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The Associated Press February 17, 2011, 8:13AM ET

Arizona Legislature approves business tax package

The Arizona Legislature approved a massive economic development package Wednesday proposed by majority Republicans that includes phased-in business tax cuts.

Supporters said the move will help heal the state's ailing economy. Opponents countered it will force reductions in state services.

Republican Gov. Jan Brewer, House Speaker Kirk Adams, R-Mesa, and Senate President Russell Pearce, R-Mesa, proposed the package, which they said will provide a more favorable business tax climate to attract investment, grow businesses and create jobs.

"We need to say we're open for business in Arizona," said Rep. David Gowan, R-Sierra Vista.

The tax cuts include a nearly 30 percent reduction in the corporate income tax rate over four years starting in 2014 and numerous other income and property tax changes affecting businesses.

Critics said the package gives away taxpayer dollars without guaranteeing economic growth, and that the state shouldn't worsen its budget troubles by reducing tax revenue.

"It is certain that by voting yes on this bill, tuition will be higher at our universities," Rep. Tom Chabin, D-Flagstaff, said. "There will be fewer officers in the Department of Public Safety. There will be larger classrooms in our public schools, and people -- vulnerable people -- will remain ill and some will die."

The package carries a projected price tag of $538 million in lost revenue annually once it is fully implemented in 2018. A projection by legislative budget analysts doesn't include any revenue produced from business expansions resulting from the bill.

The package also includes retooling the state Commerce Department into a quasi-private authority focused on wooing corporate investment, and creating a $25 million deal-closing fund for the authority to use to aid business expansion and relocations.

The bill also includes provisions that increase a property tax rebate for homeowners to avoid a shift of tax burden as a result of lowering the property taxes of businesses. But there's no corresponding protection for rental residential property.

The rebate provisions tighten eligibility, eliminating it for second homes and requiring homeowners to file a new affidavit every two years to get the rebate.

Passage of the bill capped a three-day special session called by Brewer. It ran concurrently with the month-old regular session.

The state House and Senate votes of 39-21 and 18-11, respectively, nearly tracked party lines, with all but four Republicans voting for the bill.

Republican Rep. Eddie Farnsworth of Gilbert and Republican Sens. Andy Biggs of Gilbert, Ron Gould of Lake Havasu City, Linda Gray of Glendale and all the Democrats in both chambers voted against it.

Biggs did not explain his vote, but the other Republicans voiced one or more objections, including having insufficient time to study the 214-page bill before voting on it.

Much of the tax legislation has been proposed before, including key parts in an Adams-sponsored 2010 bill that passed the House but died in the Senate.

However, creation of the deal-closing fund and the changes to the Commerce Department are new elements that troubled some lawmakers.

Sen. Steve Smith, R-Maricopa, said he didn't like everything in the bill but voted for it because "there's enough good in there to make it go."

"We keep saying in this building that jobs are No. 1," Smith said.

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