PHOENIX — Gov. Doug Ducey and Republican legislative leaders plan to cut individual state income taxes this coming year by about $325 million.
Also, the controversial $32-a-vehicle registration fee instituted late last year to pay for the highway patrol will go away — by 2024.
But if you’re a big user of online retail, be prepared to pay more in sales taxes.
Those are some features of the nearly $11.9 billion state budget deal unveiled Monday. Ducey and GOP legislative leaders have agreed on the plan, which will next go to legislative hearings.
The plan also includes some new dollars for targeted programs, including $35 million in unrestricted, one-time dollars for the state’s three universities.
Other plans include:
- Restoring state funds for the Kids Care program that provides subsidized health insurance to the children of the working poor;
- Targeted pay raises for corrections officers, child safety workers, highway patrol and employees at the Arizona State Hospital;
- $10 million for programs to deal with the homeless;
- Giving schools $15 million to hire either counselors or school safety officers — police —at their choice;
- Restoring some — but not all — of the dollars cut from schools in the “district additional assistance” account that is earmarked to pay for things like books, computers and school buses;
- Providing the $20 million sought by Pinal County farmers to help drill new wells;
- Some new cash for Pima and Maricopa counties’ community colleges, earmarked for specific programs: health education in Maricopa and aviation training at Pima;
- $14.2 million in new dollars for rural community colleges to use as they wish;
- Depositing $542 million into the state’s rainy-day fund over the next two years, bringing the balance to $1 billion.
Unexpected money for the state
The tax cuts and new spending are enabled by the fact the state is getting unexpected cash.
That includes about $217 million next year because of changes in federal income-tax law. Those changes resulted in higher taxes this year for some Arizonans who itemize on their state returns.
Republican lawmakers also want to take advantage of a ruling last year by the U.S. Supreme Court that allows states to impose their sales taxes on online purchases made by their residents. That is expected to bring in another $85 million to Arizona.
The package also counts on using some of the current windfall from the federal tax law changes to pay off about $190 million in debt, a move that will eliminate the need to pay $24 million a year in debt service.
Rather than spend that additional cash on programs — the plan preferred by Democrats in the Legislature — the deal gives most of it back to taxpayers.
What taxpayers WILL get
The big change is that the state standard deduction, now $5,312 for individuals, will more than double to $12,000; and for married couples filing jointly, it will increase to $24,000.
That will help not just those who already take the standard deduction — people with few expenses to itemize — but will also eliminate the need for some people who were itemizing to go through that exercise.
The deal also allows those who take the standard deduction to also get an additional partial deduction for charitable donations.
There also will be a new tax credit of $100 per child.
Also in the plan is another income tax break for those earning more than $26,500 a year.
Right now the first $26,500 of income is taxed at 2.59% . That goes up to 2.88% for the amounts between $26,501 and $53,000, with higher percentages for amounts above that, all the way up to 4.54% — for amounts exceeding $158,996.
The new budget would eliminate the 2.88% tax bracket, taking that 2.59% rate for all earnings up to $53,000.
For someone earning at least $53,000 the break would be about $114 a year.
Democrats: Spend more on services, schools
All of that has proven too much for Democrats who wasted no time in criticizing the plan.
Sen. Martin Quezada, D-Glendale, questioned why the plan does not restore all of the funds cut from the district additional assistance account for schools.
Even with the new infusion, it will remain about $130 million short of what the schools are supposed to get.
He said schools are having trouble hiring and retaining staff workers, even with built-in pay raises for teachers.
“We’re doing a lot of positive things on K-12 education,” said Daniel Scarpinato, the governor’s chief of staff.
Aside from the previously agreed upon dollars for teacher pay, there is new cash for career and technical education, as well as some additional dollars for building repairs and construction.
But Scarpinato said just because the state has more money right now doesn’t mean it should spend it.
“We do need to prepare for the future,” he said, citing what happened a decade ago when the bottom dropped out of the economy and the state found itself $3 billion in the hole. That resulted in $1 billion in cuts, $1 billion in temporary taxes and $1 billion in borrowing.
“If we just go on a spending spree and don’t think about how do we prepare for the inevitable, we’re just going to make promises we can’t fulfill,” Scarpinato said.
Sen. Lela Alston, D-Phoenix, said the state would be able to do both if Ducey and the Republicans were not in a rush to give away revenues. She said there’s no reason for the state not to keep the windfall from the changes in federal tax laws.
“Dollars that used to go to Washington are now paid to Arizona,” Alston said. “These revenues should be used for Arizona priorities like education, the homeless crisis, infrastructure, health care and support for the elderly and disabled,” and not to permanently reduce the state’s tax base.
She was also critical of the state using the $85 million it anticipates in taxes from online sales to finance the income tax cuts, calling those sales tax dollars “tax revenue that is already owed to the state but is not being paid due to lack of enforcement.”
Democrats also were critical of the plan not doing more for higher education, especially the university system, which has seen state support for tuition for residents drop from about 75% more than a decade ago to less than half that now.
Scarpinato acknowledged that the $35 million in unrestricted funds, to be divided up among the three universities based on enrollment, is just a one-time infusion.
But he said there is other cash going to the universities, like an additional $15 million to help them train new public school teachers.