2005 Arizona Legislative Report

Kevin DeMenna

Each legislative session has its peculiar moments, but the First Regular Session of the 47th legislature was filled with them. While the business of the state marched on, the bizarre and even the marginally fantastic also moved ahead. Of course, it should be noted that every item of legislation is important to some individual or group. Even so, this session pushed the limits of credibility for many of these.

There were distractions at every turn. Each year there are a variety of government entities that are to be “sunseted” (repealed) if the legislature does not act to preserve them. Many of these are essential, such as the Motor Vehicle Department and even the Department of Environmental Quality, but there are a slew of others that just make you wonder whether their continued existence required the attention of the legislature, let alone whether or not they should have been created in the first place. For example, the Arizona Constitutional Commemoration Commission was extended for another 10 years. Along with the Constitutional Commission, at least nine other governmental entities had their lives extended; one can only assume that the legislature considered their critical role in state government and concluded that the wheel of progress would grind to a halt had their lease on life abruptly ended. But the Constitutional Commemoration Commission?

And there were some less than pressing (but still important to someone) items that became law as well. Rest assured that antique firetrucks may now lawfully display their sirens and lights during parades, and collectible cars won’t need to be emission tested in the future. When a charter school invites a guest speaker on to campus, the speaker will no longer need to be fingerprinted. Arizona dog racers pulled to the head of the pack this session with the enactment of a preference for racing canines bred in our fair state. And then there is this winner: The establishment (after years of trying, to be sure) of yet another commemorative license plate, this time commemorating the Golden Rule. Without doubt, the members of our legislature will be among the first in line at the Motor Vehicle Division for the new plate (yes, its life was extended).

But, let’s face it, the majority of the business of the legislature is serious stuff. Our public schools did especially well, with new laws ensuring better air quality in school buildings, provisions to keep strangers off campuses, a new statute on bullying, and, in an effort to address the latest and greatest threat to our children, the banning of the omnipresent soda and snack machines on school campuses — no more junk food for the kids.

The session ultimately ended on a sour note, with the Governor vetoing key elements of the final $8.3 million budget deal between the legislature and the Napolitano administration. Among the issues that led to this bitter conclusion were disagreements over English learner funding for 175,000 students, with the Governor vetoing a $42 million package sent to her by Republicans (this issue will be back, courtesy of the courts), and her veto of a corporate tax credit for private schools. The veto of the tax credit, attributed to a dispute over whether the credit would automatically repeal five years after enactment or merely be subject to a review, actually resulted in a near-revolt at the legislature with House members distributing “She Lied” bumper stickers for weeks after the bill’s demise.

The Box Scores

In this session, the 17th longest since one-man/one-vote came to the Arizona legislature in the 1960’s, we witnessed the introduction of 1,311 bills (quite a spike, given past history), along with another 132 largely irrelevant memorials and resolutions. Of the bill total, a modest 334 (or only 25% of the total, a substantial drop), became law under the Governor’s signature. However, without question, the most significant statistic in this year’s “box scores” is found in the astronomical total of 58 vetoes by the Governor over the course of the session.

The 2005 legislature was in session for a total of 124 calendar days. Except for those bills with emergency effective dates, all legislation passed in this session becomes effective August 12, 2005.

Overall 2005 Legislative Scorecard

Sent to Percent of

Introduced Governor Total

Total Number of Senate Bills: 529 223 42%

Total Number of House Bills: 782 169 22%

2005 Total Number of All Bills: 1,311 392 30%

Vetoes by Governor Napolitano: 58

House Bills vetoed by Governor: 18

Senate Bills vetoed by Governor: 40

Total of All Bills that Became Law: 334 25%

The Big Issues

The big issues and other noteworthy developments during the 2005 session include:

• Immigration Reform – According to all of the survey research, the biggest issue facing the state. Although the legislature sent the Governor a package of changes addressing the issue (a package described by the Arizona Republic as “mean spirited”), the bill was vetoed.

• AIMS Test – Lawmakers approved a change that will allow students to apply “points” derived from their grades toward graduation, effectively diluting the AIMS test threshold and bailing-out large numbers of 2006 seniors that might otherwise have failed to graduate.

• A New Medical School – The legislature, at the request of the Governor, the universities, the City of Phoenix, and a broad array of Arizona opinion leaders, reluctantly appropriated initial funding for a medical school in downtown Phoenix.

