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Transcripts

September 25, 2003

Host: Michael Grant
Topics:
· Proposition 414 — Special taxing district for Maricopa integrated health systems;
· IRS/Arizona efforts to fight abusive tax avoidance;
· KAET-ASU Poll
In-Studio Guests:
Doug Cole, consultant to the Maricopa board of supervisor, Cole says voters should approve proposition 414;
Kevin McCarthy, Arizona tax research association. McCarthy has several concerns about proposition 414;
Bill Brunson, IRS
Dan Zemke, Arizona Department of Revenue

Michael: Tonight on "Horizon," we'll be voting soon in Maricopa County on a special taxing district for the County Hospital. Hear both sides on that issue. The latest KAET poll results are out on what Arizonans think about President Bush. And we'll tell you about a joint IRS/arizona effort to root out tax cheats. Good evening, I'm Michael Grant. Early voting starts October 2nd on proposition 414 in Maricopa County. That would create a special taxing district for Maricopa integrated health systems allowing it to raise its own funds. We'll hear from both sides of the issue, but first Mike Sauceda tells us more about the health system and proposition 414.

>>>> Reporter: The burn center at Maricopa Medical Center, it's a place Phoenix police officer Jason Schechterle knows well.

>>>> Jason Schechterle: I do consider it a home away from home just because so many familiar faces here and I'm so close with the doctors and the whole staff. You know, I love this place very much.

>>>> Reporter: He spent five months in recovery there after his patrol car was rear-ended by a taxi driver in March of 2001 causing him third and fourth degree burns.

>>>> Jason: Unbelievable the way they saved my life in the initial few days, the care that I received from the doctors, nurses and the techs. Five months is a long time to spend in one little room in a bed, and it's amazing how they made me feel and how they helped me get out of here, and I think I got out of here about six months ahead of schedule.

>>>> Reporter: Dr. Daniel Caruso is head of the burn center which treated a record 626 patients last year.

>>>> Dr. Daniel Caruso: So our reputation, I must say, kind of precedes us now, and we look at ourselves as the sort of, I don't know if I want to -- golden child of the Maricopa Medical Center Hospital System, but I think we really are and I think we've gotten that way because unlike Maricopa Medical Center, which is a tertiary care center for Maricopa County and for actually parts of Arizona and the Indian reservations, the Arizona burn center is a state entity. We take care of everybody from all four corners of the state, and actually we get patients from parts of Nevada, California, Utah, New Mexico and Mexico proper.

>>>> Reporter: The burn center is one of the best known parts of the hospital, one of the services for which the hospital is famous, indigent healthcare but Dr. James Kennedy the director says it's not as much as you might expect.

>>>> Dr.James Kennedy: We have about a billion dollars in gross charges for the system per year. Of that, only 10% can we attribute to indigent care. That is of the charges. The vast majority of what we charge for is not that kind of care at all. Some is and some is not. Of those that are deemed to be indigent, frequently they really do have a payor such as AHCCCS, which the state has made more available to people with even slightly higher incomes than it used to be before. So a payor source is available to a lot of people.

>>>> Reporter: Maricopa integrated health system offers many other services. It has about 600,000 patient visits annually with 11 clinic throughout the Valley, offers mental health services with the capacity of 160 patients at two facilities, delivers babies, has a standard emergency room and one of five level 1 trauma centers.

>>>> Dr. Kennedy: Level 1 trauma center is the second busiest -- second highest with patients in the state. It is a make, major part of our business, very active on every given day.

>>>> Reporter: Maricopa Medical Center is also a teaching hospital.

>>>> Dr. Kennedy: Yes, it is a teaching hospital. It has been for a number of years and has as such provided a number of specialty physicians and primary care physicians for the State of Arizona. We have 205 roughly residents right as we speak, all of them in specialty training in seven different special advertise. Of these we anticipate and statistics show from what has gone on in the past about 50 that was these will stay in the Valley.

