Arizona Legislature Approves FY09 Funding to Stimulate Economy

Arizona legislators approved the fiscal year 2009 budget last week, providing funds for proposals aimed at stimulating the state’s economy through investments in higher education infrastructure and increasing R&D activity.

[Source: State Science and Technology Institute ] - Proceeds from an expansion of the state’s lottery will finance $1 billion in bonding for construction projects across the state’s three universities, including $470 million for completion of the Phoenix biomedical campus and upgrades to several buildings.

The stimulus plan, backed by a coalition of business, civic, nonprofit and educational groups, is twofold. First, the plan aims to boost job creation in the declining construction industry, and second, the infrastructure improvements will allow the state to accommodate for future growth at the universities in order to retain a knowledge-based workforce. The investment is a critical component of Gov. Janet Napolitano’s plan to double the number of bachelor degrees earned in the state by 2020.

Although universities will receive increased funds for capital construction, their overall operating budgets will sustain $50 million in cuts for the upcoming fiscal year, while community colleges will see a reduction of $5.5 million with $20 million in planned construction projects placed on hold. Earlier this year, the governor proposed a net increase of $25.4 million over the FY08 appropriation for universities, including initiatives aimed at improving teacher quality in science, technology, engineering and mathematics fields (see the Jan. 23, 2008 issue of the Digest). The approved budget provides an additional $2.5 million for the Arizona Board of Regents for math and science achievement grants as incentives for high-quality teachers.

With no new funds available to support the governor’s Centennial Scholars program for eighth graders, the Board of Regents announced earlier this month a plan to use existing funds to implement the scholarship program for the upcoming school year. Announced during her State of the State Address earlier this year, the program promises four years of free tuition at any Arizona community college or state university for students who pledge to uphold a set of defined standards in high school and participate in community service, beginning with the class of 2012.

To help stimulate R&D activity and encourage business growth, legislators passed a bill to expand existing R&D income tax credits. Currently, individuals and corporate entities can claim an income tax credit of 20 percent for research expenses up to $2.5 million and 11 percent for expenses over $2.5 million. SB 1434 increases the credit to 24 percent and 15 percent, respectively. The legislation was crafted to allow Arizona to remain competitive with neighboring state California in state R&D tax policy. The Arizona 21st Century Fund is slated to receive $22.5 million in FY 2008-09 — $2.5 million less than last year. However, lawmakers agreed to restore the reduction, providing $27.5 million in the subsequent year. The approved budget also preserves $10.3 million for the Arizona Job Training Fund, which was slated to be cut entirely.

Legislators did not pass HB 2872, a bill to provide solar energy tax incentives aimed at attracting solar energy technology operations and manufacturing projects to the state.

Arizona is one of 29 states in which revenues have fallen short or are expected to fall short of the amount needed to support current services in FY09, according to a June 9 report by the Center on Budget and Policy Priorities. The budget passed by lawmakers includes approximately $432.5 million in cuts to state agencies, including $3.7 million from the Department of Commerce and $1 million from the Arizona Biomedical Research Commission to delay the public regenerative tissue repository.

The corresponding budget bills include House Bills 2209, 2210, 2211, 2275, 2278, 2394 and 2462 and are available at http://www.azleg.gov/.