• Gay Marriage – After a handful of attempts to rally support for this issue by a number of legislators, the topic stalled. Despite divided support among voters, backers are now considering an initiative to place the issue on the November 2006 general election ballot.

• Medical Malpractice – Arizona doctors and their supporters, after failing to achieve anything substantial on medical malpractice in the 2005 session are also now considering an initiative to place this issue on the November 2006 ballot.

• All Day Kindergarten – Now a non- issue, all day kindergarten is here to stay. This program now enjoys wide support among Arizona voters. Governor Napolitano clearly got the best of the Arizona legislature on this issue.

• Guns in Bars – Not exactly the most pressing issue, this one nonetheless grabbed a large share of the legislative attention span and a larger share of the local headlines. Pushed by the NRA, the bill passed the legislature but was vetoed by the Governor.

• Assaults on Local Government – Multiple efforts aimed at city budgets were ultimately defeated, including an effort led by Cox Cable, and others led by key legislators. Each would have substantially impacted local government revenues.

• Redesigning Higher Education – In the face of innumerable plans to reshape Arizona’s higher education system, including one plan to turn Eastern Arizona Community College in Thatcher into a four-year liberal arts college, the legislature ultimately took a pass. Look for this issue to resurface in future sessions.

• Trust Land Reform – In a booming real estate market, and with huge amounts of highly valued state trust land years away from auction, efforts by developers, environmentalists, ranchers and educators to revamp trust land management stalled in only the second month of the session. Again, in the absence of any solid consensus or clear legislative action, the stakeholders are considering efforts to place this issue before the voters on the November 2006 ballot.

• Education Funding to be Dedicated to the Classroom – At mid-session mark, a proposal by the President of the Senate and Speaker of the House to ensure that 65% of funds appropriated to education be dedicated to Arizona classrooms was rolled out in an afternoon press conference. Despite strong public support for the plan, the idea died before it achieved any traction.

• Methamphetamine Control – With most plans built upon restrictions on the sale of Sudafed (the source product), these efforts were met with opposition from Arizona retailers. The end result was a weaker bill focusing on higher penalties for methamphetamine production rather than restricting access to the product.

• Water – A wet winter seemed to diffuse the momentum behind any aggressive efforts to address the statewide drought. Depending on how much rain falls, look for this issue to return.

The next legislative session begins in January, 2006, but the positioning and preparation has already begun. As always, the question that looms largest is a simple: how will the relations between the legislature and the Governor shake out? The divisive ending to the 2005 session seems to be the best indicator that the coming session may be a rough one.

Perhaps more importantly, 2006 will be an election year. All of the major statewide offices such as the Governor and Attorney General, as well as the legislature, each of Arizona’s congressional seats, and Jon Kyl’s U.S. Senate seat will be on the November ballot. As if the candidate related races were not enough, add to this a substantial number of items that are likely to appear on the General Election ballot as well, either through legislative referral or by citizen initiative. The behavior of elected officials and the issues that emerge often take a much more political spin, with policy often displaced by reelection considerations.

The elections will produce a massive expenditure of dollars, as well as a likely saturation of political media designed to move voters one way or the other. Many incumbents will form exploratory committees for other offices and some, because of the state’s arcane resign-to-run law, may actually feel compelled to quit their current office to fully focus upon the next campaign. In particular, the millions expected to be spent in the U.S. Senate race as Jon Kyl defends his seat against likely challenger and former state and multi-millionaire Democrat Party Chairman Jim Pederson are expected to overpower all other races. And, of course, the proliferation of taxpayer funding in all campaigns will continue to distort the landscape and will leave many of these publicly funded efforts, particularly for offices such as the Governor, Attorney General, Superintendent of Public Instruction, and Corporation Commission, grossly under funded and with a substantial advantage to the incumbent.

Arizona’s political scene continues to evolve at a pace consistent with a high growth state. Turnover in offices at all levels, driven primarily by term limits and low pay for elected officials, persists in sapping the state of the experienced leadership it needs. There is no sign that the political will exists to change this any time soon. The only constant to expect is a continuation of the turnover and changes that the state’s political leadership has experienced in the past.

The ASCPA Legislative Program

The 1st Regular Session of the 47th Arizona Legislature not only opened with new energy and a more conservative fiscal and social agenda, but also with a significant increase in the number of bills related on the ASCPA agenda; as is often the case, the vast majority of these are tax bills. In total over the course of the session, more than 70 bills with potential impact on the accounting profession were monitored and tracked for the Society.

