Divided government will be the name of the game when Democratic Gov. Janet Napolitano and the Republican-controlled State Legislature start the 2003 session Jan. 13.
The business community also faces some divisions as industry and interest groups take different tacks on mammoth issues such as taxes, economic development and how to deal with the state's $1 billion budget shortfall.
In the economic development arena, the business lobby is divided as lawmakers ponder major cuts and a possible merger of the Arizona Department of Commerce and the state Office of Tourism. Napolitano has not made a final decision on whether to merge the two agencies, but it appears that may be the path.
Her chief of staff, Dennis Burke, said merging the two agencies would not offer significant savings but would create more efficient, streamlined operations.
The tourism industry opposes the combination and worries the state is not spending enough to boost the industry, especially compared to big spenders such as Las Vegas and Florida.
Business advocates outside of tourism are more open to an agency marriage.
"If there can be a cost savings as well as some sort of integration of strategies, I think that's positive," said Stuart Goodman, a lobbyist for Goodman Schwartz Public Affairs and a former advisor to Gov. Jane Hull.
Fiscal hawks, such as the Goldwater Institute, want the two agencies disbanded.
Others, like the Arizona Chamber of Commerce, argue that in an either-or fiscal situation, low tax rates are far more important to business attraction than government economic development spending.
The Legislature also will hear bills to increase the minimum wage, sweeten unemployment insurance benefits and strengthen environmental regulations. Napolitano talked up a statewide minimum wage increase during the campaign, and the state ranks last in terms of monthly unemployment benefits. But labor and environmental agendas are not expected to go anywhere in the GOP-controlled Legislature.
There is much speculation as to how much state lawmakers will focus on issues other than the state budget and whether tax increases are the answer. However, indications are that Napolitano will not push for direct tax increases during the next session to deal with the budget mess she is inheriting.
Napolitano established a blue-ribbon commission to study fiscal and tax policy, leading business lobbyists to believe reform and possible increases will not come in the short term. Plus, any hikes face an uphill battle considering revenue increases require a two-thirds vote in the antitax GOP assembly.
Still, that is not keeping some businesses from fretting about elimination of tax exemptions, a broader tax on services and formula changes aimed at maximizing revenue streams.
"I don't think anybody has taken taxes off the table," said Michelle Bolton, state director for the National Federation of Independent Business.
Bolton said her small business group will be on guard against increases and will push for further spending cuts rather than raising the tax burden on the private sector.
Meanwhile, there are some business leaders like Greenberg Traurig attorney Quinn Williams and China Mist Tea Co. Chairman Dan Schweiker who want tax hikes on the menu of choices before fiscally frazzled lawmakers.
During the campaign, Napolitano and other Democrats promoted closing tax-loopholes for operations such as massage parlors and call centers. Lobbyists and political observers do expect those exemptions to come up.
"I think there will be a big charge against those exemptions that appear to be for luxuries or appear to be immoral," said Jay Kaprosy, vice president of government relations for the Greater Phoenix Chamber of Commerce.
When Napolitano officially presents her budget program later this month, it will feature hikes in user fees for government services, revenue bonding for capital projects, and proposals to sell off state assets.
Business lobbyists and Republicans - sans the most ardent antitax hawks - say they are open to user-fee increases as long as they are geared toward the services being used and not stealth tax hikes.
But business interests are split on bond proposals. Some like the idea of bonding to finance key capital projects like school and road construction and argue Arizona's traditional pay-as-you-go approach is antiquated.
Fiscal conservatives worry about the long-term financial impact on the state.
"You're going to saddle future state budgets with obligations to pay principal and interest," Kaprosy said.
Goodman Schwartz Public Affairs: http://www.goodmanschwartz.com
Greater Phoenix Chamber of Commerce: http://www.phoenixchamber.com
National Federation of Independent Business: http://www.nfib.com
© 2003 American City Business Journals Inc.