This week at the Arizona Legislature: Hobbs' budget looks for new sources of income

Arizona Gov. Katie Hobbs on Friday released her budget proposal for the fiscal year that starts on July 1.

The plan calls for raising new revenue — including from the federal government, and focuses on the governor’s call for affordability measures. But, perhaps not surprisingly, GOP leaders in the state Legislature are criticizing the plan.

For the weekly look at what to expect in the coming days at the state Capitol, Howie Fischer of Capitol Media Services joined The Show.

Full conversation

MARK BRODIE: Good morning, Howie.

HOWARD FISCHER: Good morning. The question is: Why are we letting people who went into journalism — because of the fact we're all math impaired — handle budget questions?

MARK BRODIE: Well, we'll talk maybe broadly in numbers here. So, Howie, one of the things that has been written quite a bit about this budget is new sources of revenue. I mentioned the governor looking for money from the federal government. She's also looking for some money on the state level.

FISCHER: Exactly. And that's been part of the question in terms of: Is this a truly balanced budget? You start off, as you point out, with the $760 million. This is the money the state billed the federal government for. There was a provision in HR 1 that said we're going to make something like $13.5 billion available to states for their costs of protecting the border while Joe Biden was president.

And the governor had put together, some numbers supported by the Republican legislation came at about $760 million. Now, building the budget on that, that's an interesting question — because remember that the state of Texas alone says they're due for $11 billion. And you know, once Texas is done, you know, I guess maybe we're scraping for the crumbs.

There's obviously a lot of other stuff in there. The $3.50 fee on vacation rentals; raising the tax on what large online gaming places have to pay the state; the elimination of a $38.5 million tax break for data centers; a 1-cent fee on water used by data centers; and then capping vouchers, which theoretically isn't a money issue. But if you limit who can get vouchers based on family income, that brings in another $83 million.

Now, that's all contingent on the Legislature going along, with the exception of the federal money, which may or may not be coming.

MARK BRODIE: Yeah, well, and we've seen that the Speaker of the House Steve Montenegro referred to this budget as a, I'm gonna quote him here, "a fantasy built on fake revenues and hidden tax hikes." Not exactly a ringing endorsement.

FISCHER: No, not exactly. And again, it's not surprising. But also remember that the tax cuts that the Republican majority wants to give are larger than what the governor is giving out. I mean, by a major margin.

We're talking about $440 million in tax cuts based on the GOP plan versus $200-$250 million depending on what you include in the governor's plan.

So none of this stuff balances out, because even the Republicans, I think, are counting on some things that may not happen.

BRODIE: So, Howie, when you talk about some of the spending measures that are in this budget, the governor's talked a lot about affordability. There's a lot of Democrats and some Republicans have as well. What are some of the highlights of what she would like to spend some of that newfound revenue on, assuming she can get it?

FISCHER: Well, she wants to expand eligibility for the school lunch program, also the summer lunch program for kids during vacation. Weatherization projects gets some money to leverage for new home construction and multifamily construction by using some state and some COVID money. And then trying to cut down on and maybe eliminate the wait list for subsidized child care for families. Because if you can't get child care, then you stay home, which may make you eligible for other state services. So it's all designed to fit into that.

BRODIE: ... You referenced the tax bill that the governor vetoed and the difference in what how much conformity Republicans want with the federal law versus what the governor wants now. Now that that has vetoed, what is likely to happen next? Understanding there's a deadline —people have to file their taxes in April.

FISCHER: Well, you're making the assumption we'll have a deal by April. I have a feeling a lot of us are going to be filing for extensions or filing and then having to file amended returns. Which is the fear of people like J.D. Mesnard, who heads the Senate Finance Committee, said, "Look, we need to get something done."

It's complicated by the fact that what the Department of Revenue put out as forms that you can actually find online now does not conform with either the bill the Democrats have introduced or what the Republicans have done. So you file at your own risk.

I think that the biggest part of that bill is there's a common belief that we should raise the standard deduction — 88% of Arizonans take the standard deduction because of the fact that it's so generous. Unless you happen to have a very large mortgage with interest or a large car loan with interest, there's no reason to do that. I think that the governor and the Legislature agree there should be no tax on tips or no tax on overtime. Although I have to admit that a lot of Democrats say, "Why aren't we taxing tips?"

If a bartender is making $30,000 a year and an office worker is making $30,000 a year and the bartender's salary includes tips, why are we paying different tax rates?

You do have some areas of disagreement. For example, the governor's plan would give a $6,000 deduction, additional deduction to seniors. The Republican plan would make that deduction, but only for withdrawals from retirement amounts and 401(k)s. Meaning if you happen to be a senior but don't have a 401 or retirement account, you don't get the break.

And then of course, you've got the Republicans substituted out child care credits versus the car loan interest bill that was in the governor's original plan. So lots of little details to work out.

Can people file? Yeah, but be aware, you may have to file an amended return or, again, you can just file an extension. But beware, also, when you file that extension on April 15, you have to pay any taxes owed. Now, majority of people are due for refunds, but you got to be very careful there.