House of Representatives

HB 2637

conditional appropriations; taxation; revenue forecasts

Sponsors: Representatives Knaperek, Allen: Brimhall et. al

DPA	Committee on Appropriation
X	Caucus and COW	This bill as introduced contains an Appropriation clause.
	As Passed the House

HB 2637 conditionally appropriates monies from the state general fund in FY 2001-2002 and FY 2002-2003 to a number of programs and to tax cuts based on revenues exceeding current revenue forecasts. After a $50 million ending balance is secured, then the conditional appropriations organized into three “priority tiers” are enacted by “trigger mechanisms” when revenues exceed the thresholds specified in the bill.

How the Trigger Mechanism Works

State general fund revenues, not including any beginning balance, are currently forecasted at $6,296,122,700 for FY 2000-2001 and at $6,619,874,000 for FY 2001-2002. On or before September 1^st each year the Staff Director for the Joint Legislative Budget Committee and the Director of the Governor’s Office of Strategic Planning and Budgeting shall notify the Governor and the Legislature of the actual ending revenue collections for FY 2000-2001 and for FY 2001-2002.

If revenues exceed the forecast up to $79,708,400, the excess revenue remains part of the general fund carry-forward balance. However, if revenues exceed the forecast between $79,708,400 and $104,131,000, then $50 million remains in the general fund carry-forward balance and $29,708,400 is used to appropriate funds and enact tax cuts for the 1^st Priority Tier (see tables below). If revenues exceed the forecast between $104,131,000 and $138,131,000, $50 million remains in the general fund carry forward balance and $54,131,000 is used to appropriate funds for the 1^st and 2^nd Priority Tiers. If revenues exceed $138,131,000 $50 million remains in the general fund carry forward balance and $88,131,000 is used for the 1^st, 2^nd and 3^rd Priority Tiers. When a priority tier is enacted in FY 2001-2002, appropriations are made for both fiscal years 2001-2002 and 2002-2003 for each item, as applicable.[1]

If a priority tier is not enacted in the first year of the biennial, the priority tier may be enacted in the second year of the biennial if revenues exceed the FY 2001-2002 forecast as indicated in HB 2637, as amended in Appropriations Committee. In this scenario, the amounts appropriated in FY 2002-2003 reflect either the on-going cost of the item or the total amount of funding the item would have received during the biennial if the priority tier would have been enacted in FY 2001-2002.

Conditional Appropriations – Priority Tiers

1^st Priority Tier
Trigger: Revenues exceed FY 2000-2001 revenue forecast by $79,708,400 or if not enacted in FY 2001-2002, revenues exceed FY 2001-2002 revenue forecast by $79,708,400.
	Enacted based on FY 2000-2001 Revenues		Only Enacted If Not Enacted in FY 2001-2002
Item	FY 2001-2002	FY 2002-2003	FY 2002-2003
GITA No wrong door funding	$3,134,700	$731,500	$3,866,200
DOR Transaction privilege tax Database	1,685,000	1,000,000	2,685,000
Commerce: High technology cluster Funding 50% of small community growing smarter	500,000 206,500	500,000 202,400	500,000 206,500
ASU East Campus General fund collections Offsets	36,000	1,322,800	1,322,800
ASU West Campus General fund collections Offsets	219,900	404,900	404,900
Attorney General Additional salary adjustment	869,100	869,100	869,100
ADE AIMS dropout prevention	500,000	500,000	500,000
DEQ Arizona-Mexico hazardous and solid waste issues	129,100	87,800	129,100
DES: Additional provider rate increase for developmental disability providers Full year of new child Protective services adoption Staffing Higher adult home/community services increases New developmental disability Automation funding	500,000 761,400 1,800,000 1,876,100	500,000 0 1,800,000 2,002,100	500,000 0 1,800,000 3,658,700
Water Resources: Rural water studies	500,000	500,000	500,000
Tax Reduction Reduce lowest individual income tax rate	0	6,570,000	6,570,000

