- Associated Press - Tuesday, May 5, 2015

PHOENIX (AP) - A new report from the Legislature’s budget analysts shows an unexpected surge in corporate and individual income-tax payments last month that is expected to wipe out the need for a $132 million transfer from Arizona’s rainy day fund to balance the current budget.

The report shows income-tax revenue increased 30 percent last month compared with a year earlier. That could not only preserve the entire $464 million savings account but give lawmakers breathing room on the budget next year after years of deficits and cuts in programs.

The report shows revenue is running $228 million above forecasts, but more tax refunds are expected. Senate Appropriations Committee Chairman Don Shooter said Tuesday that after refunds and eliminating the raid of the rainy-day fund, he expects the state will have $65 million more than expected.

Shooter, R-Yuma, said the boost appears to be a one-time event that won’t be ongoing revenue. Still, after years of slashing budgets and deficits, the report is good news, he said.

“In general I’m very happy about that - it’s certainly better than having it the other way,” Shooter said. “But we’re not out of the woods yet. The way I look at it right now, we’re $65 (million) to the good if that holds, and I think that it probably will.”

Senate President Andy Biggs said the April revenue report could reverse next month, and he cautioned that there isn’t yet a trend of increasing tax collections.

“It certainly looks like some people were taking some capital gains,” Biggs said. “You probably have a reduction of capital gains loss going forward. A lot of people have taken (losses) in their real property already, and the stock market is at record highs, so without people taking losses, they’re going to have to pay some taxes. So let’s see how it shakes out.”

The report was released Monday, the same day that ratings agency Moody’s Investors Service upgraded Arizona’s general fund debt one notch, from Aa3 to Aa2, and upgraded several other state debt funds by one notch. The ratings firm cited positive economic trends, much better liquidity levels and actions that are expected to eliminate a structural imbalance in the $9.1 billion state budget that emerged after the expiration of a temporary sales tax two years ago.

Treasurer Jeff DeWit said the better ratings are a positive sign that the state budget and economy are rebounding. “This will lower borrowing costs in the future, and signals to the private sector that state government is on the right track and Arizona is a great place to invest,” DeWit said in a statement.

A spokeswoman for Gov. Doug Ducey said the revenue report is a sign the state is bouncing back from a deep deficit he inherited. Ducey faced a $1.5 billion shortfall in the current and fiscal year 2016 budget when he took office.

“These are just projections, but they’re an early sign that we’re moving in a positive direction,” spokeswoman Annie Dockendorff said. “Coupled with the upgrade of Arizona’s credit outlook yesterday, these numbers are further validation of the actions we’ve taken to balance the budget and put Arizona on a stable path forward.”

A big wild card looming for state finances is a court order to immediately pay schools about $331 million and more each coming year to make up for voter-approved inflation adjustments that the Legislature failed to provide during the Great Recession. Lawyers for schools and the Legislature are in mediation in an effort to settle a lawsuit won by the schools.

That big potential cost means it’s too early to be considering what to do with extra revenue, said Rep. Justin Olson, a Republican who chairs the House appropriations committee.

“So it’s premature to be discussing what priorities the state will address with these dollars,” Olson said. “But certainly the news that we received yesterday is excellent news and will help the state address the state’s priorities.”

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