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What the Devil won't tell you

The great tax trade: Can city & county cooperate?

A Tucson-Pima County swap could give both the options they seek at no big cost

Ah, spring is coming. Saturn is in transit through Capricorn. The Wildcat football team just signed a new coach. Is it when these routines of life converge that the Pima County Board of Supervisors contemplates a doomed sales tax? Or does it just seem like it?

The supes set up a "sales-tax advisory committee" — one of those "blue ribbon panels" politicos create as a shield to blunt criticism of political action. "Hey, it wasn't our idea. We are just acting on what the 'citizens' told us to do."

Lo and behold, the board is mulling a sales tax to pay for 10 years of road repair and some property tax cuts. After 10 years, the sales tax would entirely pay for a property tax cut. The county has been trying this play for years. Pick a favorite spending initiative, say it can only be done with sales taxes and try to make a deal. Two decades ago, it was criminal justice spending. Today it's road repair. It hasn't worked because state law requires the board approve a sales tax unanimously.

One "no" vote sinks it and that vote was long provided by Republican Ray Carroll. Today, opposition is coming from Republican Ally Miller, and Democrat Richard Elias is also dubious because the sales tax is regressive and the burden has ballooned.

A Plan B is worming its way through the Legislature, backed by the county, which would give counties the authority to send sales taxes to the voters. A bill to allow that cleared its first hurdle, passing out of its first committee. I don't hold out hope because Phoenix lawmakers typically act as if they spent their junior high years getting swirlies from "Democratic" Pima County.

Relying on the Legislature to help Democratic politicians increase taxes is kind of like waiting on the Arizona Legislature to help Democrats raise taxes. I really can't think of anything more futile for an analogy.

So how does the county get a sales tax without burdening the area's low-wage workers? And how can we raise taxes without raising taxes? If only there were a nearby government too awash with sales tax dollars and wanting the authority to diversify. Hmm. Why hello, city of Tucson.

The city strongly leaned toward asking voters in 2015 for the authority to increase the property tax component of their budget but chickened out during City Charter change discussions. City Manager Mike Ortega told Tim Steller at the Daily Star the city needs to start thinking beyond sales taxes.

The county has no sales tax to mainline cash into its general fund but the city has a 3-percent sales tax that generates $200 million dollars. The county gets $340 million in property taxes off a rate of $4.2008 per $100 of assessed valuation but the city has a rate of $0.4519 per $100 of assessed value.

County leaders fail with sales tax proposals, yet still sally forth because it's a good idea separate from any new spending initiative. Another option is to think regionally: make the sales tax about nothing and work a trade.

Let the county have a sales tax only if the city cuts its rate to offset it. Then let the city collect property tax revenues, on the condition that the county cuts its rate accordingly. Both sides get another leg to support their tax base. Neither side gets more money up front.

The kind of deal I'm envisioning would hold the typical county resident harmless. It would also require changes in state law and the City Charter, which are hardly slam dunks but ... it can't be harder than all that failing so far.

There's another upside to this swap of taxing capacity. It would get local political leaders to start thinking about the overall impact of cumulative tax policy. Thinking regionally is a good idea when possible no matter how much government bureaucrats protect their turf by yanking their necks back on the leash.

It wouldn't be a trade of dollars per se but of legal capacity. The county could get a sales tax but only in conjunction with the city cutting its sales taxes. The city would be given authority to make up the shortfall with property taxes but only if the county cuts its rate by a commensurate amount. Have the city increase property taxes and cut the sales tax, and the county do the opposite. It would diversify revenues for both.

In doing so, Tucsonans pay no more in taxes but the governments get to diversify their revenue streams to operate better financially, which is the real reason County Administrator Huckelberry wants a sales tax.

Hey, there's a reason investors "diversify." Tucson has one of the highest sales tax rates in the country but the county gets only that the shrinking pittance the Legislature deems fit to share. Pima County residents pay the highest property taxes in the state, and just a smidge goes to the city. If one basketball team has a roster of 10 power forwards and another fields a side of 10 guards, maybe they should talk to each other about a fix. It only makes sense, right?

What benefit, either side?

When I broached this idea with the county, it was dismissed out of hand firmly and swiftly.

My old editor Mark Evans, now the chief spokesman for the county, simply said it "makes no sense" to think about county taxes in the context of city sales taxes. To his way of thinking, it solves nothing. The county gains x dollars in sales taxes and loses x in property taxes, so there's no point. Also it's not how good government works, he said.

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"If the county needs $500 million in the general fund to operate, it sets a tax rate that raises that much. If it gives $50 million to the city, and gets $50 million back in sales tax from the city, the tax rate doesn’t change, we still had to raise $500 million."

He also added this bit of counter-argument in a very short email response: "What benefit does either get from a trade of taxes?"

Well, allow me to retort.

The argument is too familiar and I'm glad he made it the way that he did because it reflects standard operating procedure in local government. "We do our business for our constituents and the city does their business to serve its constituents." Somehow it can be forgotten that those constituents are often the same people.

The majority of Pima County residents live inside Tucson city limits, and most voters don't understand the difference between what the county does for them versus the city. Only the real insiders like staff, the media and some businesses working with both governments get the distinction.

