Glenn Hamer
The two years of the 50th Arizona Legislature will go down in the history books as the years when the Legislature hit reboot on the Arizona economy and turned what was a basket case into a best case.
Consider where we were in 2010. We had a structural deficit, which was about the worst in the nation. We had just lost 300,000 jobs in the Great Recession. We were essentially California with a smaller economy and drier weather.
The past two years have been marked by job-creating reforms in taxes, regulations, civil justice and education. Our budget is now in balance.
Arizona’s tax system is now a model for other states. The centerpiece of last year’s tax package was a 30 percent phased-in reduction of our corporate income tax rate. The package also included a phased-in 100 percent elective sales factor for manufacturers who produce in Arizona but sell most of their goods outside of our borders. The property assessment ratio for businesses will be reduced to18 percent. Our already best in class R&D tax credit was strengthened.
The centerpiece of this year’s reform is a phased-in 25 percent reduction of our capital gains tax. Also important was taking the treatment of net operating losses and moving us from worst to first: five years to a new 20-year policy. Also passed this year, a new law that provides for a 100 percent elective sales factor for service industries located in Arizona, a critical move given the trend of commerce moving to the Internet.
Arizona has also signified its commitment to attracting and retaining world-class manufacturing projects by allowing the government to share in the financing of necessary infrastructure for large, high-dollar projects that create a sudden and significant need for public infrastructure.And another element of the 2012 tax package expanded to other manufacturers a tax credit once only available to the renewable energy industry.
This year’s package reformed one of the most unpopular taxes among Arizona small business by nearly doubling the amount of personal property that a business can exempt from taxation from around $68,000 to around $125,000 beginning in FY 2014. This is a nice insurance policy just in case Proposition 116 fails at the ballots this fall. If passed, the proposition will amend the Arizona Constitution to reset the personal property tax exemption for new equipment and machinery purchases to an amount equal to the earnings of 50 Arizona workers, or approximately $2.4 million.
But tax reform is only part of the story.
When Gov. Brewer first took office, she instituted a regulatory moratorium that put up a stop sign on new rules and regulations for business to navigate. The Legislature in 2010 followed with its own regulatory reform package that, among other things, ensured that new state rules weren’t more stringent than corresponding federal law.
Gov. Brewer and the Legislature continued cutting red tape in 2012 with the signing of H.B. 2744, which will ensure that new rules are grounded in sound science, and H.B. 2199, which encourages businesses to discover and correct environmental problems by providing limited administrative and civil evidentiary protections.
Arizona also now has one of the better legal environments, ensuring that businesses will spend more time on investment and innovation, not fending off bogus lawsuits.
Consider these legal reforms from the 50th Legislature: Appeal bonds reform, ensuring that defendants won’t go broke trying to appeal a decision; a move to the Daubert standard over the Frye standard to ensure that scientific evidence introduced in court cases meets stringent standards; a better juror compensation law so jurors won’t face economic hardship in doing their civic duty; a law to reduce landowners’ liability in trespassing cases; a bill to make it easier to recover attorneys fees in frivolous lawsuits; and a law to shield businesses from punitive damages in product liability cases when the product in question was made in accordance with all applicable government standards.
All of this represents an unprecedented commitment to fostering a legal environment that attracts jobs and businesses.
The best tax, regulation and tort environment will only get a state so far if it doesn’t have a ready pipeline of qualified workers ready to enter the workforce and contribute to the economy.
So on the education front, we are now assigning easy-to-understand letter grades in school assessments and have tightened standards with new dollars to make sure our third-graders are reading. Bills signed into law this year make it easier to get qualified STEM teachers into the classroom.
In the higher education arena, Arizona is now moving towards a performance pay model to reward universities for graduating students.
Meanwhile, Chief Executive Magazine says Arizona has a top-10 business climate. The world is taking notice of the Arizona turnaround. The governor and Legislature deserve our thanks.
Glenn Hamer is the president and CEO of the Arizona Chamber of Commerce & Industry