>>>> Reporter: There is also long term care offered at the hospital. This November 4th voters in Maricopa County will be casting ballots in a special election to form a special taxing district to provide funding for the hospital. Proposition 414 would empower the district to initially levy taxes at a rate not not to exceed .1392 of $100 of assessed valuation of real estate. It would cost about $21 a year on a $150,000 home. The rate may vary depending on future changes in assessed value. The life of the tax is set at 20 years. The amount raised can be up to $40 million for the first year, but that can be adjusted upwards based on state formula. If the measure is not approved the county is authorized to close the hospital although it is not required to.

>>>> Michael: In an moment we will hear from an opponent of the proposition, but first we talk with someone who says voters should approve proposition 414. Doug Cole is a consultant to the Maricopa board of supervisor. Doug, good to see you again.

>>>> Doug Cole: Thanks for having me.

>>>> Michael: Why should voters approve 414?

>>>> Doug Cole: The Maricopa Medical Center and the Maricopa Integrated Health Care System is really a jewel for this Valley. As we just saw in Mike Sauceda's piece we have the state's only burn center. We have the second busiest level 1 trauma center in the state. We have the largest teaching hospital for doctors in Maricopa County. Half of those doctors stay in Maricopa County. So it's a real fertile trading ground for an area in our medical system that is lacking, and that's doctors and nurses. So we're very, very, very proud of the system. The interesting thing about this system as we saw with police officer Jason Schechterle, it is really the system of choice for our police and firemen. We know of police and firemen that have sown within their uniforms, if I am hurt, please take me to Maricopa Medical Center. It is a world class facility. Unfortunately, operating in the third world facility.

>>>> Michael: Okay. Other options... back in the mid-1990s, strong consideration given to privatization. Why can't we go a privatization route instead of additional financial support like prop 414?

>>>> Doug: There are many issues and probably the chief issue on the privatization is that the land that the hospital sits on has a deed restriction when it was conveyed to the county and it must be run by the county as a County Hospital, as a public County Hospital and that has been litigated, but it -- this issue has been researched for, as you said, decades on how to save the system, and the county board appointed a blue ribbon task force about this time last year, and they delved into this issue and it consisted of all stakeholders and came one the best way to save the system is through creating a special healthcare district.

>>>> Michael: Now the board of supervisors, if this were not to pass, is given the authority to close the hospital, but it doesn't have to.

>>>> Doug: That's correct.

>>>> Michael: Would it close the hospital if it doesn't pass?

>>>> Doug: All one has to do is look down to Pima County and what what's going on with their County Hospital, the only other county run hospital in the state, and that's keno. That's basically a shell of a facility now. What Pima County has done because counties -- because of the implementation of prop 204 legislation in 2001, county governments are no longer mandated to run healthcare systems. So what we're doing in prop 414 is saying citizens of Maricopa County if you want to be in this healthcare enterprise which the board feels is very important and as we saw from the tape it is very important, if the citizens of Maricopa County want to fund this enterprise, then vote for 414. If you don't, then don't. And the county board is prepared and will, as Pima County board has done, slowly phase out the burn center, the level 1 trauma centers because it takes taxpayer dollars to support these needed enterprises. So -- but the county's mandated to run the jails, run the courts system, and the county -- Maricopa County is experiencing a 10% growth in the criminal justice sector. There's only so many tax dollars to go around. So we have to run the jails. We have to run the courts. We no longer have to run the hospital system. So now it's up to the voters to say, hey, board, run the hospital system. We want the county to be in this business.

>>>> Michael: Unfortunately Kevin McCarthy had a schedule conflict and he couldn't appear live with you and in a couple minutes we're going to pick up his opposition to it but I want to give you an opportunity to respond to a couple points that he makes and you partially responded to one right there, but Kevin says, hold it, you don't need this special hospital taxing district. The county could do this, for example, by raising the general tax rate by floating bonds if capital improvements are the issue. How do you respond to that?

