Overhaul the state tax system and improve the climate for high-paying jobs, officials of Tucson's leading business organizations told a group of Southern Arizona legislators on Thursday.

The officials said the state needs more stable tax-revenue sources to prevent creation of what one called a $2 billion structural state budget deficit by 2012 - a deficit that would reach that level regardless of whether the economy grows.

They also said the state needs to do more to diversify its economy beyond dependence on what one official called the consumption-related industries of real estate and retail.

Today, when it comes to economic-development tools, the state is going into "gunfights with butter knives" when it competes with other states for jobs, said Joe Snell, president and CEO of Tucson Regional Economic Opportunity, one of three groups sponsoring the session.

"We don't have the tools," Snell said in an interview. "We have to do it with at least a gun."

A bank vice president seated in a crowd of more than 90 people including 11 legislators offered another tax-generating idea: extract revenue from the ore copper companies pull from the ground each year.

"Copper is at an all-time high," said Frances Merryman, a vice president for Northern Trust Bank at its Catalina Foothills branch. "They can't take it someplace else. We have to utilize resources in the state and stop giving them away."

Her idea drew sympathy from Ron Shoopman, one of three business leaders who gave speeches at the gathering. The other two, Snell and Jack Camper, said it would need more study.

If it were to have a negative economic impact, "we would probably have a real difficult time dealing with that," said Camper, outgoing president and CEO of the Tucson Metropolitan Chamber of Commerce.

Thursday's session at the Midtown Viscount Suite Hotel was the first time the annual briefing was sponsored by all three leading Tucson business groups: TREO, the chamber and the Southern Arizona Leadership Council.

Shoopman, the leadership council's president, advocated a tax-system overhaul. Potential targets for new revenue could include raising state property and individual income taxes, he said, noting that Arizona has a high corporate income-tax rate but one of the lowest individual income-tax rates in the country.

"We don't want high taxes for the state. We do need enough revenue for us to support programs important for the state's future," Shoopman said in an interview. He told the crowd, "We can't tax our way out of the problem. We can't cut our way out of it. We can't even grow our way out of it."

TREO's Snell said the state needs incentives to support "high-wage" industries. Noting that Arizona has lost about 330,000 jobs since December 2007, he said that it's in a tough position compared to competitors Colorado, Texas, Utah and New Mexico, which have lower unemployment rates, better programs in education innovation, a better tax climate for business and significantly better economic-development tools.

The state also needs a more flexible job-training program that responds to employers' needs, said Snell. Another good program would be a competitive closing fund, which would give Arizona some extra resources when the state is in the closing stages of a competition among several states for new jobs, he said.

Led by former University of Arizona President Peter Likins, several people who spoke from the crowd said the continued controversy in Arizona over anti-illegal-immigration bill SB 1070 is hurting the state's image and economic standing nationally. Between SB 1070 and the state's elimination of ethnic-studies school programs, the state is getting an anti-Hispanic image, Likins said in an interview later. "We have a hard time recruiting people at the university."

State Sen. Paula Aboud, a Tucson Democrat, said that if the business community wants more clout at the Legislature, it needs to be more aggressive in calling up legislators rather than waiting for legislators to seek their views.

Numerous speakers also said the state needs to upgrade its schools if it wants to attract more jobs.

Contact reporter Tony Davis at tdavis@azstarnet.com or 806-7746.