Questions remain about how Arizona officials plan to pay for dueling tax cut plans

It’s still unclear how Democratic Gov. Katie Hobbs and Republican lawmakers plan to pay for their dueling plans to cut taxes by hundreds of millions of dollars.

Both Hobbs and the Republicans who control the Legislature have proposed separate plans to amend Arizona’s tax code to include some of the federal cuts signed into law by President Donald Trump over the summer.

The Republican plan, which was passed by the Legislature on Thursday, will cut state revenues by an estimated $441 million this year, according to legislative budget analysts. Hobbs’ plan, which was just introduced by Democratic lawmakers, would cost about $250 million.

Neither side has said how they plan to cut hundreds of millions of dollars in spending on agencies, state programs and other expenses to accommodate the loss of tax revenue.

Republicans said that discussion can wait for another day, arguing it was more important to pass their tax cut package quickly to give certainty to Arizonans who need to file their taxes by April 15.

“By passing this bill today, what we wanted to do was prioritize our taxpayer and then we as the policy makers, once we know the revenue pie that we're working with, we'll get to work on allocating it,” Republican Sen. J.D. Mesnard (R-Chandler) said shortly after GOP lawmakers passed their plan.

But Democrats argue that’s putting the cart before the horse and that lawmakers need to take a closer look at how the cuts will impact the state budget.

“And now we’re saying, ‘We don’t need to pay for those things or we’ll figure it out later. Let’s just rush through and push tax cuts that, by and large, benefit only the wealthiest,’” said Senate Minority Leader Priya Sundareshan (D-Tucson).

The governor’s office also has not released a plan for how it would pay for Hobbs’ smaller tax cut package, though Hobbs indicated she will provide details when she announces a state budget proposal on Friday.

“You'll see when we release the budget how we're paying for those tax cuts, but we will present a balanced budget that I'm really proud of and make some key investments for Arizonans,” Hobbs told KJZZ earlier this month.

Potential solutions

Senate President Warren Petersen (R-Gilbert) said Arizona could actually receive some money from the federal government to offset some of the revenue lost from tax cuts, citing a provision in the federal law that allocated $13.5 billion to reimburse states for money spent on immigration and border-related expenses.

Petersen said Arizona spent around $700 million on expenses he believes would qualify for reimbursement.

“So the speaker and I are in discussions right now with the Trump administration about reimbursement,” Petersen said.

Rep. David Livingston (R-Peoria) also suggested a plan to help offset the cost of the tax cuts by using around $300 million currently being spent on public education. That money was included in the state budget last year to offset funding lost when Proposition 123 expired.

Prop. 123 boosted the amount of money K-12 public schools received from the state land trust fund, but it lapsed last summer after lawmakers failed to reach a deal to send a renewal proposition to voters.

Recently, Republicans have suggested including protections for the state’s school voucher program in any Prop. 123 renewal plan, a non-starter for Hobbs and Democrats.

Under Livingston’s plan, lawmakers would send Hobbs a “clean” Prop. 123 renewal with no voucher protections and use the state funds currently backfilling that education funding to offset the tax cuts.

“That’s $900 million over three years,” Livingston said. “That’s 82% of the cost of this bill.”

Livingston, who opposed Prop. 123 in the past, indicated he’s not particularly thrilled about sending a clean extension to voters.

“I’m trying to show an olive branch to the executive that we’re trying to work with you, we’re trying to work with the Democrats,” Livingston said.

However, it’s unclear if Livingston’s idea will gain any traction.

Mesnard, who is planning to sponsor a Prop. 123 renewal that includes voucher protections, said he doesn’t support Livingston’s pitch.

And Republican leaders, who control which bills are heard at the Legislature, said the idea has not yet been discussed.

“We want to make sure we're being considerate to the taxpayer first before we start getting into those discussions,” House Speaker Steve Montenegro (R-Goodyear) said. “The taxpayers of Arizona deserve certainty and clarity today.”

A spokesman for Hobbs did not respond to a request to comment on Livingston’s idea.