>>>> Doug: Well, I first respond that the county has constitutional limits with our expenditure limitation and our levy limit we must operate under. You know, Michael, the county board of supervisors has not raised the overall county tax rate in 12 years. It has stayed the same or declined over the last past 12 years. Now, the levy limit, all that's left in Maricopa County is about $18 million. That's a nickel per hundred assessed valuation. One. Two, the county board of supervisors, as I stated earlier, want the citizens of this county to decide whether we want to be in this business. Makes really no sense for the county to go out with a general obligation bond package to build a new facility, which the County Hospital needs a new facility, without the voters saying, yes, we want -- we want the facility and we will fund the operation of the facility. So we are already up at our levy limit, and the voters need to decide whether or not they want a burn center or they want to continue our level 1 trauma center, our 11 clinics around town.

>>>> Michael: One of the other points Kevin makes, we're moving to many districts, we have flood control districts, we have community college districts, some areas we have lighting districts, street improvement districts, we're just being district and taxed in small increments to death. How do you respond?

>>>> Doug: Well, again, county government is charged with only the basic mandated services now is for criminal justice services. Run the jails, run the court system. The board and many in the community feel that without the county run system as it exists now would it create crisis throughout the counties because these 700,000 visits, these 700,000 people that come to the hospital every year, will go to an already stressed system. They'll go to St. Joe's, they will go to Scottsdale Osborn, they'll go to the wonderful Banner system and Catholic healthcare west system. They have to go somewhere. This allows the voters to say, we want to be in this business and we're willing to pay this little bit amount of money every year to preserve our healthcare system.

>>>> Michael: All right, Doug Cole, thanks very much for the input. Sorry we have to abbreviate it this way. Earlier today "Horizon" producer Larry Lemmons taped an interview with Kevin McCarthy of the Arizona tax research association. Mr. McCarthy has several concerns about proposition 414. Here's that interview.

>>>> Reporter: One selling point for proposition 414 is that the County Hospital might have to be closed if the measure isn't passed. But doesn't the county have other funding options like taxes and bonding, keep the hospital afloat without 414?

>>>> Kevin McCarthy: Well, Larry, the answer to that question is at the heart of our concern about this proposition and previous to that the enabling legislation that the county sought last legislative session which we strongly opposed. The truth is that the county has every available option in state law or at the hands of the board of supervisors in terms of raising tax revenue to deal with the County Hospital. The creation of a special taxing district, five new elected official to oversee that went well beyond what we thought was necessary in order to maintain the hospital. We are not opposed -- I think it's important to note we're not opposed to maintaining the hospital nor doing whatever capital improvements need to be made to that hospital to make it viable in the future.

>>>> Reporter: So you're not against the hospital, right, you just have a problem with the funding?

>>>> Kevin: That's correct.

>>>> Reporter: Now, are you concerned that the county teams to keep breaking into more and more special taxing districts?

>>>> Kevin: We're not just concerned about Maricopa County doing that. We're concerned in general terms that the funding of county government in the last 20 years in this state has changed dramatically from one that the majority of what county government did was under the umbrella of county government, the five supervisors controlled. If you look at the financing structure of county government in 1980 and the financing structure today, it's changed significantly. You now have jail districts, library districts, flood control districts and now special healthcare districts. On and on. Now, what won't surprise taxpayers out there is that the funding for the general fund that used to fund all of these operations hasn't gone down, but yet they've carved county government out into several different silos, all with their own special taxing districts to fund those, creating wind falls along the way for the general fund and so if a very real way in this instance, and this is the case with the jail district or anything else, what voters end up voting for is not only a new funding stream for that which they are being told, they're really also voting for relief for the county general fund that no longer will have to carry the burden of funding, in this case, the hospital or the jails or libraries or anything else.

>>>> Reporter: Do you think the board of supervisors is afraid to raise taxes or sell bonds and that's why we have more taxing districts being proposed?

