviously, be the front runner. And they were talking about her as the next best hope.
Ted Simons: Chuck gray is going to run apparently for Jeff flake's seat now that Jeff flake runs for Jon Kyl's seat. Chuck gray.
Mary Jo Pitzl: He's a former leader at the legislature, left and decided to do other things, I guess run for congress. This is murky because the congressional lines have to be redrawn and there will be a ninth district carved out of the southeast valley. Gray,used to live in mesa now in Queen creek. I think he's the start of, probably maybe not a stampede, a healthy flow of people who are going to run for congress.
Mike Sunnucks :He's low profile. Russell Pierce, Kirk Adams, the Mesa mayor, have higher profiles and all could run.
Ted Simons: Mary Jo, the waiver that was so important as far as the cuts to Medicaid rolls, that wasn't necessary in the first place?
Mary Jo Pitzl: Right, health and human services secretary, Kathleen Sebelius, wrote back to Governor Brewer -- they've been pen pals. Can Arizona drop Medicaid coverage for 250,000 adults? And she wrote back, you don't need our permission. Your program renews at the end of the fiscal year.
Mike Sunnucks: It's like we turned 18 years old and you're 18, you can do whatever you want. One of the things that Obama ran on was about expanding the number of people that are covered and this allows a red state governor to --
Ted Simons: It says that this was initially a demonstration in the first place.
Ted Simons: But -- but -- how --
Ted Simons: Howie, why doesn't anyone, A, from the state know that this was the case? And B, why didn't the feds before now tell us this was the case?
Howard Fischer: I think they reread it, reinterpreted it because of the problems. The understanding was whatever you had in a Medicaid program on the day that Barack Obama signed the bill, you had to keep that. There are states like Arizona, multiple state that have ongoing demonstration projects, our starts in 1992. But the understanding always was you had to stay where you were. I think that the Obama administration decided we don't want to pick another fight with Jan Brewer over this and we're going to read this to say, yes, you had of to have -- to keep the plan you had in place on that date, but only as you needed to have that, which is September 30th, which is the day that Jan Brewer wants to drop these people anyway. I think this was creative lawyering here.
Mary Jo Pitzl: Frankly, there's an upside for the Obama administration, because if Arizona cuts all these people and I think there's full intent to do that, because the governor called for that in the budget and this will all be Arizona's fault, you won't be able to blame the federal government for this. Force us to do this and if we do, we have to cut more in education. Now, lawmaker, legislature, it's up to you.
Mike Sunnucks The other Republican governors are going to try and do the same thing.
Ted simons: The thing -- a second after its implemented you know it's going to --
Howard fischer; It won't take that long. You have the bottom line question, it was the voters who in 2000, mandated coverage for everyone below the federal poverty level and the government is relies on language it would be funded by tobacco and other available funds. What are available funds Kyrsten Sinema says wait a minute, there must be something available there and that's one of the interesting fights that the courts hate to get into.
Mary Jo Pitzl; It bounces the ball into Arizona's court and keeps the feds out of it, and people were surprised because of the maintenance of effort required in the federal healthcare law. Washington is going to keep their thumb on this and took the thumb away and it's all Arizona.
Ted Simons: The senate ok's a couple of states' rights measures?
Howard Fischer: That's a nice way of putting it. One of the more interesting ones goes to the issue of the commerce clause. This is an ongoing fight since the 1940s. The fact is that the U.S. constitution says congress regulates interstate commerce. What's interstate commerce? There was a case where a Ohio farmer was growing wheat for his own cattle. Well, that's interstate commerce. Using that we're regulating low-flow toilets and light bulbs and air quality and endangered species. This bill out of the senate this week says we're going to decide what's interstate commerce and intra state commerce, which is ours, and if any federal agent comes here and tries to regulate, you're guilty of a class felony.
Mike Sunnucks: We might as well work our way through the constitution and get rid of things --
Ted Simons: 30 seconds here. How far are we likely to see these things go?
Mary Jo Pitzl: Given the composition of the legislature, might get to a floor vote. Especially the week that Arizona was celebrating its statehood, does this state want to be in the United States? Wouldn't succession be the natural course of events?
Mike Sunnucks: Don't give any good ideas.
Ted Simons: We didn't get to the birth right bill -- the birther bill.
Howard Fischer: You mean more states' rights issues.
Ted Simons: Stalling or whatever, they'll likely return later on. Good discussion.