PHOENIX (Wire Services) January
14, 2010 ― Arizona House Republicans hope to jump-start the
state's economic recovery with a job creation and business
tax-relief
bill that they say will encourage creation of quality jobs in
key industries.
The
goal is to use a variety of tools, including tax incentives, to
entice new and existing businesses to add jobs.
The
bill includes a proposed "Arizona deal-closing fund" to pay for
special requests to seal a company's move to the state.
House
Speaker Kirk Adams, R-Mesa, said the bill will be introduced
Monday. How it will play out in a state Legislature that must
close multibillion-dollar budget shortfalls is unknown.
Arizona's deficit is expected to be about $4.7 billion between
this fiscal year and next.
Many
of the bill's recommendations are based on a $65,000 report that
House Republicans commissioned last month from Scottsdale
economist Elliott Pollack. His company surveyed the 50 states
for best practices in economic development and suggested the
creation of programs already proven successful in other states.
The
bill is lean on upfront incentives, instead focusing on giving
companies tax rebates after they begin operations or add to
their existing operations.
Cutting
business
taxes
also would make the state more competitive in attracting
companies, lawmakers said.
The
proposed Arizona Economic and Job Recovery Bill focuses on
retaining and attracting "base industries" - manufacturing,
high-tech and research-and-development companies such as Boeing,
Intel Corp. and Raytheon Missile Systems - that pay employees
well, bring in dollars from out of state and generate three or
four indirect jobs for each one of theirs.
Adams
unveiled the plan in front of the Boeing plant in Mesa, while
planes and helicopters passed noisily overhead, because he said
it illustrated the kind of company Arizona needs to keep and
attract. Boeing has about 4,500 employees and an average salary
of $70,000.
Tax-reduction efforts
The
tax-cut components of the bill are nearly identical to a plan
that passed the House in July, only to die in the Senate.
At
the time, the package of income- and property-tax cuts was tied
to approval of the temporary sales-tax increase that Gov. Jan
Brewer has been promoting to ease the state's deficit.
This
year, Adams said, the House leadership will not tie the tax
increase to tax cuts. That's because he wants the broader
package - tax cuts, as well as other policy moves that he
believes will attract good-paying jobs to the state - to stand
on its own merits as a long-term, economic-development policy.
However, Adams said many members of his Republican caucus will
want to see tax cuts if they are also asked to vote for a tax
referral.
Adams emphasized that the tax-cut
portions of the plan would be phased in over four years,
starting in July 2011, so they would not further affect state
tax
collections
in the recession.
The
plan envisions more than $600 million in tax relief by June
2016:
• $200 million in individual
income-tax
relief
by reducing rates 10 percent.
• $200 million in corporate income-tax relief by reducing the
rate to 4.5 percent from 6.97 percent.
• $250 million in property-tax reductions by eliminating the
state equalization rate.
Barbara Leff, chairwoman of the Senate Commerce and Economic
Development Committee, said she is encouraged by the emphasis on
job creation.
The
high-wage manufacturing jobs that the bill seeks to attract are
out there, said Leff, R-Paradise Valley. She pointed to the bill
she championed last year that provides incentives for
renewable-energy firms. It's already helped attract several
solar firms, she said.
House
Democrats panned the Republican plan, saying it would benefit
businesses while hiking taxes on residential-property owners.
A cut
in the business-property rate would push the burden onto
residential rates, said House Minority Leader David Lujan,
D-Phoenix.
Adams
said he believes homeowners will approve. "The citizens of
Arizona understand more than ever the importance of jobs because
there isn't a person in the state who has not been affected by a
job loss or knows someone who has lost a job or has lost a
significant portion of their income," he said.
Several economic-development experts say Arizona will fall
behind in luring businesses without better incentives,
particularly because of its severe budget issues.
One
of its major existing incentives, job-training funds, was
suspended last year by the Legislature to try to close the
deficit.
Advice to be careful
Jack
Boyd, a Princeton, N.J., consultant, said he and other
consultants are telling clients looking for new sites to be
careful about locating in states with high deficits.
"What
concerns me is who is going to put the fiscal houses in order
for states like Arizona, California and New Jersey. Our concern
is that it will be on the backs of the business community," he
said.
He also said that Arizona's
property taxes are high by Western standards, another
disadvantage, and that it is one of few states to separate
business from residential-property
taxes.
Ioanna Morfessis, a Phoenix-area economic-development
consultant, said that offering incentives have become more
important because of globalization and the recession.
"Other states and other governments have beefed up incentive
programs tremendously in the last two years even in the face of
enormous fiscal and budgetary restraints," she said.
The
proposed legislation primarily addresses job creation through
three provisions.
The
first would give cash rebates to qualifying employers that add
$2 million to their payrolls - roughly 50 jobs - and maintain
those new jobs for five years. The rebates would be funded
through withholding taxes, with 50 percent going back to the
employer and the rest going to the state. If the jobs don't
sustain, the employer would have to repay the rebates.
Such rebates have
proven effective, according to Sujit CanagaRetna, senior fiscal
analyst for the Lexington, Ky.-based Council of State
Governments.
CanagaRetna
cites Oklahoma, which he said used its rebate program to build a
sizable wind-energy
industry.
Another
job-creation provision would create a "deal-closing fund" that
would allow the state to offer out-of-state employers
last-minute incentives, including tax breaks and infrastructure
construction. About 20 states have similar funds, according to
the governments council.
The structure of
the fund is similar to the incentives in the renewable-energy
bill passed last year. It hinges on feeding a portion of the
dollars generated by new jobs, mainly in manufacturing, back
into a fund that would help attract more good-paying jobs to the
state, Adams said.
CanagaRetna said,
"They are an effective way for the executive branch to move
quickly on a project, but there is some controversy." Some say
the fund gives its administrator too much power because the
incentives aren't debated through the standard legislative
process, he added.
Adams proposes
seeding such a fund with $25 million of unused federal stimulus
money.
The bill's third
job-creation provision involves tweaking Arizona's existing
job-training program.
All state
employers pay a job-training tax, which collected $15 million in
2009. The fund helps companies pay for new employee training
when a skilled workforce is not immediately available.
The program is
often attractive to out-of-state employers looking to relocate,
according to the Greater Phoenix Economic Council. However, not
every company that pays the tax uses the program, House
Republicans say.
The new bill proposes
eliminating the job-training tax and instead funding the program
via participating companies' withholding taxes.