As expected, the passage of a federal conformity bill was a primary focus of the Society’s 2005 legislative agenda. But this year brought a new twist: multiple bills with fundamentally different approaches. The “full conformity” package, Senate Bill 1095, was introduced at the request of the Society in January with an estimated cost of $12.7 million to the state. In contrast, “partial conformity” – also introduced at the request of the Society – began in both the House and the Senate with a less expensive and far more palatable price tag. Respectively, Senate Bill 1096 was sponsored by Senator Martin, Senate Finance Committee Chairman, and House Bill 2157 was sponsored by Representative Huffman, the House Ways and Means Committee Chairman. Partial conformity, in its various forms throughout the session, was roughly estimated by the Department of Revenue to “only” negatively impact the state by $5.9 million. When legislators weighed their fiscal options, the answer was clear: “partial conformity” left them with more money to spend when it came time to budget the state’s expenses for the next fiscal year, and that was the form that would move forward. This final version was ultimately destined to become law on yet another bill.

But, differing political agendas conspired to derail these changes before they became law. The conformity bill (SB 1202 in this iteration), along with 17 other bills sent to the Governor in late March as part of the legislative budget package, were all summarily vetoed.

Finally, on May 13 — the last day of the session — the consensus conformity bill was transmitted to the Governor as part of the second budget package sent to her office. The conformity language of Senate Bill 1529 was identical to the vetoed version, but also included changes to the individual income tax standard deduction and the marriage penalty elimination requested by various legislators.

Along with the IRC update, another significant tax issue was addressed as well. The December 26, 2004, Indian Ocean tsunami prompted both federal and state legislation. The enormity of this disaster prompted state policy makers to conform to this item as well, allowing charitable contributions aiding tsunami victims at the state level to be taken as retroactive federal deductions for 2004.

An additional achievement in working with state government this year can be directly attributed to hard work on the part of the Society team and a solid relationship with Governor Napolitano’s office. Once again, the ASCPA-nominated candidate to the Arizona State Board of Accountancy was approved by the Executive branch. A big part of this successful outcome can be traced to the quality candidates that the Society has consistently advanced. And, the Society’s work in this session also included work in support of SB 1029, the extension of the life of the State Board under Arizona’s sunset laws; the Board received an extension of 10 years, longer than most boards or agencies are presently receiving.

On the August 12, general effective date, all legislation signed by the Governor will become law, with the exception of those bills containing an emergency effective date. A sampling of some of the tax legislation that occupied the attention of legislators during the 124 day session includes:

• SB 1027 Active Duty Pay: Exempts the military income for active members of the Armed Forces of the United States from state income taxation for the 2006 taxable year.

• SB 1238 State Income Tax Withholding: Makes withholding income taxes optional for employers during December of each year.

• SB 1335 Small Business Investments: Creates an individual income tax credit for investments made in qualified businesses in the early stages of development.

• HB 2323 Water Conservation Systems: Allows for individual and corporate income tax credits for the installation of water conservation systems and a corporate income tax credit for the installation of water conservation system plumbing stub outs.

Society’s Presence

Year after year, the Arizona Society of Certified Public Accountants is recognized at the state capitol as Arizona’s leading voice for the accounting profession, and this session was no exception. The President and CEO, Board of Directors, volunteers and members that direct the Society’s legislative advocacy program have consistently been at the forefront of developing the Society’s agenda, and are the reason that the organization enjoys the standing that it does. From the hearing rooms to the full House and Senate, the elected officials know which organization to turn to for unbiased and accurate information.

The ongoing presence of the ASCPA at the capitol is important for a number of reasons, particularly: (1) Ensuring that the state tax code conforms each year to as many changes made at the federal level as possible. (2) Guarding against undesirable changes to the laws governing the profession and, as needed, working to adopt positive changes to these same laws. (3) Ensuring that the Society advances quality nominees for vacant State Board of Accountancy positions. (4) Monitoring each bill introduced for any unexpected impact upon the profession or Arizona’s tax laws. These tasks are ongoing, often outside of the term of the legislative session. The changing players, budgets and personal agendas complicate matters, but the Society has a terrific track record of successfully navigating these difficulties.

DeMenna & Associates is pleased to be a continuing part of the Society’s legislative and public policy team. In our second decade of working with the organization, we look forward to additional successes in the future.

Kevin DeMenna is president of DeMenna and Associates. His Web site is www. demenna.com.

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