Ducey's Budget Proposes $200 Million Tax Cut, Remediation For K-12

By Mark Brodie
Howard Fischer, Capitol Media Services
Published: Friday, January 15, 2021 - 2:49pm
Updated: Monday, January 18, 2021 - 1:04pm
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Gov. Doug Ducey wants to reduce taxes by $200 million this coming budget year — and another $200 million a year in each of the following two years — but isn't ready to say who he wants to get that relief.

Daniel Scarpinato, Ducey's chief of staff, said the cuts are justified because the state's revenues are healthy. And he rejected suggestions that the cash should go to what might be considered unmet needs, including concerns by Democrats and others about adequate funding of school construction and repairs.

Scarpinato said there are new and expanded programs being funded in the governor's $12.6 billion spending plan. But he said Ducey maintains the belief that people are in the best position to decide what to do with their money and not the state, especially given the financial hardships many suffered due to the pandemic.

"What if you're a barber," Scarpinato said. "What was your income like this past year? Should you not be able to keep some of the money you've earned if the state has additional revenue?"

Scarpinato said the governor's proposed tax cut isn't designed to be an offset for Arizona's high-wage earners who will be hit with a 3.5% income tax surcharge due to Proposition 208.

Instead, he hinted that what Ducey favors is cutting income tax rates at the bottom.

That's based on the fact that Arizona has a staggered tax table. For example, everyone pays 2.59% on the first $27,272 of income, then 3.34% on the next $27,272, 4.17% on the next $109,800 and 4.5% on everything over $163,632. The dollar figures are double for married couples filing jointly.

"So if you were to impact the lowest bracket, the Arizonans who earn the least amount of money, you would be impacting all taxpayers," Scarpinato said. That, he said, is right in line with what Ducey wants.

"The governor believes that broad-based tax reform and broad-based tax reductions are a good thing," Scarpinato said. 

And, he said, the state has record revenues.

"And, so, the dollars are going to be spent, somehow," he said.

"The state is going to utilize them as part of the budget, if not for tax reform, they would go toward other initiatives," Scarpinato continued. "The governor believes that people deserve to keep their money."

Scarpinato said there are new and expanded programs being funded, including:

  • Cash for summer-school programs to help kids, especially from high-poverty areas, make up what they aren't learning this academic year;
  • Money for seven new public schools in districts that are approaching capacity;
  • More staff to survey conditions in long-term care facilities;
  • Repairs at state prisons;
  • Additional dollars for universities to increase the number of graduates in high-demand industries like coding, artificial intelligence and what the governor calls "entrepreneurism."
  • Funds to hire more Department of Public Safety officers and separately purchase body cameras;
  • More money both to prevent and deal with forest fires.

But the budget does leave some gaps.

One in particular is that the governor last year promised he would hold schools financially harmless due to the effects of the virus as many had to go to virtual learning.

Ducey said the state would make up for the fact that the aid formula pays less for online students than those in classrooms to recognize there are additional costs. And the governor said schools would not be penalized when some students disappeared from school entirely and the state would provide them with the same aid as the prior year to cover fixed costs.

The state did give out $370 million. But that ran out before all the schools got what they believe they were promised, leaving many districts millions in the hole, to the tune of $389 million statewide.

Scarpinato said the state is making that up by earmarking that $389 million for special summer school programs aimed at helping students make up over the summer what they likely didn't learn last year.

That includes $298 million to help nearly 600,000 students who come from low-income homes to provide at least 50 hours of instruction. And there's another $91 million targeted at grades K through third and eighth and 11th grades for 80 hours of summer school.

"Low-income kids and children of color in particular haven't had the opportunities that other students have had during this pandemic," said Scarpinato. "So we've structured this in a way that does provide those dollars to schools, but that does it in a way that helps the kids that have been impacted through this pandemic."

That doesn't make the schools whole and make up for the cash Ducey promised last year but didn't deliver. The funds will be needed to pay the staffers teaching those summer school programs. But Gretchen Conger, one of the governor's advisers, said Ducey believes the schools still come out ahead because of an infusion of federal dollars.

The spending plan also does not include the $44 million that Ducey had proposed — but did not get — a year ago to expand "Project Rocket," grants of $150 per student to districts with low-performing schools and a high percentage of students who live in poverty to help reduce the achievement gap.

"Things have changed," said Scarpinato.

The governor is willing to work with Rep. Michelle Udall (R-Mesa) who already has introduced legislation this session to fully fund the plan, Scarpinato said.

The budget also includes $6.9 million in early literacy, including sending literacy coaches to the lowest performing K-3 schools and requiring additional evaluation and training of new teachers to ensure they know how to teach reading.

And there is another $9.5 million in what the governor calls his "Driving Equity" initiative to promote school choice.

That is based on the idea that parents want to choose schools based on things like class sizes, programs available and learning styles but often cannot because they do not live near the schools they desire and may not have a way of driving their students there daily. This would be available to schools, both traditional public and charter, to come up with "transportation innovations" to get those kids the rides they need.

And Ducey wants another $500,000 to publicize school choice options.

Also in the program is $2 million available to high school juniors and seniors in $1,000 scholarships who do community service.

Ducey also intends to put $120 million of tax dollars this calendar into keeping the state's unemployment trust fund solvent.

At the beginning of last year there was $1.1 billion in the fund, financed by employers who pay a tax on the first $7,000 of each worker's salary. Rates range from 0.05% to 12.85%, based on how often each firm's workers end up collecting benefits because they have been laid off or terminated through no fault of their own.

The increased number of people who were let go or fired due to the virus has the fund on target to reach zero in February.

Under normal circumstances, when the fund runs out of money it is made up by the federal government in the form of a loan. But that has to be paid back by Arizona employers in the form of a surcharge on their normal unemployment taxes that they pay.

Instead, Ducey wants to use general fund dollars to avoid that surcharge.

At the same time, however, Ducey has shown no interest in raising the maximum benefit available to workers who lose their jobs through no fault of their own. Arizona's cap of $240 a week, not raised since 2004, is the second lowest in the nation.

There also are no new state dollars for programs for the homeless, an issue that has become increasingly critical given job losses during the pandemic and the expiration of no-eviction orders.

Conger, however, said she expects more than $400 million in federal dollars to be available for rental assistance.

For a breakdown of the governor's proposal, The Show talked to Howard Fischer of Capitol Media Services.

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