You, dear reader, are clearly well-versed in local government so let me ask you: What's the state sales tax rate? What's the county's primary property tax rate? Can you tell me within $1?

The difference between the city and the county is night and day for Evans and the thousands of government staffers. Voters live in the twilight. Hell, I've seen polling that showed the second biggest issue facing the city of Tucson was "education." Some big city mayors run the school districts. In Arizona, neither Huckelberry or Mayor Jonathan Rothschild have much of anything to do with the independently run school districts.

It's not academic in terms of taxes. The local tax burden is the cumulative effect of what Evans is discussing. Each taxing authority making decisions based on its needs independent of the government next door. So Pima County residents pay a tax that is an accident of multiple conscious government decisions based on state limits.

It's created this problem. How do you fix it? How does the county solve the Elias problem and address the piling up of regressive taxes and the Miller problem that the county has enough money? They're both thinking regionally about aggregated effects of taxation and Huckelberry either needs the Legislature or the folks here in town to get his way.

So it's counting. Five votes on his board or 47 in the Legislature.

Separate but not equal

Diversifying government revenue is important for the future of both governments. Evans can blow off $50 million in sales tax as being identical to $50 million in property taxes but they aren't. I think he was cranky early in the morning because he knows better. Not all taxes are created equal.

Sales tax revenues stockpile during good times and provide flexibility the county has not enjoyed. Back in the 1990s, the city was so rich with these revenues that they damned near built themselves a new City Hall with cash laying around their bank accounts.

But they evaporate fast. The city of Tucson took in $192 million in sales tax revenue in Fiscal Year 2017 but $212 million back in FY 2008. It's an extreme example but is more the result of an anemic local recovery but you get the idea. So it's bad to be too reliant on them.

Property taxes are the slowest to respond to changing economic conditions. So when times are good, they creep along with slow-poke urgency but when times get tough, property tax revenues don't fall off a cliff. In the early 2000s, the city had to start hacking off bureaucratic limbs during a recession and the county was in a position to take over the city's share of the library district. County property tax revenues hadn't dried up as fast.

If the city had more property tax dollars, it would have weathered the recession a lot better. If the county had access to sales taxes, it could better tap good times to fix things that need being fixed.

Outside the city limits

Some, under this idea, would see a bit of a tax increase.

County residents outside city limits would get property tax cuts but they wouldn't experience the sales tax cut when buying outside city limits under a "trade" scenario.

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How much would require a full-on economic study. Property taxes are a function of property values. Sales taxes are a function of whomever shows up at the proprietor's door step. Maybe it's an city resident, perhaps it's someone living in unincorporated Pima County. Often it's a tourist.

Say you live in unincorporated Pima County. You would get 100 percent of your property tax relief. You would pay just a portion — maybe a majority but a portion nonetheless — of the higher sales tax.

The reduction in property taxes would go a long way to offsetting the increase in sales taxes. Even the county's plan as presented to the board this week, would take 11 years before the sales tax would be used to offset property taxes.

The current plan

It's not like Huckelberry's strategy has worked. He's been trying for 20 years to tie a sales tax to something different constituent groups want to grease the skids for a new tax.

And even his plan would raise taxes on all voters in the short term. Huckelberry is saying the sales tax revenue would eventually be used to provide property tax relief, the bulk of which would arrive after the county is done spending money on road repair. The owner of a $165,000 home would see a $41 property tax cut right away because the county wouldn't need that revenue stream to pay for roads. Then in year 11, the owner of that house would see a tax cut of another $116.

I'm just saying skip the first part and let the city take the back end of the property tax cut.

There's nothing wrong with thinking regionally. In fact, the city and county have a history of it.

Act regionally, think locally

The county and municipalities have sought to work together on the Regional Transportation Authority, a Library District, air quality and economic development. The city runs water and the county runs the sewers under a deal to divvy both up. The Sonoran Desert Conservation Plan was a regional effort to somewhat steer growth throughout the county.

Then there was the ultimate game of regional government: Annexation.

Way back when, Mayor Lew Murphy sought an old-fashioned solution: Tucson should own everything. "Mountain-to-mountain" annexation he called it. Some progress was made but the city limits stop well short of the mountains. Mayor George Miller took annexation further than Murphy, blocking incorporations in Casas Adobes and Tortolita. These new towns stood between the mayor and his plans to push the city limits clear out to Tangerine Road.

Evans should be cut some slack because he didn't invent the idea that the county and city governments are "one side" versus "the other side."

The city and county tend to operate like rival businesses rather than partners in serving constituents. One reason is that in Huckleberry's 25 years running Pima County, the city has had 4,319 city managers. OK, there have been eight. But it just seems like 4,319. New city managers mean new governing styles, different negotiation tactics and bold new initiatives. Huckelberry seemed to have figured out somewhere around the city's Jim Keene era that he didn't have time for the city's shit.

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Thinking regionally about the sum of all taxes and whom they hit is neither without merit or precedent.

It just requires recognizing each government is a part of a whole.

Blake Morlock is a journalist who spent 17 years covering government in Arizona and also worked in Democratic political communications. Now he’s telling you things that the Devil won’t.


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