By Howard Fischer
Capitol Media Services
PHOENIX -- A fight over the future of the Arizona Commerce Authority is turning into a war of wills -- and, with a deadline approaching, possibly a game of political chicken.
Gov. Katie Hobbs wants state lawmakers to breathe new life into the quasi-public agency that is tasked with luring business to Arizona. It also is responsible for doling out incentives to make that happen.
But Sen. Jake Hoffman said the agency is deeply flawed, not just in its mission but how it carries it out. And Exhibit No. 1 was the slap the authority got from Attorney General Kris Mayes for illegally spending millions in public dollars to entertain corporate big-wigs at sporting events.
What makes for the high-stakes fight is that, absent legislative action, the authority will cease to exist on July 1.
The state House, in a bipartisan vote last month, agreed to continue the agency for four additional years. That has the backing of not just Hobbs but the Arizona Chamber of Commerce and Industry.
That sent HB 2417 to the Senate where it was assigned to the Government Committee which Hoffman chairs. He refused to give it a hearing.
Instead, the Queen Creek Republican crafted his own proposal to abolish the authority entirely, transferring most of the duties to other existing state agencies. And his bill, HB 2471, also partly repeals some of the tax credits that have been used as incentives.
The measure was approved Thursday on a 4-3 party-line vote. It now awaits a vote in the full Senate.
All that sets the stage for a showdown.
It may be that business groups who support the authority and its work could deny Hoffman the necessary 16 votes he needs to dismantle the agency.
But it is equally plausible that there aren't enough Republican votes in the Senate to keep the agency alive as is: Even with support from Democrat Gov. Katie Hobbs and senators from her own party, no bill advances unless at least nine of the 16 GOP senators agree.
From Hoffman's perspective, either outcome is a win: The agency still goes away.
For the moment, that could mean the next move is up to the governor. After Thursday's vote, Hobbs has indicated she is willing to compromise -- a bit.
"Moving forward, I agree there is a role for improved guardrails to protect taxpayer dollars in the Arizona Commerce Authority." Gov. Katie Hobbs
,'' she said in a prepared statement. The governor said she looks forward to working with lawmakers "to deliver that accountability across state government.''
But Hobbs' olive branch also came with a barb.
The governor also took the opportunity to take a dig at GOP lawmakers who support vouchers of tax dollars to send children to private and parochial schools. She said they should provide that same oversight over the "unaccountable and unsustainable'' program of universal vouchers "that allows taxpayers to fund luxury car driving lessons, ski trips, and water park passes.''
For the moment, though, Hoffman isn't talking compromise.
"My job as a legislator is to put forward smart, thoughtful, well-reason legislation, which is what we've done in the ACA repeal and consolidation bill,'' he told Capitol Media Services.
The object of his ire actually is a creation of Republican Gov. Jan Brewer as part of an effort to diversity the state's economy.
More than a decade ago, one job out of every 11 in the state was in construction. That was fueled by people moving to Arizona to take advantage of what were then relatively low housing costs and the "sunshine factor.''
But when the housing bubble burst and the bottom dropped out of the economy, that shot the state's jobless rate into double digits. It also created a $3 billion deficit in a $9 billion state budget, resulting in a plan to cut $1 billion, borrow $1 billion through a sale-leaseback of state buildings, and impose a temporary 1-cent sales tax to make up the difference.
It also became a wake-up call to do more to diversify the state's economy.
The authority, created in 2011, was given the power to provide grants, loans and other incentives to lure businesses -- particularly in manufacturing with its high-paying jobs -- to the state. It also was set up as a public-private partnership with a 17-member board all from private, non-profit enterprises.
There are indications that something worked.
The Common Sense Institute says the number of jobs in manufacturing increased by 3.6% a year since 2017; in the six years prior, that was just 1.5%
In regular reports, the authority lists jobs it says its efforts have created.
For example, it claims 273,445 jobs created in the last fiscal year. The report says that includes direct, indirect and induced jobs, though it does not break it down.
Hoffman called that data "woefully insufficient.''
"In fact, there are no set definitions on the terms that they use,'' he said. "So, just at its root, at its core, it lacks basic transparency.''
His legislation to abolish the ACA and divvy out its duties fills that gap with explanations.
