PHOENIX — Attorney General Mark Brnovich is asking a federal judge to rule that Arizona can take billions from the federal government in the new virus aid package without having to comply with a provision barring the state from using the money for tax breaks.
In a new court filing Thursday, Brnovich contends the provision in the American Rescue Plan Act of 2021 is, at the very least, ambiguous about how it affects the ability of the governor and state lawmakers to set their own fiscal policy.
“This ambiguity alone renders the tax mandate unconstitutional,” he wrote.
But even if it is clear — and Treasury Secretary Janet Yellen wrote to Brnovich telling him the conditions under which Arizona can slash taxes — the attorney general still argues that it was illegal for Congress to tell states they can’t use federal aid dollars to provide tax relief to businesses and individuals. He said the provision is “an unconstitutional attempt by Congress to usurp the sovereign taxing powers of the states.”
Hanging in the balance is the question of whether Gov. Doug Ducey can pursue his plan to cut $600 million in taxes and some even more bold proposals by GOP lawmakers for up to $1 billion in tax breaks without having to forfeit the identical amount in federal aid.
Put another way, Brnovich wants Arizona to be able to keep its $4.7 billion share of the $1.9 trillion package that includes $195 billion in aid to states and still provide tax cuts to individuals and businesses.
There was no immediate response from the Treasury Department which, along with Yellen, is the defendant in the lawsuit.
At the heart of the battle is language in the federal law that says states cannot use the money they are getting from the feds “to either directly or indirectly offset a reduction in the net tax revenue of each state.” That includes any change in state law or regulation that reduces rates or provides rebates, deductions or credits.
Any violation results in the state having to repay the government any reduction in taxes.
The problem, said Brnovich, starts with what he said is the vagueness of the language, particularly the part of about indirectly offsetting tax cuts.
What makes the issue important for Arizona, he said, is that the state’s fiscal fortunes have changed.
On one hand, during the second quarter of last year — right as the virus hit and portions of the economy were closed — state revenues came in well below projections. That led lawmakers to craft a lower spending plan for the current fiscal year.
But what happened, Brnovich said, is that collections in two areas have been greater than expected.
First was a change in state law that now allows Arizona to collect sales tax from online retailers. Then there was a big increase in contracting and the taxes that go with it.
“Revenue for fiscal year 2021 has come in over projections resulting in a $1 billion surplus,” Brnovich said. “And the state now has an estimated surplus in terms of state revenues specifically.”
Now he said, lawmakers may want to use that money to improve the economy and “assist struggling businesses and individuals trying to make ends meet.” In fact, he noted, Ducey’s plan to cut taxes by $200 million this coming year, rising to $400 million the following budget year and $600 million the year after that had been proposed even before the feds enacted the relief package.
Brnovich said precluding legislative tax cuts to get the federal dollars puts Arizona in a no-win situation.
“States are in no position to turn down the federal government’s offer given their financial situations, which have been significantly strained by the COVID-19 pandemic,” he said, pointing out that Arizona’s $4.7 billion share amounts to close to 40% of the state general fund budget.
And its not just current tax cuts that are at issue.
He pointed out that the federal dollars can be used for not just current expenses. So any decision to accept the money would preclude tax cuts in 2022 and 2023.
“It represents an unprecedented and unconstitutional intrusion on the separate sovereignty of the states through federal usurpation of one half of the state’s fiscal ledgers — control of their revenues,” he said.
Less clear is whether the federal law actually would preclude the kind of tax cuts being considered by Ducey and the Republican-controlled Legislature.
“Nothing in the Act prevents states from enacting a broad variety of tax cuts,” Yellen wrote earlier this week to Brnovich. She said all the law does is preclude states from using their federal dollars to finance them.
“If states lower certain taxes but do not use the funds under the Act to offset those cuts — for example, by replacing the lost revenues through other means — the limitation of the Act is not implicated,” Yellen wrote.
But Brnovich said he’s not prepared to rely on Yellen’s assurances.
He pointed out that Sen. Joe Manchin, D-W. Va., who was a principal proponent of the provision has said he views the language as blanket provision forbidding states from enacting any tax cuts through 2024. Brnovich cited a New York Times report that Manchin “argues that states should not be cutting taxes at a time when they need more money to combat the virus.”
No date has been set for the court to consider the complaint.
Tohono Chul Park, 7366 Paseo del Norte, is now open everyday for those willing to socially distance and wear a mask. Get tickets online only at TohonoChul.org
37 historic photos of the Santa Cruz River through Tucson
Santa Cruz River

