A shift in property taxes this fiscal year may cause problems down the road, according to Phoenix Councilman Sal DiCiccio.
The city tax system for Phoenix is complex and taxes are taken in many different ways, but the city has two main funds for property taxes. There's a primary fund that pays for the day-to-day operations and payment of city employees. The secondary fund goes to paying back the city's debts. The city currently takes $1.82 of every $100 of the assessed value of a residential home and divides that between the two funds. So if a home was worth $100, $1.82 would be taken and divided into the two funds. That $1.82 is called the tax rate. In the 2009-2010 fiscal year 77 cents went to the primary and $1.05 went to the secondary.
"How much money they take from you is a simple equation of X times Y equals Z," said Hal DeKeyser, chief of staff for DiCiccio's office. "Z is the money they get. X is the value of property out there. Y is the tax rate. They're trying to get to Z. If the value of houses is a lot the rate can be way down and they still get Z. If the value of the houses is low they have to raise the rate."
When Phoenix went through the housing boom they were able to bring in much more money than they needed to pay back debts, DeKeyser said. Last year city management came to the City Council and warned that if the tax rate was not raised when the housing market took a drop, they would not have the money they needed in the secondary fund to pay back debts.
"The council back then essentially said no," DeKeyser said. "What they did is they cut some of the bond program so they wouldn't be out creating new debt that they'd have to repay. They told them to get the rest out of saving from operations. Cut operations so you can pay back the debt."
The city did this but they also made a shift that DiCiccio believes is dangerous. Instead of keeping the rate at 77 cents for primary and $1.05 in secondary, it sent 88 cents to primary and 94 cents to secondary. The total tax rate is the same but the amount paying off debts is less.
"This will create huge problems if we don't do something about it now," DiCiccio said. "It's a fiscal time bomb."
His solution for the issue is SB 1322. DiCiccio believes if the city's daily operating costs were cut by privatizing, then the money could be used to pay off debts.
Vice Mayor Thelda Williams believes the City Council's actions in the past, asking the finance department to make other cuts and stop borrowing, is the best solution.
"I've been very adamant that they need to stop any new projects," Williams said. "If they would stop any new projects, then the expenses would be the same as this year and we would be OK. Or, they have to shift money back from primary to the secondary.
"I am not going to support raising taxes."
Right now Phoenix's primary and secondary tax rates are much higher than other large cities in the Valley. Tempe pays 51 cents to primary and 88 cents to secondary. Mesa pays nothing to primary and 35 cents to secondary, according to the Maricopa County Treasurer's Office.
"The government is expensive out here," said Chad Blostone, a member of the Ahwatukee Foothills Village Planning Committee. "It accomplishes its tasks, but it's expensive. We shouldn't be paying any more for it than we already are. They've got the money they need to do the job well so I think piling on more fees is inappropriate."
Blostone says if Phoenix does want to raise the tax rate in the future Ahwatukee residents especially should say no.
"We pay a lot for government in Ahwatukee and we don't see a lot of the benefit," Blostone said. "A lot of what we pay gets shifted out to other parts of the city. In Ahwatukee, in my opinion residents out here shouldn't accept further increases in their taxes because they're already extremely generous as it is. On top of that, this place is loaded with homeowners associations."
Blostone, who is also a board member for Foothills HOA, says the homeowners associations in Ahwatukee do a lot of repairs that the city would be responsible for if there were no HOAs. Foothills Homeowners Association alone paid more than $800,000 in repairs last year.
"The point is we pay an 88-cent rate on our primary, which is higher than everybody else," Blostone said. "We pay 9 cents on our secondary, which is second only to Gilbert who doesn't charge anything on their primary, and Glendale. Our sales tax is the highest at 2 percent. They're well funded from that. On top of the fact that we well fund them, we take away $800,000 a year of their expense. You've got enough money guys, figure it out."
Williams believes the city can figure it out and residents have nothing to worry about for now.
"The economy is improving and the city is becoming leaner," Williams said. "I think we plan to continue to do so."
Jeff DeWitt, finance director for the city of Phoenix, said the finance department is preparing a report that will be sent to the Finance Innovation Efficiency Subcommittee on Wednesday April 27 to explain the changes and how property taxes are being handled responsibly.
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