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The Associated Press May 19, 2010, 9:05AM ET

Arizona OKs sales tax increase to balance budget

Arizona voters have overwhelmingly approved a temporary sales tax increase, rejecting the alternative of deeper budget cuts to education and other services provided by the financially struggled state.

The 1-cent, three-year tax increase was approved by roughly two-thirds of the more than 1 million voters who participated Tuesday in the state's first special election in nearly 30 years. Proposition 100 trailed in only one county -- Mohave.

It was put on the ballot by the Republican-led Legislature only begrudgingly after 11 months of pressure by Republican Gov. Jan Brewer.

Voters, Brewer said Tuesday evening, "understand that we had a really huge financial crisis in Arizona and by doing it, we are going to make the state better. But it's not a cure-all."

A Proposition 100 opponent, Farrell Quinlan, said the measure's passage will embolden those supporters who want permanent tax increases to prop up spending.

"The spending lobby is going to be relentless in pointing to Proposition 100 results," said Quinlan, state director of the National Federation of Independent Business.

Indeed, a prominent supporter of Proposition 100 promptly called for long-term restructuring of the state's tax system to pay for vital services, as opponents of Proposition 100 warned

"We have to look at the balance of how we tax the combination of wealth and property and sales and use and rebalance that so that it's more equitable and sustainable," said John Wright, president of the Arizona Education Association.

The teachers union was a major contributor to Proposition 100 supporters' well-funded campaign.

The tax increase will take effect June 1, raising the current state sales tax of 5.6 cents on the dollar to 6.6 cents for three years and raising a projected $918 million in the first year. Local jurisdictions also charge sales taxes, so the overall tax paid on purchases in Phoenix will rise to 9.3 percent from the current 8.3 percent.

A defeat for Proposition 100 would have triggered $862 million of contingency budget cuts for schools and other programs, going beyond the reductions included in the budget approved by the Legislature in March to cope with the loss of 30 percent of the state's revenue.

"Voters recognized the need and the urgency of the need," Wright said. "This is a bridge to better economic times."

Arizona's first statewide special election in nearly 30 years kept the $8.5 billion state budget for the fiscal year beginning July 1 on track by providing a projected $918 million of additional revenue that the budget already plans to spend.

Most of the contingency cuts were aimed at education. Those included $428.6 million for K-12 schools, $107.1 million for universities, $15.2 million for community colleges and $4.7 million for other programs.

Budget and school officials warned that class sizes would grow, there would be less specialized instruction, and teachers and other school workers would face layoffs and furloughs if the tax failed.

Elsewhere in government, Proposition 100's rejection would have led to layoffs of highway patrol officers, transfers of 3,000 to 5,000 prison inmates to county jails, further reductions in Medicaid payments to hospitals and other health care providers, and reductions in services for developmentally disabled adults and disabled children.

The $8.5 billion budget lawmakers approved for the fiscal year starting July 1 already included raids on special-purpose funds, borrowing and spending cuts. Those cuts included saving $218 million by halving state funding for full-day kindergarten.

Proposition 100 opponents argued that the state hasn't cut spending deep enough and that passing the measure would keep spending at levels the state cannot afford. They also said a tax increase would throttle the state's ailing economy by stifling retail sales.

But the opponents message didn't reach many voters because they were able to raised hardly any money.

"I'm not sure that they heard what we were selling. I think it's pretty clear that they did not," said Tom Jenney, state director for Americans for Prosperity.

Proposition 100 supporters spent more than $2.3 million on a campaign that included television advertising and glossy mailers. Fundraising included donations from business and education groups, and health care companies.

Opponents reported raising $1,215 and spending $375, instead relying on homemade signs and e-mail chains to spread their message.

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