What does Arizona get for $600M in tax breaks?
A legislative committee responsible for oversight of hundreds of millions of dollars in income tax credits has not met since 2015.
How have those tax credits worked out? It was hard to tell when members gathered for a rare meeting on Thursday.
The panel of lawmakers asked how many jobs Apple created at a Mesa data center constructed with the help of a tax credit. Officials from the Arizona Commerce Authority couldn't answer.
How much water are farmers saving with a tax credit to encourage irrigation efficiency? No clue on that, either.
And lawmakers could not calculate how many students received help with private school tuition costs under a $6 million tax break intended to aid children with disabilities or living in foster care.
"We're really not getting much out of you guys," Rep. Pamela Powers Hannley, D-Tucson, told a duo of officials from the Arizona Commerce Authority, which manages some of the state's tax incentives.
The state offers more than 50 income tax credits, which added up to around $600 million during the fiscal year that ended in mid-2018. Critics of the state's list of tax credits argue this is money Arizona's government is giving up instead of spending on other pressing concerns, such as public schools or roads.
Some are well-known, such as the family tax credit. Other credits are used by one or two businesses — or by no one at all. But many of these credits do not include any performance measures, leaving lawmakers with a dearth of data to analyze whether these breaks are fulfilling a purpose or are just ways to skip out on paying taxes.
Democrats and Republicans alike on the Joint Legislative Income Tax Credit Review Committee expressed their puzzlement with a system that is something of a black box.
"How do we as the (elected officials) know the law we passed is being implemented as we said it should be?" state Sen. J.D. Mesnard, R-Chandler, wondered aloud.
Who benefits, and why info is limited
Some data from the state's myriad tax credits are confidential due to taxpayer privacy rules while other data are kept secret for proprietary reasons. Some potentially important figures seem to be unavailable simply because no one has ever asked.
Apple, for example, is the only company the state has approved to use a particular tax credit for facilities with renewable energy.
The state will not disclose the cost of the tax credit, though it is worth up to $5 million a year. And while the Arizona Commerce Authority has approved Apple under criteria set out as conditions for receiving the credit, the agency says it cannot share some details with the Legislature, such as the number of jobs created at the facility.
Meanwhile, 108 taxpayers used a tax credit to pay for water-saving agricultural equipment at a total cost of $2.7 million last fiscal year.
Those using the credit must submit a plan to the federal government, but the state is not gathering data on how much water the program is saving or whether the plans are worthwhile.
The committee voted to require data on water savings as part of the credit. Mesnard said he would sponsor legislation during the coming session to include the requirement in law.
The committee also voted to end two tax credits that it appears few taxpayers are using.
That includes the Agricultural Pollution Control Equipment Credit. Companies that raise crops or cattle can claim the credit on up to 25% of the cost of purchasing equipment to control or prevent pollution. Each credit is capped at $25,000. It was used by four individual taxpayers in fiscal year 2019, for a total of $16,225.
But unlike with a similar credit for other industries, the equipment does not need to meet or exceed federal environmental regulations.
The committee also recommended ending the Healthy Forest Enterprise Employment Credit, which has not been used since the fiscal year that ended in mid-2018.
Companies that harvest, process or transport forest products like timber or wood chips can claim the credit on a portion of the wages paid to certain employees, effectively subsidizing hiring in the industry.
Eight businesses were certified under the program as of 2018. A report by the Joint Legislative Budget Committee said it seems unlikely the tax credit has had more than a negligible impact on new investment, job creation and retention.
Still, the committee's votes are only recommendations. The Legislature has the final say.
Tax credits can be particularly political prizes, carved out at the Legislature as incentives for perhaps a few favored businesses or an entire sector of the economy that has a good lobbyist or strong lawmaker behind it.
Repealing tax breaks is no easy feat
Repealing a tax break can be complicated as it would effectively mean raising taxes and, in turn, require approval from two out of three members voting in each chamber, rather than simple majorities.
The committee recommended repealing 16 credits between 2002 and 2015. The Legislature only scrapped one of those tax breaks.
A recent law created an easier process to eliminate tax credits that go unused year after year.
Democrats, however, argued that the meeting underscored a bigger problem with the state's tax credits, contending there is too little scrutiny and accountability over the $600 million in credits granted in the last fiscal year.
They pointed to the committee's fouryear hiatus, even though it is required to issue a report annually by Dec. 15.
"Today's meeting only scratches the surface," said Rep. Andres Cano, D-Tucson. "We must go line by line with every tax credit to ensure that they are effective, transparent and producing results for taxpayers."