A 'State' of Disarray:
Tax and Expenditure Policy in Arizona
By
Dave Wells, Ph.D.
Political Economy &
Public Policy
Interdisciplinary Studies
Arizona State University
(480) 727-7038
Contrary to Perception: State Spending is not out of Control!
Beware this is the Tax Payers “Bill of Rights' “ Center Piece
Source: Arizona State Legislature’s Joint Legislative Budget Committee
A Better Measure:
Government Expenditures Failed to Keep Up With Growth in the Arizona Economy in the 1990's
But Personal Income Doesn't Include Wealth Income (like capital gains) OR Corporate Income
Arizona Spends Less, Especially on K-12 Education and Social Services
Per Capita Ratio to National Avg.
CHANGE
1999-00 / 1993-94 / 1985-86 / 6 YRS / 14 YRS.
Expenditure1 / 0.86 / 0.90 / 1.01 / -0.04 / -0.15
Current operations / 0.84 / 0.88 / 0.90 / -0.04 / -0.06
Capital outlay / 1.09 / 1.15 / 1.76 / -0.06 / -0.67
Exhibit: Salaries and wages / 0.83 / 0.93 / NA / -0.10
Education / 0.83 / 0.96 / 1.13 / -0.13 / -0.30
Capital outlay / 1.00 / 1.66 / 1.86 / -0.66 / -0.86
Higher education / 1.01 / 1.10 / 1.36 / -0.10 / -0.35
Elementary & secondary / 0.77 / 0.91 / 1.00 / -0.15 / -0.23
Social services and income maintenance: / 0.67 / 0.78 / NA / -0.11
Transportation:
Highways / 1.06 / 0.96 / NA / 0.10
Capital outlay / 1.12 / 0.96 / 1.69 / 0.15 / -0.57
Transit subsidies / 0.00 / 0.00 / NA / 0.00
Public safety:
Police protection / 1.06 / 1.09 / NA / -0.03
Fire protection / 1.62 / 0.94 / NA / 0.68
Correction / 1.07 / 1.04 / NA / 0.04
Capital outlay / 0.92 / 0.22 / NA / 0.70
Protective inspection and regulation / 0.99 / 0.98 / NA / 0.01
Source: Department of Commerce, Bureau of the Census.
Source: Five Shoes Waiting to Drop (Morrison Institute at ASU)
Community College & University System Under Serves Hispanics
Arizona Ethnic Distribution.
/ Students Enrolled in Higher Education
/ 70%
/ .
/ / 4%
/ .
/ / 16%
/ .
/ / 3%
/ .
/ / 4%
/ .
/ filka
White
(57%) / Black
(3%) / Hispanic
(31%) / Asian
(2%) / Native
American
(6%)
Although 27% of students are from non-white ethnic groups, only 22% of the domestic undergraduate students at ASU are from non-white ethnic groups (source: ASU web page student profiles of undergraduates)
Graph source:
UNIVERSITIES GET THE LION’S SHARE OF FUNDING FOR EDUCATION
K-12 funding (2002 estimate)
Community Colleges (2002 estimate)
ASU Main (2002 estimate)
Source: Arizona State Legislature Joint Legislative Budget Committee
AFFORDABILITY (NO NEED BASED FINANCIAL AID)
/ D-FAMILY ABILITY TO PAY (50%) / Arizona / Top States
Percent of income (average of all income groups) needed to pay for college expenses minus financial aid:
at community colleges / 23% / 16%
at public 4-year colleges/universities / 25% / 18%
at private 4-year colleges/universities / 54% / 32%
STRATEGIES FOR AFFORDABILITY (40%)
State grant aid targeted to low-income families as a percent of federal Pell Grant aid to low-income families / 2% / 108%
Share of income that poorest families need to pay for tuition at lowest priced colleges / 8% / 8%
RELIANCE ON LOANS (10%)
Average loan amount that undergraduate students borrow each year2 / $3,573 / $2,928
2Data for Measuring Up 2000 include all students, not just undergraduates.
Note: In the Affordability category, the lower the figures the better the performance for all indicators except for "State grant aid ... as a percent of federal Pell Grant aid."
Source:
PRISONS ARE THE GROWTH INDUSTRY IN THE BUDGET UP NEARLY 40% RELATIVE TO OTHER EXPENDITURES! (and we don’t pay prison guards even $25,000, by the way)
General Fund does not include Lottery Monies and Prop. 301 sales tax revenues earmarked for education.
Source: Arizona State Legislature Joint Legislative Budget Committee
What Arizonans also did was pass initiatives requiring a 2/3 vote to raise taxes (but still only ½ to lower them) (1994?)
And also a ¾ vote of Legislators to change an initiative (1998)
ARIZONA HAS THE FIFTH WORST BUDGET SITUATION
ARIZONA TAXES BUSINESSES COMPARATIVELY HEAVILY
Business Taxes Per $1,000 of Gross State ProductFY 2000
Income / Property / Gen Sales / Unemp / Total*
ARIZONA / $3.64 / $12.10 / $11.07 / $1.15 / $30.41
CALIFORNIA / 5.35 / 7.75 / 8.33 / 2.32 / 25.31
COLORADO / 2.18 / 12.35 / 8.33 / 1.25 / 25.81
IDAHO / 3.67 / 11.81 / 7.91 / 2.53 / 28.77
OREGON / 3.48 / 9.57 / 0.00 / 4.40 / 21.31
UTAH / 2.99 / 9.00 / 9.77 / 1.21 / 27.01
WASHINGTON / 8.86 / 10.20 / 13.41 / 4.25 / 39.40
TOTAL / 5.14 / 8.91 / 8.65 / 2.44 / 27.13
* includes some smaller tax categories not shown
Source: Utah State Tax Commission, “Western States' Tax Burdens Fiscal Year 1999-2000
In FY 1996 Business taxes rated 14th highest in country.
