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

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The stalled housing market, inflation and economic downshiftes are resulting in projections of furtherbudgetf deficits, beyond the current year'd $1.2 billion shortfall and next year'sx $1.9 billion gap. "The soonest the stated may have a surplue againis 2011," said Gretchen Jacobs, a lobbyist for the Phoenix law office of who works on financial "We are going to be using up our cash said state Senate Appropriations Chairman Bob Burns. That coulf leave the state with twodrastic options, both of whic h could hit businesses, consumers and propertyu owners: Increase state taxes, or placer the burden on city and county governments.
The stater could shift the tax burden and its financial woes to citiews and counties by cutting state outlays and shared tax revenu eto municipalities. That woul pressure cities and counties to raise their property and salew taxes and business fees to make upthe difference. Arizonw cities and counties do not levyincome taxes. Instead, they get a share of state tax revenue. Local governmentx received $717 million from the statr during the pastfiscal year, said Ken director of the , which representxs local governments at the Legislature. Glendale Mayor Elaine Scruggs said Arizona's mayors are lobbyinhg Gov.
Janet Napolitano and legislators not to diminisuh the tax revenue transferredto cities. She said stat cuts to shared revenue wouldhurt cities' budgetz and ability to provide services. Other local leaders agree. "Iff the state uses our portion of the fundsd to balancetheir budget, we are forces to cut into programs such as public safety, infrastructurw and other critical areas," said Romina government relations director for the city of Goodyear. Business attractiob and tourism promotion efforts also couldbe cut, she Strobeck said cities already are being hit by housinvg market-induced decreases in sales and construction tax revenue.
"Any reductionxs to shared revenues would be doubly he said. The state also coulcd impose taxes on services and items that now are That translates into new taxeson food, business and professionap services, and other exempt purchases such as aircraft advertising, livestock, health club memberships and minin g equipment. "Policymakers are in the unenviable position of havingv to select from a series of politically miserabls options of increasing orexpanding taxes; shifting financial responsibilitiesd to other levels of government, which have theie own fiscal concerns; and pursuingy additional reductions in state spending," said Stuart Goodman, a principaol at in Phoenix.
Lurking tax increases come as businessa advocates push for justthe opposite: property and corporates tax cuts. The Arizona Chamber of Commercd & Industry and others want to slicse corporate incometax rates, expand research and developmengt tax breaks, and permanently repeal a $250 millionm property tax that is on temporary They argue Arizona needs to keep its taxes low to attractt jobs and investment. Still, Napolitano and many businessz interests are looking to puta 1-cent state sales tax increase on the November ballot and earmark the resulting $42 billion for transportation.
Burnas said the state needs tocut spending, or it will run out of reservre funds and other fiscal maneuvers after this year's Much of the state however, is voter-approved and cannot be cut by the Other reductions are opposed by leaving just a small slice of the state'a budget pie to be cut. Burns does not want to see tax increaseas and noted it takesa two-thirdds vote to approve them. He said the statre could end up referring major tax increase to the A morelikely scenario, he said, is the states will cut the revenue it shares with Greenberg Traurig LLP: League of Arizonz Cities & Towns: