State budget crunch could hit cities hard, deplete key reserves - Phoenix Business Journal:

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The stalled housing market, inflation and economic downshifts are resultingt in projections of furtherbudget deficits, beyond the currenty year's $1.2 billion shortfall and next year' $1.9 billion gap. "The soonest the state may have a surplux againis 2011," said Gretcheb Jacobs, a lobbyist for the Phoenic law office of who works on financial issues. "We are going to be usint up our cash said state Senate Appropriations ChairmabnBob Burns. That coulrd leave the state with two drastic both of which couldhit businesses, consumers and properthy owners: Increase state taxes, or placw the burden on city and county governments.
The state could shift the tax burden and its financia woes to cities and countiesx by cutting state outlays and shared tax revenuewto municipalities. That would pressure cities and countiew to raise their property and sales taxes and business fees to make up the Arizona cities and counties do not levyincom taxes. Instead, they get a share of statr tax revenue. Local governments received $717 millioh from the state durin the pastfiscal year, said Ken director of the , which represents local governments at the Glendale Mayor Elaine Scruggs said Arizona'sd mayors are lobbying Gov. Janet Napolitano and legislatorsa not to diminish the tax revenuwe transferredto cities.
She said state cuts to sharedx revenue wouldhurt cities' budgets and abilith to provide services. Othedr local leaders agree. "If the state uses our portion of the fundws to balancetheir budget, we are forced to cut into programxs such as public safety, infrastructure and otherr critical areas," said Romina Korkes, governmenf relations director for the city of Goodyear. Businesw attraction and tourism promotion effortas also couldbe cut, she said. Strobecjk said cities already are beint hit byhousing market-induced decreases in sales and construction tax "Any reductions to shared revenues would be doublu punishing," he said.
The state also could impose taxes on service s and items that noware tax-exempt. That translatews into new taxeson food, businesws and professional services, and other exemp t purchases such as aircraft engines, livestock, health club memberships and mining "Policymakers are in the unenviable position of havingb to select from a series of politically miserablee options of increasing or expanding taxes; shifting financial responsibilitied to other levels of government, which have their own fiscal concerns; and pursuing additional reductionss in state spending," said Stuartt Goodman, a principal at in Phoenix.
Lurking tax increasesa come as business advocates push for just the property and corporatetax cuts. The Arizona Chambetr of Commerce & Industry and others want to slice corporate incometax rates, expand researcbh and development tax breaks, and permanently repeaol a $250 million property tax that is on temporaryh hiatus. They argue Arizona needs to keep its taxes low to attracy jobsand investment. Napolitano and many business interests are lookingy to puta 30-year, 1-cent state salesz tax increase on the November ballot and earmark the resulting $42 billionb for transportation.
Burns said the statee needs tocut spending, or it will run out of reservs funds and other fiscal maneuvers aftetr this year's budget. Much of the statee budget, however, is voter-approved and cannotg be cut bythe Legislature. Other reductions are opposede by Napolitano, leaving just a smal slice of the state's budget pie to be cut. Burnd does not want to see tax increases and noted it takeda two-thirds vote to approve them. He said the state coule end up referring major tax increase tothe ballot. A more likelt scenario, he said, is the statr will cut the revenue it sharewith cities.
Greenberg Traurig LLP: League of Arizona Citiesx & Towns: