Legislative Report: Policymaking Plot Twists

It’s safe to assume AZ CPA readers are comfortable with numbers, but you don’t need to be an expert in literature to be familiar with one of the most exciting parts of storytelling: the plot twist. The best plot twists are revealed only after anticipation has grown and its revelation leaves you in a state of jaw-dropping awe, a suitable descriptor for the explosive conclusion to Arizona’s 2022 legislative session.

Lawmakers have a constitutional obligation to pass a budget by July 1 of each year. When lawmakers gathered in early January, the Republican majority made clear its priority to pass a “Republican budget.”

Gathering the votes necessary to pass a budget is never easy, but it was painfully obvious that passing a Republican-backed budget would be a heavy lift for two primary reasons:

1. Republicans in the state House and Senate currently hold a single vote majority, so every member of the majority would have to be in lockstep support for the spending plan.

2. Last fall, the Arizona Supreme Court found that several provisions of the 2022 budget violated the state constitution’s “single subject” rule. Simply put, you can’t include laws in the state budget that don’t have anything to do with the funding in the state budget. This judicial wrist slap barred the legislative “logrolling” that is regularly deployed to secure budget support.

With razor-thin margins and a renewed inability to pack policy into the budget, leaders grappled for months to secure the support of all Republican state lawmakers.

In the final week of session, just days from the next fiscal year and with no Republican-only budget deal in sight, came the plot twist: a bipartisan budget.

Legislative leaders, aware of the near-impossible task of nailing down every Republican for a budget deal, had been developing an alternative spending plan with a bipartisan group of lawmakers. When Republican holdouts drew their final line in the sand, the bipartisan budget deal was finalized, voted on overnight and passed just before sunrise the following day.

Anticipation had grown throughout the session, and the revelation of a bipartisan budget left legislative onlookers in that state of jaw-dropping awe. The 2022 legislative narrative was also punctuated by a handful of ambitious policymaking proposals, including:

• The Water Infrastructure Finance Authority (WIFA): More than $1 billion will go toward water augmentation, supply development, conservation projects and more.

• Empowerment Scholarship Accounts (ESAs): The most expansive school choice law in the nation opens ESAs to all school-age children. ESA opponents are already gathering signatures to refer the expansion to the November 2024 ballot. An ESA expansion was referred to the ballot and subsequently voted down in 2018, but ESA proponents believe voter attitudes have shifted since then.

• Proposition 400 Extension: A half-cent sales tax was approved by Valley voters in 1985 and extended in 2004. The tax – which provides funding for transportation projects in metro Phoenix – is set to expire in 2025, so legislation was advanced that would have allowed Maricopa County to ask voters to extend the tax for the next 25 years. The legislation authorizing the vote passed with bipartisan support but was vetoed by Governor Ducey.

The story at the Legislature may not be over. Before lawmakers closed out the 2022 session, rumors were already swirling about the possibility of a special session. The exact “release date” of this legislative sequel, however, remains unknown.

The Tax Policy Subplot

Arizona CPAs have been on a taxcode rollercoaster for years. While predictability in the tax realm is always a close second to the desire for lower taxes, that predictability has remained elusive for too long.

Between the Tax Cuts and Jobs Act, COVID-relief spending bills, Proposition 208 and subsequent legislative proposals intended to blunt the impact of Proposition 208, Arizona CPAs have had their hands full.

At the onset of the session, there were whispers of a legislative effort to “repeal and replace” the flat tax proposal referred to the ballot by education advocacy groups. The flat tax proposal was passed by Republican state lawmakers in response to Proposition 208.

On a separate but parallel judicial track, Proposition 208 opponents sued over the measure, and in March the Arizona Supreme Court found that the surcharge couldn’t be imposed.

Weeks later, the Court ruled that the referendum seeking to overturn the flat tax can’t face a voter challenge because it was part of the state budget and related to the “support and maintenance” of state government.

With the Court nullifying Proposition 208 and denying a referendum on the flat tax, Arizonans will only pay the phased-in 2.5% flat tax, and Arizona CPAs can rest easier knowing that the state’s tax landscape settles.

The Tax Conformity Plot Twist

Another plot twist occurred with this year’s income tax conformity legislation.

The Arizona Society of CPAs (ASCPA) works hard to educate both veteran and newbie lawmakers alike on the importance of passing income tax conformity as early in the session as legislatively possible.

This year, the ASCPA launched the Tax Conformity Debrief, a December gathering for lawmakers and staff to hear directly from Arizona CPAs about changes made to the Internal Revenue Code in the preceding calendar year. With experts, they learn how those changes will impact conformity in Arizona, and it serves as an excellent opportunity to encourage lawmakers to get the conformity ball rolling early.

The Debrief, which the ASCPA will hold every year, produced a welcome plot twist: multiple conformity bills were introduced. Members of the ASCPA then advised lawmakers which of the proposals should advance, and this year’s conformity bill was signed into law by Governor Ducey in March.

It goes without saying that policymakers are competitive by nature, so future Debrief attendees will be strongly encouraged to set the record for passage of tax conformity.

A New Cast of Characters

State legislative candidates run for election or re-election every two years. Of those elected, roughly one-third are new to the process.

Every 10 years, legislative and congressional district lines are redrawn based on the results of the Decennial Census, and this change in district boundaries also produces fresh faces. Candidates vying for your vote are running in the newly drawn districts developed after the 2020 census.

When you consider the legislative turnover in a typical election, the change in district boundaries and a historic number of legislative retirements and resignations, it’s clear there will be a new cast of characters in 2023. And with a new cast of characters, you can expect new plot twists.

The Tax Practitioner Protagonist

One of the most well-known, longstanding and respected protagonists in the legislative story is the ASCPA.

The protagonist often makes decisions that affect the plot, and for the ASCPA, this is undeniably true.

Every year, the ASCPA – led by President and CEO Oliver Yandle and Director of Government Relations John Baumer – works tirelessly to ensure that the CPA voice is heard in the legislative process.

Unwavering advocacy efforts have positioned the ASCPA and its members as trusted experts and advisors to lawmakers and their staff.

The ASCPA, reinforced by its steadfast advocacy efforts, members and members of the Tax Legislation Review Committee, scrubs every legislative proposal in the tax realm. This scrubbing ensures that the mechanics of the legislation are intact, not to paint the legislation as a good or bad idea. Only in the case of legislation impacting the profession does the ASCPA make its opinion known.

It is this unique yet necessary form of legislative engagement that continues to reinforce the ASCPA as the gold standard for advocacy.

Oliver, John and the team at the ASCPA also work to ensure that members are in the know when it comes to the Legislature, regulation of the profession and state politics. Updates recently deployed by the ASCPA like The ASCPA Advocate, The Legislative Roundtable and The Legislative Scoop do just that.

Advocacy at the legislature is more important than ever, and the ASCPA has shown time and time again that it can rise to any challenge and tackle any policymaking plot twist. Our success would not be possible without the support of members like you.