2^nd Priority Tier
Trigger: Revenues exceed FY 2000-2001 revenue forecast by $104,131,000 or if not enacted in FY 2001-2002, revenues exceed FY 2001-2002 revenue forecast by $104,131,000.
	Enacted based on FY 2000-2001 Revenues		Only Enacted If Not Enacted in FY 2001-2002
Item	FY 2001-2002	FY 2002-2003	FY 2002-2003
State Land Department: Master planning and engineer- ing on urban state trust land Federal condemnations of state trust land	$220,000 150,000	$220,000 100,000	$220,000 150,000
Capital outlay: DOA Building Renewal at 75% rather than 50%	3,104,300	3,324,900	3,324,900
ASU – Main Campus New Facilities	201,500	532,300	532,300
ASU – East Campus New Facilities	327,300	1,437,600	1,437,600
U of A – Main campus New Facilities Collections offset	450,100 0	1,797,400 604,200	1,797,400 604,200
NAU Collections offset Yuma science complex	1,843,600 0	1,839,400 220,000	1,839,400 220,000
DPS: Fingerprinting board staff Sex offender notification Radio infrastructure Replacement	178,700 160,000 0	141,300 160,000 840,000	178,700 160,000 840,000
Tax Reduction Reduce lowest individual income tax rate	0	6,570,000	6,570,000

3^rd Priority Tier
Trigger: Revenues exceed FY 2000-2001 or 2001-2002 revenue forecast by $138,131,000.
Item	FY 2001-2002
Tax Reduction Two part Corporate Income Tax Reduction: Corporate rate reduction Increase the corporate sales factor in the apportionment formula	$34,000,000

Tax Cut Detail

The first and second priority tiers will contain a provision to reduce the lowest individual income tax rate. The first priority tier will reduce the rate from 2.87% to 2.84%. The second priority tier will continue this reduction by further reducing the lowest rate to 2.81%. The lowest rate applies to the first $10,000 of income for single filers and the first $20,000 of income for married filing joint filers. Each rate reduction results in approximately 6.6 million of taxpayer savings, for a total of $13.1 million.

The third priority tier combines two corporate income tax reductions. If this trigger is met, then the corporate rate will be reduced from the current rate of 6.968% to 6.8%. This equals a tax savings of approximately $10 - $12 million. In addition, the corporate apportionment formula will be changed to allow multi-state corporations the option to use an alternative formula. The current apportionment formula applies a double-weighted sales factor meaning that sales account for 50% of the formula and property and payroll factors are each 25% of the apportionment formula.

The alternative option will allow multi-state corporations to choose a more heavily weighted sales factor of 65% and property and payroll factors will each be 17.5%. This results in a tax savings of approximately $19 - 22 million.

In addition, the bill as amended in Appropriations Committee, will increase the standard deduction allowed on individual income tax forms. This tax reduction is not triggered. The standard deduction for single/married filing separate is currently $3,600 and will increase to $4,050. The standard deduction for married filing joint/head of household is currently $7,200 and will increase to $8,100. This increase in the standard deduction is effective beginning in 2002 and will result in a savings of approximately $14.9 million per year.

Appropriation Footnotes

· GITA: Before the expenditure of any monies for the No Wrong Door, GITA shall submit a report on the allocation of monies to agencies and the cost of project components to the JLBC for its review.

· DOR: DOR shall bill local jurisdictions for an additional $2,685,000 to provide 50% of reworking the sales tax database. The billing shall be in proportion to a local jurisdiction’s share of total state of Arizona’s population. Before the expenditure of the state general fund appropriation, the department shall submit an expenditure plan to the joint legislative budget committee for review. The plan shall include a description of how this particular project interacts with DOR’s overall compute replacement plan.

· Attorney General: The appropriation is for salary increases for Assistant Attorney General positions at the different state agencies. On or before October 1, 2001, the Attorney General’s Office shall report the state general fund allocation by agency to JLBC.

· NAU – Yuma Science Complex: The Board of Regents may issue revenue bonds not to exceed $6,000,000 more than any remaining bonding authority at NAU for the purposes of building the science complex in Yuma. Before the issuance of the bonds, the Board of Regents shall incorporate the science complex into its comprehensive multi-year bonding plan and JCCR shall review the multi-year bonding plan.

· DPS: monies appropriated to the fingerprinting board revert back to the state if the 45^th Legislature enacts legislation that permits DPS to increase fingerprinting fees.

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45th Legislature

First Regular Session 5 April 12, 2001

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[1] Some items are only one-time funding or only receive funding in the second year of the biennial – such as the tax cut in the 1^st Priority Tier.