Waterfalls on the Santa Cruz River in 1889 near Sentinel Peak in Tucson.
Santa Cruz River

Girls in Santa Cruz River,1889-1890.
Santa Cruz River

A bridge over the Santa Cruz River near Sentinel Peak in Tucson washed out during flooding in 1915.
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Santa Cruz River at St. Mary's Road bridge in 1931.
Santa Cruz River

The Santa Cruz River flows north as seen from Sentinel Peak in Tucson in the early 1900's.
Santa Cruz River

El Convento along the Santa Cruz River, ca. 1910.
Santa Cruz River

Flooding of the Santa Cruz River, Tucson, in September, 1926, from “Letters from Tucson, 1925-1927” by Ethel Stiffler.
Santa Cruz River

Flooding of the Santa Cruz River, Tucson, in September, 1926, from “Letters from Tucson, 1925-1927” by Ethel Stiffler.
Santa Cruz River in Tucson

Aerial view of the Santa Cruz River as it winds its way through Pima County north of Cortaro Road in 1953. The county was considering a bridge at several locations, but had to contend with the ever-changing course of the river.
Santa Cruz River in Tucson

The Tucson Citizen wrote in 1970, "The Santa Cruz River is a garbage dump" and "even marijuana grows in it." City leaders were pushing to upgrade and beautify the channel. The U.S. Army Corps of Engineers was studying the possibility.
Santa Cruz River in Tucson

The Santa Cruz River flowing under the Congress Street bridge in August, 1952. The Garden of Gesthemane is in the background.
Santa Cruz River

By July 24, 1970 the old bridge on West Congress over the Santa Cruz River had to go and be replaced by a new bridge.
Garden of Gethsemane

By July 24, 1970 the figures from Felix Lucero's Last Supper had been on the west side of the Santa Cruz River for more than 20 years. City authorities had decided to leave it in place while a new bridge on West Congress Street was to be replaced.
Garden of Gethsemane, 1964

Volunteers from the Tucson Jaycees and Junior Chamber of Commerce finish restoration of the statues and grounds of the Garden of Gethsemane along the Santa Cruz River in May, 1964. The statues were ravaged by vandals and weather. The city parks and recreation department worked with the volunteers. Artist Felix Lucero began sculpture project in 1938 and finished it nine years later.
Santa Cruz River in Tucson

Drought in June, 1974, turned the Santa Cruz riverbed into crunchy chunks of dried mud.
Santa Cruz River in Tucson

The Santa Cruz River flowing under Silverlake Road in August, 1970.
Santa Cruz River in Tucson

Children play in the Santa Cruz River near Speedway Blvd in August, 1970.
Santa Cruz River in Tucson

The Santa Cruz riverbed at Congress Street in November, 1967.
Santa Cruz River in Tucson

After years of waiting, crews began clearing debris and channeling the Santa Cruz River in November, 1977, and constructing what would become a 14-mile river park. The Speedway Blvd. bridge is in the background.
Santa Cruz River in Tucson

After years of waiting, crews began clearing debris and channeling the Santa Cruz River in November, 1977, and constructing what would become a 14-mile river park.
Santa Cruz River in Tucson

The Santa Cruz River looks peaceful flowing underneath Speedway Road after days of flooding in October, 1977.
Santa Cruz River in Tucson

Adalberto Ballesteros rides along the Santa Cruz River west of downtown Tucson in 1980.
Santa Cruz River

The Santa Cruz River looking north from Valencia Road in July, 1974.
Santa Cruz River

Junked cars and trash spill into the Santa Cruz River, looking south, just south of Grant Road in July, 1974.
Santa Cruz River in Tucson

Road graders scrape the Santa Cruz River channel between Speedway and Grant roads during bank stabilization construction in May, 1991.
Santa Cruz River

Flooding in Marana after the Santa Cruz River overflowed its banks in Oct. 1983.
Santa Cruz River

A bridge on the Santa Cruz River northwest of Tucson washed out during flooding in October 1983.
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Residents watch the surging Santa Cruz River rush past West St. Mary's Road on January 19, 1993.
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Tucson firefighters are standing by and waiting for two kids floating in the Santa Cruz River on some type of object during flooding in July, 1996.
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