Wednesday, January 13, 2016

Ducey's state of the state address unpacked: Linda Lyon and Tim Steller expose the flaws

Linda Lyon, blogging at RestoreReason.com, has some incisive observations about Ducey's claims about, and plans for, education.

Governor Ducey ... made the prediction that: “In the years ahead, Arizona will be among the states investing the most new dollars in public education – all without raising taxes.” Just to be clear here, the Prop 123 monies aren’t “new monies”, they are monies that were already owed to our schools. Not sure the Governor sees it that way, but that is the truth. More funding, much more funding is needed and every bit will be welcome, but I just don’t see how we can make a dent in the need without raising taxes. I am positive we can’t do it by cutting taxes and giving our surplus away as corporate handouts. We just need to look at what Governor Brownback did to Kansas with his tax cuts. When he took the reins in Kansas, he dropped the top income-tax rate by 25%, lowered sales taxes and created a huge exemption for business owners filing taxes as individuals. He claimed it would spur investment, create jobs and bolster the state’s coffers through faster growth, sound familiar? Now, five years after doubling down, his state lags in job creation, tax revenue is far short of expectations and bond and credit ratings have been downgraded. Rating agencies claimed the tax breaks were unsustainable and that the promised economic growth would be elusive. It is with great hubris this lesson would be ignored.

It sure seems that the lesson of how Kansas greenbacks were burned by Brownback is being ignored daily by the GOPlins. Ducey wants the income tax zeroed with the hope that we will suddenly suck all the businesses from California and all will be well. There's no evidence for that and plenty of evidence, as in Kansas, against it.

In closing, Lyon sends a message to Ducey about the role of philanthropic organizations in education.

The Governor also gave note to the fact that “The state isn’t the only player in public education. Every day, philanthropic foundations in Arizona are investing in our schools. They are developing new school leaders, expanding educational opportunities for low-income children and funding the arts and sciences. I intend to partner with the heads of these foundations to provide an even greater opportunity and impact in our schools.” Good for you Governor! Just don’t forget that it isn’t the job of these philanthropic foundations to provide for public education. That, as outlined in the Arizona Constitution, is the primary job of the Legislature and you! Irrespective of how much you promote the growth of for-profit charter schools and the expansion of Empowerment Scholarship Accounts (essentially vouchers), the responsibility for the public education of Arizona’s one million plus students is still ultimately rests on your shoulders. I hear you saying many of the right things, I just hope your intent is pure and your commitment is real. Our students are not a talking point, they are young people who deserve every opportunity to succeed and reach their full potential. Not only for themselves, but for the future of our State and our Nation.

Pardon me for my pessimism, but Ducey's rationale for tax breaks is totally at odds with reality (see the Kansas scenario above). Budgeting is a zero sum game. If you spend your revenue on tax breaks, you cannot also spend it on public services, education being just one.

But Dicey has a plan. On his watch Arizona will eclipse California as the go-to state. California is in such big trouble, you see, that an Arizona even without the ability to provide infrastructure will look so good by comparison that businesses large and small will flock to the state. There's just one problem with that. It is hogwash.

Tim Steller in his column exposes the shoddy thinking and falsehoods on which Dicey has based his "plan." Here are snippets.

"Together, we will lower taxes this year, next year and the year after,” [Ducey] said in the speech.

My question is — why, when we can’t pay for the state’s fundamental functions already?

Leaving aside sales tax rates, Arizona is a low-tax state. This year, the state is projected to spend less as a portion of residents’ income than it has in at least three decades. Yet our needs continue to grow with population.

So high taxes is not a justification for cutting taxes when the state has pressing needs, as Tim explains about Child Protective Services. (See his column for more on that sad story.)

I got the chance to ask Ducey one question and a follow-up after the Tucson event, and I decided to focus on taxes, asking how he expects to solve Arizona’s problems if he and the Legislature keep reducing revenue through tax cuts. Here’s what he said:

We added 56,000 new jobs last year. We added 100,000 new citizens. We’re growing our state and we’re growing our economy. We’re going to be competitive against states like California and Illinois that are going the wrong direction, and states like Texas are improving their quality of life and their environment for businesses. We want to be at the table when these businesses are making decisions about where they’re going to locate, and Arizona is going to be competitive in those decisions.

Not hearing an answer to my question, I asked if he thought reducing tax rates would increase tax revenue to the state — a common supply-side conception that only works in high-tax situations. Ducey’s response:

I think it’s part of the entire package. It’s, what’s the tax burden? What’s the regulatory environment? Are you business-friendly? Is there political consistency? Then, what’s the quality of life? Arizona is a great state. We have a great product and package to sell. And we want to be competitive.

Those answers left me with the feeling that Ducey’s plan is to cut taxes, recruit businesses and let the rest figure itself out. But neglected and abused kids, to cite the DCS example, don’t need a job — they need good protection and services paid for by taxpayers. We also need money to repair roads and bridges.

And we need to properly fund public-education-present without robbing public-education-future. But to fund these things we need more revenue not less. But not according to Ducey.

Of course, tax increases are not in the cards. That would make us too much like Ducey’s cherished rival, California. The governor made seven references to California in his state-of-the state speech, arguing that California’s burdensome bureaucracy will benefit Arizona as businesses there move here.

Ducey’s tone was a bit sophomoric, especially for the governor of a state that is arguably doing worse economically than California. He said, “I’d be remiss if I didn’t stop to thank my partner in growing Arizona’s economy — California Gov. Jerry Brown.”

So what about California? What's going in our neighboring state that is so awful that it will motivate an exodus of businesses to Arizona? Steller did the fact-checking.

[California's] economy is growing faster than Arizona’s, it has lower unemployment than Arizona and a lower poverty rate.

“California has been throughout this expansion one of the leaders in the rate of job growth and is now at record employment levels,” UCLA economist Jerry Nickelsburg told me. “All the major counties are at record employment levels right now.”

Employment in Silicon Valley’s Santa Clara County grew by 7 percent last year, said Nickelsburg, who is senior economist at UCLA Anderson Forecast.

Clearly, there is something more to building an attractive state than low taxes and minimal regulations.

Steller sums it up this way: "...it wasn’t clear why the rest of us should abhor California or how that solves our problems and creates the state we want."

Ducey's economic vision is worse than sophomoric. It's not only hog wash. It's piling the hog product higher and deeper. The stench overwhelms.

Here's the link to Ducey's state-of-the-state address.

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