>>>> Kevin: The county -- let me answer that two ways. First, the county has, I think if you look at the facts if you look at the revenue that they've had available to them in the last five years, has had significant opportunity to direct revenue to the hospital if that is a high as priority as they now profess it to be. Parenthetically if you go back the last three, four years, you hear some of the discussion, it didn't sound to be as much of a priority as they're now making it sound with the voters but, yes, the county supervisors have taxing authority at the end of their fingers that is actually left on the table. Last year they had $18 million in unlevied property taxes that they as the board could have implemented. This year that number is down to 12 million. That went unlevied that could have been directed if the need for the hospital is as significant as they suggest, that they could have actually gotten a headstart on that. That would have required them as elected officials to step forward and say, "we think this is important." I think they've already said that. Furthermore, "we're going to raise taxes to fund that," and so I think that most people would agree there's some politics involved here where they want to punt that question to the general public.

>>>> Reporter: How much would proposition 414 cost and can that increase every year?

>>>> Kevin: The levy that's being asked for approval is $40 million annually. The cost for an average taxpayer, the county says is roughly $22 a year for a $150,000 home. What's not talked about a lot is that that levy amount is going to grow by the growth in existing levy -- constitutional levy limit of the county, which has been significant in the last five years. If you take a rolling average of the last five years for the levy limit and apply it to that $40 million, this levy will be $60 million in five short years. So it's going to be a 50% growth in levy. Now, this new board may or may not access that capacity, but the exposure that the taxpayers have will continue to grow each year by a significant amount if the county continues to grow.

>>>> Reporter: Has the county down an about face on the need for hospital?

>>>> Kevin: I've watched local government elections for many, many years in Arizona. I can't recall a more inconsistent message that has been put before a group of voters. On the one hand they are saying that this is an extraordinary need of the community, have some important people that are supporting it, have, I guess a million-dollar campaign to get it funded in order to maintain an important burn center, a hospital that is -- teaches many of the doctors that go through it. On the other hand, they're threatening to close it. It is so low a pry Torry, despite the fact they've had extraordinary revenue growth to fund all the demands of county government, they're threatening to close something that at the same time they claim is an important asset to the community. I don't think that's fair to the taxpayers of the community to put that kind of -- I think that's a bit of a false choice. I don't think that they should put it in that context, but it certainly is an inconsistent message.

>>>> Reporter: Why should Maricopa County residents pay for a hospital alone when residents from other parts of the state or even people from other states or countries are using it?

>>>> Kevin: That's a great question. One of the issues that I think should be explored if this election is not successful is exactly whose asset the Maricopa County Hospital is. Is it just the Maricopa County taxpayers' and paid for through the Maricopa County tax base or in 2003 has that become an asset that actually is statewide? There are a lot of -- lot of people who are served in that hospital who are not Maricopa County residents, let alone Maricopa County taxpayers. It's well documented in their publicity pamphlet. It's the only burn center in the state, and so I think it goes without saying there's a lot of people being served there that don't live in Maricopa County. So the question, I think, needs to be asked if the election is not successful and they don't get this 20-year funding source is, should the financial burden of the hospital be borne maybe beyond taxpayers of Maricopa County?

>>>> Reporter: Thank you, Mr. McCarthy.

>>>> Kevin: Thanks.

>>>> Michael: President Bush's approval ratings are slipping. That according to the latest KAET/arizona State University/Walter Cronkite school of Journalism and Mass communication poll. 390 registered Arizona voters were interviewed September 18 through the 21st and the poll has a margin of error of 5%. Here are the results.

>>>> Reporter: President Bush's performance on the economy was given thumbs up by 38% of the voters we surveyed. 55% did not think he was doing a good job with the economy. 7% had no opinion. Concerning the war in Iraq, 45% say the president is doing a good job handling that. 49% say he is not. 6% have no opinion. Bush's approval ratings jumped in the category of handling the threat of terrorism in the United States. 64% approve of his performance in that area, 27% disapprove, 9% had no opinion. Turning to his request for $87 billion for the war and rebuilding efforts in Iraq and Afghanistan, 42% support his request, 52% do not, 6% have no opinion. Finally, only 34% would give bush a second term in office, 44% would not, 22% had not made up their minds.