Source: Hill, Kent, (2000), “A Current Assessment of Arizona's Tax Competitiveness“Center for Business Research, Arizona State University
ARIZONA IS A LOW TAX STATE, ESPECIALLY FOR HIGHER INCOME HOUSEHOLDS
Per Capita Ratio to National Avg.
CHANGE
1999-00 / 1993-94 / 1985-86 / 6 YRS / 14 YRS.
Revenue1 / 0.78 / 0.91 / 0.94 / -0.12 / -0.16
From Federal Government / 0.84 / 0.84 / 0.66 / 0.00 / 0.18
Taxes / 0.84 / 0.91 / 0.95 / -0.07 / -0.11
Property / 0.86 / 0.88 / 0.91 / -0.02 / -0.05
Sales and gross receipts / 1.08 / 1.13 / NA / -0.06
General sales / 1.24 / 1.31 / 1.40 / -0.08 / -0.16
Selective sales / 0.71 / 0.77 / 0.94 / -0.06 / -0.23
Motor fuel / 1.05 / 1.07 / NA / -0.02
Alcoholic beverage / 0.64 / 0.69 / NA / -0.06
Tobacco products / 1.04 / 0.49 / NA / 0.55
Public utilities / 0.50 / 0.80 / NA / -0.30
Other selective sales / 0.42 / 0.53 / NA / -0.11
Individual income / 0.59 / 0.70 / NA / -0.10
Corporate income / 0.80 / 0.68 / NA / 0.11
Motor vehicle license / 0.51 / 1.16 / 1.39 / -0.65 / -0.88
Other taxes / 0.43 / 0.43 / 0.41 / 0.00 / 0.02
Source: Department of Commerce Bureau of the Census.
Tax Burden Shifting Taxes Toward those with Less!
Citizens for Tax Justice will release updated analysis in next few weeks
Source: 1995 Citizen’s For Tax Justice ( updates Dave Wells, Arizona State University
Notes:
Cumulative Savings over the 1991-98 period understates amount of savings due to impacts of inflation; in 1991 a dollar bought more than in 1998.
Renters pay property taxes indirectly as landlords pass on property taxes in the rent. Renters also often pay local taxes as a % of their rent. Indirect payments included in calculations.
Federal Offset (background shadow): Homeowners can deduct property taxes from their federal taxable income. Renters cannot do this, even though they pay these taxes indirectly.
TAX CUTS HAVE REDUCED STATE REVENUES BY $800 MILLION THIS YEAR (cuts since 1996)
OR
$1.2 BILLION THIS YEAR (cuts since 1994)
TAX CUTS DID NOT IMPROVE ECONOMIC GROWTH
Compared to US, Arizona’s performance worsened
Before Most Tax Cuts: (AZ-US avg.)
1993-94: Employment Growth 3.3%
Earnings Growth 3.8%
After/During Most Cuts: (AZ – US avg.)
1997-2000: Employment Growth 1.7%
Earnings Growth 2.0%
HALF OF WHAT SHOULD HAVE GONE INTO THE RAINY DAY FUND ACTUALLY WENT TO TAX CUTS
For example, in 1997, $108 million should have gone into the “rainy day” fund, but nothing did. Meanwhile, taxes were reduced by $175 million.
Source: Tom Rex, Research Manger, Arizona State University Business Center
CURRENT DEFICIT: $ 1 BILLION
CUMULATIVE COST OF TAX CUTS:
800 MILLION to 1.2 BILLION DOLLARS
Reductions in the “rainy day” fund financed ½ of these tax cuts. The “rainy day” (Budget Stabilization Fund) as originally designed capped at 15% of general fund expenditures. During the time of tax cuts in the mid-1990’s this was reduced to 7% of general fund expenditures.
Tom Rex, Research Manager of the ASU Business Center, noted in 1997:
“Thus, with a 7 percent cap, BSF funds in each of the last three economic slowdowns would have been exhausted short of the payout to the general fund called for by the formula. Thus, the rainy-day fund with a 7 percent cap should be viewed as inadequate to offset the loss of revenues during an economic downturn. Even if the next downturn is milder than any of the last three, the projected BSF balance of $328 million in FY 1999 is unlikely to be sufficient to meet the formula's recommended transfers.”
Source:
And then there's the LOOPHOLES and CREDITS
HAVE YOU GIVEN YOUR TAX CREDIT DONATION TO A PRIVATE SCHOOL TODAY?
OR YOUR LOCAL PUBLIC SCHOOL
(who most likely has middle to upper middle class students attending)
PAYING FOR FIELD TRIPS AND VOUCHER SUBSIDIES
OR THE BUSINESS LEASE (NO SALES TAX)
OR THE COUNTRY CLUB OR FITNESS CLUB (NO SALES TAX)