Facing a potentially crippling budget crisis, and with two bad alternatives, the Phoenix City Council opted for a third way to deal with the dilemma: wait and see.
On Tuesday, instead of raising the property tax rate to cover future bond construction costs, or taking millions from the general fund to pay for a bond, the council voted unanimously to keep the current $1.82 combined property tax rate for the next two years; delay $200 million of new bond construction, including fire stations and parks, until the value of homes stops falling and revenues stabilize; empower future councils to do what they have to do to make sure the city’s bond rating stays solid; and, finally, directed city staff to keep looking at ways to cut expenses.
It was all that Councilman Sal DiCiccio wanted.
The motion, which DiCiccio helped write with fellow Councilman Bill Gates, gives the financial community the assurances they need that Phoenix is on top of the problem, so it can keep its AAA bond rating.
“The second part of the motion does everything it can to protect taxpayers,” DiCiccio said, by waiting to see what happens to the economy before deciding if the portion of the property taxes used to pay bonded debt needs to go up. But more importantly, it requires city staff to keep looking at ways to trim the budget even after almost $200 million in cuts over the past two years, he said.
“They have been cutting the budget, but it’s still not matching income,” said Alice Wells, an Ahwatukee Foothills resident who is frustrated at the city’s inability to create a balanced budget.
DiCiccio has harped for months on expensive labor costs, with wages and benefits averaging almost $100,000 per employee. It’s a concern echoed by others.
“The city badly, badly needs to rein in spending, especially labor costs,” said Paul Barnes, who lives in the northern portion of City Council District 6.
The problem is that the assessed value of homes and business in Phoenix, and around the state, are falling thanks to the mortgage meltdown and the sluggish economy. As home values fall, so does revenue to the city, which means there could soon be not enough money to pay for the bonds that have already been sold to pay for capital projects.
The council has adopted a fixed $1.82 for the property tax rate with 94 cents in the secondary tax going to pay bond debts. City staff pointed out that if the assessed values continue to fall, as expected over the next few years, the amount of money raised in the secondary tax wouldn’t cover the cost of the bonds. That would mean either taking money from the primary tax, which goes to the general fund, or raising the tax rate or defaulting on bonds.
“This is crystal ball stuff,” said former Mayor Paul Johnson, who explained that the problem may disappear, as it did in the early 1990s, if property values rebound. Or it could get worse.
“I don’t know. I don’t know where it’s going,” he said.
Council delays 4th fire station
A fourth fire station for Ahwatukee Foothills is on hold for at least several years thanks to the freeze on new bond programs approved Tuesday by the Phoenix City Council.
Station 74 was in the 2006 bond program approved by voters. But with declining property values and a concern that the city could get into a bind paying its bond debt, the council approved continuing with about $200 million in projects that were already started, but held off on another $200 million of projects that hadn’t gone out for bid. Station 74 was in the latter group.
The station had been a top priority because travel time from Station 46 to the far western reaches of Ahwatukee Foothills near 26th Avenue and beyond takes more than 8 minutes, twice what the department would like.
Station 73, with one engine and an ambulance, would be located at Chandler Boulevard and 19th Avenue where the city has already purchased land as part of a 200-acre parcel that will also be used as a neighborhood park, and included in the South Mountain Park.
Construction was supposed to begin this year.