But there's a larger question of how does the authority claim credit in the first place.
In a report on the authority last fall, Auditor General Lindsey Perry zeroed in on one issue. She said, for example, it could not show that it confirmed that companies that received nearly $11 million in incentives proved that they invested the money or hired the workers they promised at the agreed-to wages.
Perry said that's a problem.
"ACA's lack of verification documentation increases risk of fraud and waste of public money,'' she said in her report to the Arizona Legislature. And she said the agency "lacks oversight and accountability mechanisms for ensuring businesses meet job creation and capital investment requirements.''
What makes the finding crucial is that ensuring the Commerce Authority confirmed its claims was a key part of the legislation that created the unique agency in 2011. Not doing so -- or at least being able to prove it -- brought a sharp rebuke from Brewer, who championed its creation when she led the state.
"That's wrong,'' Brewer told Capitol Media Services when the report came out. "We need that data to see what our return is, and if you don't have it, obviously you can’t prove anything, right?''
Still, the former governor remains a fan of not just the authority but also Sandra Watson, its president and CEO.
Hoffman said that, from his perspective, there's another flaw in all this: the assumption that the incentives and other efforts by the authority are responsible for the job growth.
"The tax and regulatory environment of our state is overwhelmingly the key determinative factor as to whether businesses choose to locate or relocate to Arizona,'' he said.
Danny Seiden, CEO of the Arizona Chamber of Commerce and Industry, said while taxes and regulation are a factor, it's not that simple. He credits the authority with the fact that Arizona leads every other state in the nation in foreign investment.
And he told Capitol Media Services that Hoffman doesn't need to look far for evidence of that. He said the lawmaker's own legislative district has benefited from the actions of the authority, including an announcement last year that LG Energy Solutions plans to invest $5.5 billion to build a battery complex in Queen Creek.
"LG is here because of the Commerce Authority,'' Seiden said.
That, in turn, goes to the heart of the bill.
Seiden said it would be one thing if Hoffman's legislation sought only to restructure the authority. But that's not it.
"It dismantles the programs,'' he said. That, Seiden said, includes the programs that have been used by Intel to expand -- the same programs he said that led to President Biden coming to Chandler this past week to celebrate even more expansion with federal grants.
"They're pulling the rug out from businesses,'' he said.
Hoffman has a different take.
"The ACA and entities like it across the country represent kind of the epitome of cronyism that really bothers the American people and really bothers the people of Arizona.'' Sen. Jake Hoffman
he said.
His bill would restructure what would be a board -- under the Office of Economic Opportunity -- to specifically include CEOs of small businesses, members of the public, a representative of independent businesses, someone from the homebuilding industry and someone from a "tax research organization,'' verbiage that likely means a seat for the business-oriented Arizona Tax Research Association which has a history of opposing incentives and special tax breaks.
The hearing this past week on his plan was pretty one-sided. Hoffman even complained that no one from the authority, the state chamber or other supporters of the agency came to testify against his bill.
That, however, was not an oversight.
"This is his committee, designed as he wants it to be,'' said Seiden.
Hoffman has a reputation of using his position as chair of the panel to deride some witnesses who hold views contrary to his. Seiden put it in different terms, describing meetings Hoffman chars as "a charade of being a legislative terrorist and holding up committee hearings.''
"It's not worth entertaining him to show up,'' Seiden said.
No one from the governor's office or the authority would respond to questions about why they also stayed away from a hearing on an issue that directly relates to them.
What that left was testimony from Greg Blackie, lobbyist for the Arizona Free Enterprise Club, who backed Hoffman's restructuring, including the revamping of the board. But the position of that organization is no surprise: It has labeled the incentives provided by the authority to be "unconstitutional corporate welfare.''
Seiden now is looking for options to get around Hoffman.
"We have to go talk to other members,'' he said.
There already is a plan in the works to do just that.
Livingston has crafted an amendment to an unrelated bill to extend the life of the authority until July 1, 2029, hoping to get it through the House Appropriations Committee that he chairs on Monday. And if it is approved there and the full House goes along, that would send the measure back to the full Senate, bypassing Hoffman's committee.
But it still would require at least nine Republicans to go along for final approval.
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