Arizona governor Janet Napolitano headed to California yesterday to sell Arizona as a great place to do business. Top on her list was convincing Intel that a number of potential tax changes will be advantageous to that company as it considers expanding its Arizona operations.
Unfortunately, targeted tax breaks are neither a sure thing nor are they necessarily a bright idea. The tax incentives she's touting, including industry-specific tax breaks and condition-specific R&D tax credits, have not yet been considered by the legislature, let alone approved.
But more problematic is the fact that even if the tax breaks are passed, they are unlikely to benefit the state economy beyond a few favored industries and companies. For instance, one proposed tax credit would be available for companies that engage in research and development in Arizona, but only if they partner with one of the state universities. Such economic tinkering and handouts to favored companies risk steering limited capital into its least efficient uses.
The pathway to a vibrant economy doesn't lie in tax breaks for the favored few. Instead, it lies in a favorable business climate for everyone. In the Goldwater report, Three Paths to Prosperity: An Examination of Proposals for Fundamental Tax Reform, economist Debra Roubik examines three plans that would help all economic sectors thrive.
The federal government has formally committed to provide $587 million for an initial 20-mile light rail line between Phoenix and Mesa, the Arizona Republic reports. Valley Metro Rail chief executive Rick Simonetta said of the Federal Transit Administration's contribution to the estimated $1.3 billion project, "this is the ultimate expression of confidence from the FTA."
The government's light rail project is chugging ahead despite problems plaguing light rail systems across the country. In the Goldwater Institute report, Buses, Trains, and Automobiles: Finding the Right Transportation Mix for the Phoenix Metro Region, transportation expert John Semmens points out how poorly every other light rail system in the country has served commuters. Despite a steady increase in federal aid, transit system deficits have consistently increased over the last several decades. Moreover, in 2000, only one light rail system, Portland's, carried more than one percent of travel in its region. However, even the Portland system has now slipped below one percent.
Using government sources and reports, Semmens shows how light rail will actually increase traffic congestion, and at best, offer a negligible decrease in pollution, even assuming unrealisticly high ridership. Indeed, as he concludes, a light rail system will do nothing to improve traffic in the Phoenix area, and will likely make things worse.
According to an audit of the state Department of Economic Security, the state has overpaid jobless benefits by $85 million. As the East Valley Tribune reports, "nearly one dollar of every five paid out in state jobless benefits was given in error."
In the Goldwater Institute report, Getting Back to Work: Reforming Unemployment Insurance to Increase Employment, economist Dr. William Conerly found a similar overpayment rate. He writes, "Large overpayments reflect the emphasis on benefits over reemployment . . . An audit published by the U.S. Department of Labor estimated that . . . $60 million, or 17 percent [of CY2002 UI payments], was in overpayments. This overpayment rate is far above the the national average of 9.1 percent."
According to auditor general Debbie Davenport, her department is unable to determine why such overpayments occur and how to reduce them. However, Dr. Conerly notes that changing the administrative funding procedure of the department, where benefits savings can be moved into administration, and the department is not paid out of federal funds based on the number of caseloads, would go a long way toward reducing this problematic rate of overpayments.
Both the article and the study note that unemployment insurance benefits are financed by employers, and overpayments manifest themselves as higher taxes on businesses.
An environmental expert has contradicted the City of Tempe's claim that the only way to clean up property at a proposed commercial development site is to condemn private property. In other words, Tempe's use of the despotic power of eminent domain is not about cleaning up the environment. Instead, as we've suspected all along, Tempe is using eminent domain as a tool for economic redevelopment, which is prohibited by the Arizona Constitution (Art. 2, sect. 17).
The environmental consultant, hired by developer Miravista Holdings, admitted that it is possible to clean the site one parcel at a time, making condemnation unnecessary. As the East Valley Tribune reports, another environmental expert, Brad Johnston, vice president of SCS Engineers, said, "This is not high-tech stuff. One method is digging a hole in the ground and sucking the [methane] gas out."
Last June, the Goldwater Institute published a report on alternatives to eminent domain. In several cities, these alternative methods have proved to be effective ways to redevelop while protecting property rights. This Goldwater Institute op-ed, published in the Arizona Republic, looks specifically at the Tempe case.
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