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Diverse group warns of impacts of new services tax ban

October 10, 2018

PHOENIX (AP) — A diverse group of opponents is coming out strongly against a ballot measure that would bar the Legislature from taxing services, saying it will decimate education and transporting funding.

The group pointed to a Wednesday report from the Grand Canyon Institute highlighting what they say are problems with Proposition 126, especially a $250 million hit to the state’s schools starting in 2021 and 33 to 44 percent cuts in regional transportation taxes in Maricopa and Pima counties when they come up for renewal in the next decade.

A spokesman for the group that is pushing the constitutional amendment calls the conclusions “scare tactics” and said existing taxes won’t be affected, even if they expire.

The Arizona Association of Realtors is pushing the initiative, saying they want to head off any push to add sales or transaction taxes to services such as veterinarian and health care expenses, and real estate commissions. The measure bars the state, counties and cities from imposing a new or increased tax on services not already in effect on December 31, 2017.

The group they created to push the measure, Citizens for Fair Tax Policy, says on its website that the initiative would not affect state or local revenues.

That may be true now, but the Grand Canyon Institute study released Wednesday said that probably won’t be the case when existing taxes are renewed. The Institute opposes the measure.

For instance, a school sales tax that expires in 2021 and was renewed in March by 80 of 90 state lawmakers with Gov. Doug Ducey’s support gets about a third of its revenue from services that would be barred from taxation under Proposition 126. The study says when the taxes actually renew they’ll be barred, although someone might have to sue to block them. The report is clear that the Institute believes a court fight would be successful for tax opponents.

That’s a $250 million loss for schools, according to the study, about a third of current revenues from the special school tax. Even though the renewal was approved this year, it technically won’t go into effect until July 2021. The study says affected schools will lose a major revenue stream from taxes on utilities, restaurant and bar purchases and other services.

Wes Gullett, a political consultant who is overseeing the campaign for Citizens for Fair Tax Policy, said the Grand Canyon Institute’s analysis is flat wrong.

“The way it reads is if it this has not been taxed prior to Dec. 31, 2017, it cannot be taxed,” Gullett said. “If it was taxed prior to that it can be taxed. And it can be extended, it can be increased, it can be taxed.”

Opponents say the measure will have wide-ranging effects.

“Prop 126 is basically loopholes for lobbyists — it’s going to slash our funding for schools, for roads, for public safety and at the same time probably raise our taxes in other forms as well,” said state Sen. Steve Farley, who lost the Democratic primary for governor in August. “It’s a terrible, terrible idea that only benefits a few connected insiders.”

He added that it’s such a terrible idea “that the Koch Brothers have joined together with public service unions to oppose it.”

Farley and Republican state Sen. Bob Worsley are leading the bipartisan opposition effort. Other opponents include the Koch-backed Americans for Prosperity, the American Federation of State, Federal and Municipal Employees and conservative and liberal groups, plus the centrist Grand Canyon Institute.

“We have Doug Ducey and (Democratic gubernatorial candidate) David Garcia against it,” Farley said. “That’s a huge coalition of unexpected allies that are used to fighting each other joined together to oppose this thing.”

State and national Realtor groups have pumped $6.1 million into the campaign backing Proposition 126 as of August. A Suffolk University/Arizona Republic poll released this month found 48 percent of those surveyed backed the measure, with 31 percent opposed and the rest undecided.

Farley said opponents won’t have nearly that much cash but they hope to chip away at the head-start backers have by educating the public.

“There’s no question this is a David vs. Goliath thing, but we’ve got a good chance of hitting the mark with a slingshot on this one,” Farley said.

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