Arizona’s budget in strong position

Streams of tax revenue did better than expected

When the new coronavirus pandemic first hit, those who keep a close eye on the state’s finances predicted an almost immediate shortfall of more than $630 million.

But the streams of tax revenue Arizona relies on to pay for everything from schools to courts have done better than expected. The state may even have ended last month in the black.

While lawmakers in some states are going back over their budgets with red pens, new data from the Joint Legislative Budget Committee suggest Arizona so far can avoid any major cuts to services and public programs as it grapples with the ongoing pandemic.

The latest numbers have also shoved into the future any plans for a special session, which some lawmakers expected over the summer to address a budget they expected might be thrown wildly out of whack.

Instead, Democrats are calling for the Legislature to reconvene to boost unemployment benefits as some Republicans want a special session to curb Gov. Doug Ducey’s power to institute public health precautions. But any agreement on these issues remains elusive, making the prospect of a special session all the more uncertain.

The budget numbers, contained in a new report from the Joint Legislative Budget Committee, come with a long list of caveats and disclaimers cautioning about the ongoing uncertainty of the state’s financial situation. The collection of some taxes is concentrated around this time of year, for example, leading to big swings in gains and losses.

And the latest numbers do not mean the state is in the clear for the new fiscal year, which started July 1. Instead, the committee’s staff projected more than a half a billion-dollar shortfall about a year from now, though that number very likely will change over the coming months. And it’s not something the state’s leaders need to address right away.

So how did Arizona end up in a better position than expected?

First, the report projects that sales tax revenue increased 5.6% for June over the same month last year — far

more than anticipated.

Many industries have suffered under closures and changing attitudes. Sales taxes from lodging declined 65% for June, compared with the same month last year, for example.

But Arizonans are shopping online as stores have closed, and new requirements for online retailers to collect state sales tax that went into effect in October have expanded the number of businesses required to send sales taxes to the Arizona treasury.

Meanwhile, individual income tax collections increased 4.8% in June over the same month last year, which also was better than expected. Refunds increased as taxpayers took advantage of the later income tax filing deadline. And, luckily for both the winner and the state government’s bean counters, a Glendale couple claimed a huge Mega Millions Jackpot, resulting in $15 million of income tax withholding.

Corporate income tax collections were down, but not quite as much as expected.

Arizona leans heavily on personal income and sales taxes.

Other states suffer significant blows

States that have suffered bigger budgetary blows in recent months, such as New Mexico and Wyoming, tend to rely on tax revenue from oil and coal, the prices of which have tanked amid a price war reduced demand from consumers who are not traveling and commuting as much as they did a few months ago.

The governor of Wyoming, which does not have a personal income tax, announced $250 million in cuts to his state’s budget. That amounts to about 10% of general fund spending in the state’s two-year budget.

New Mexico’s government recently cut its budget for the new fiscal year by more than $400 million as oil prices have dropped.

States that rely heavily on tourism took a financial hit, too. Nevada’s government, for example, was estimated to be losing $2 million a day in gaming-related taxes when casinos were shuttered.

The governor there ordered state agencies to prepare for cuts of 4% this budget year, according to the Las Vegas Sun.

Arizona is not entirely there, yet.

Universities are cutting positions and furloughing staff in anticipation of a drop in enrollment. The University of Arizona recently cut more than 250 jobs.

But the state government has socked away nearly $1 billion and the Joint Legislative Budget Committee noted in its recent report that some costs from responding to the pandemic may be covered by federal funds.

Meanwhile, Gov. Doug Ducey has held on to nearly $400 million in federal CARES Act funds meant for local governments.

Fears that the state would end up in a financial hole at this point led many legislators to expect they would be back at the Capitol over the summer fixing the budget.

But the latest numbers have dampened calls for a special session on the budget.

Reconvening Legislature looks unlikely

“What would you do a special session for?” Senate President Karen Fann, R-Prescott, said recently.

Fann said that while many legislators want to pass legislation shielding businesses and other institutions from some legal liability stemming from coronavirus cases, she argued there also needs to be an agreement on the issue before the Legislature dives back into a special session.

The Arizona Constitution allows legislators to force a special session if two-thirds of the members in both the House and Senate sign a petition and present it to the governor.

Rep. Kelly Townsend, R-Mesa, sent legislators just such a petition earlier this month.

Townsend said she wants the Legislature to curb the governor’s power to declare ongoing states of emergency, such as the current state of emergency, which started in March.

The lawmaker reported last week that 17 members of the House and six senators had signed on to her petition. That is far short of the number needed to force a special session, and the legislators she listed as signing on to the proposal were all Republicans. At least some Democrats will have to sign on to the idea, however.

While the governor would set the agenda if he calls a special session, legislators would set their own agenda if they force one through petition.

And that gives Democrats pause, with some concerned that Republicans would use such a session to push controversial legislation.

House Minority Leader Charlene Fernandez, D-Yuma, said she wants to return to session to deal with issues stemming from the pandemic.

The state’s budget is all right at the moment, she said, but argued that the governor should convene a special session to consider steps such as improving unemployment benefits, increasing housing assistance and stopping evictions.

“We’re hopeful that he will call us back for that,” said Fernandez, though there is nothing close to an agreement at this point.

If there is a special session at might be closer to November.

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