>>>> Michael: The Arizona Department of Revenue and the IRS recently joined forces to fight abusive tax avoidance. Here to tell us about that is Bill Brunson of the IRS and Dan Zemke of the Arizona Department of Revenue. Gentlemen, could to see you. Bill, what is abusive tax avoidance?

>>>> Bill Brunson: It's a tax sheltering. It's a tax scheme where people don't report the actual income that they're receiving or the corporations or the businesses involved. They use unauthorized accounting methods. They show less than what they actually receive through various loopholes in both the federal and state tax systems.

>>>> Michael: Is this an organized kind of effort? I mean, are there shops that turn out how-to manuals on this kind of thing?

>>>> Bill: It varies, and it varies on the amount of money that you have in your pocket as to how sophisticated a tax scam you might be able to buy. You can buy a basic package that will give you a domestic tax shelter, an illegal domestic tax shelter or you can buy a deluxe edition that will include a foreign and domestic trust involved with it. So it kind of depends upon the promoter and how much money you have in your pocket that they're trying to get out of you illegally.

>>>> Michael: Now, possibly some offshore activity involved in this kind of thing?

>>>> It occurs both -- in both areas, domestic and foreign, unfortunately. There are various tax havens throughout the country where money is transferred to and brought back into the United States and it's not reported, even though it is income to the individuals that sent it offshore. They layer it through various trusts and business entities. It's more of a substance versus form. It's a sham.

>>>> Michael: Just out of curiosity, let's say you set one of these things up offshore and then you travelled there just to check up on it, would that be a tax deductible expense? Bill, that's a small joke. Any estimate on how much this kind of thing may cost the State of Arizona.

>>>> Dan Zemke: The estimate is a little hard to come by. The multi-state tax commission did do a study recently that indicated probably low side, it's at least $60 million a year that it's costing the State of Arizona.

>>>> Michael: Now, how does the partnership work, IRS and State of Arizona have signed a memorandum of understanding in relation to this. How does that work? What's new about that?

>>>> Dan: In this particular case it's directly a memorandum of understanding that says the IRS and the various states, State of Arizona, will share information, raw information rather than wait until after an investigation has been completed, the IRS will provide information to the states of various suspected problem areas and the states then have the opportunity to cooperate with IRS and investigate these things from the get-go, effectively, rather than waiting and letting IRS do the entire workload and then piggybacking on that. So effectively, this memorandum of understanding allows additional resources to be put into this area.

>>>> Michael: People get very nervous when the taxing authorities start sharing information with each other. Are there any safeguards here?

>>>> Dan: There are the safeguards built in both federal statutes and state statutes that require information to be exchanged only if there is a need to know or a legitimate tax purpose for the exchange of the information.

>>>> Michael: It sound to me, Bill, like there need to be some probable cause? You need to suspect someone is involved in tax avoidance for this information to move, or am I misstating it?

>>>> Bill: Well, the investigators will take a look at what's occurring based on the facts and circumstances, and then they'll develop the case in that area if there's substance to it, if there is abuse going on. As Dan mentioned earlier, the privacy of the taxpayer is going to be ensured with the memorandum. The memorand addresses very specific areas that we only share information regarding these abusive tax transactions so that disclosure laws and privacy issues will be enforced. It's one of those situations where we want to work with the state and to go forward and catch these tax cheats so that the honest individual on the street that pays their tax in a timely manner knows that the system is fair and that these tax cheats will eventually be caught and have to pay what they owe.

>>>> Michael: Okay, Bill Brunson, thank you very much for joining us. And we've thrown up the telephone number there that people can call. Dan Zemke, our thanks to you as well.

>>>> Thank you, Michael.

>>>> Michael: And here is what is on the program tomorrow.

>>>> A Corporation Commissioner submits his letter of resignation. Find out what Jim Irvin is doing next. Trying to move up by going east. The freedom ride stopped in Arizona this week. Plus, learn why Phoenix may put the brakes on the Valley transportation plan. These topics and more on "Horizon"'s Journalists Roundtable Friday at 7:00.

>>>> Michael: Thanks very much for joining us on a Thursday. I'm Michael Grant. Have a great one. Good night.

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