As end of fiscal year looms, Arizona mayors signal support for budget deal

Mayors from across Arizona on Monday signaled their support for passage of a Fiscal Year 2022 state budget that would phase-in a major tax reform designed to sustain Arizona’s economic competitiveness while assuring cities and towns an increased share of state revenues.

In a letter sent to state legislators that was signed by 21 mayors from communities small and large, urban and rural, the mayors wrote, “In addition to ensuring vital resources to local communities, the budget includes important tax reforms that will keep Arizona as a leader in attracting people and jobs. That will inevitably have a positive impact on our communities.”

The announcement by mayors comes as the state comes perilously close to the end of the current fiscal year. Failure to adopt a state budget by June 30 would result in a state government shutdown. With the clock ticking, both legislative chambers on Tuesday morning attempted to act on the new budget bills, but the House session was scuttled after Democrats left the floor, denying the attendance necessary to achieve a quorum. 

Gov. Doug Ducey cheered the news of the mayors’ support, saying in a tweet, “We are pleased to have mayors across the state supporting the state’s budget package. Thank you, to these local leaders!”

Despite attempts earlier this month to move a budget through the legislative process, previous versions could not secure the requisite votes due in part to cities’ concerns that a tax cut would not spark economic growth but would instead shrink their slice of the overall state budget pie.

Groups that advocate for private sector job creators and economic growth earlier this month indicated their support for a budget package that included a significant income tax and commercial property tax reform. 

The latest budget proposal would increase cities’ Urban Revenue Sharing to 18 percent, while phasing in a reduction of the individual income tax that would result in two rates — 2.5 percent and 4.5 percent — once fully implemented. The exact timing of the phase-down would be determined by the pace at which state revenues achieve annual targets.

In addition to the looming end of the fiscal year, lawmakers are also acting with urgency because Arizona could soon have one of the highest individual income tax rates in the country due to last fall’s narrow passage of Proposition 208. That measure’s constitutionality is currently being considered by the state Supreme Court, but if the proposition is allowed to stand, Arizona’s top income tax rate will jump 77.7 percent, going from 4.5 percent up to 8 percent, which is spurring lawmakers to seek ways to mitigate the negative impact on affected filers, which include small businesses. 

An eight percent top income tax rate would give Arizona the nation’s ninth-highest rate among states with an individual income tax.