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Taxes

The Flagstaff City Council approved two increases to city tax rates and levies Tuesday night.

The passage of both tax increases was somewhat a forgone conclusion as the city’s 2020 budget, passed during the council meeting on June 18, relied on revenues to be generated from both taxes.

In their decision, the council raised the use tax rate from 1% to 2.281% and raised the primary property tax levy 2%.

Despite being decided upon during the city’s budget retreats, both increases saw some opposition on and off the dais.

Use tax

The use tax is applied to products purchased from outside Flagstaff by residents of the city that have not had a sales tax applied to them. For example, if a Flagstaff resident buys a vehicle from a dealer in another state that does not collect sales tax, the use tax would then be applied.

Council first discussed increasing the use tax in April in order to provide more funding for the city’s public safety pension. The city owes more than $100 million to the public safety pension fund, which firefighters and police officers receive upon retirement.

Previous councils have addressed the issue in the past and the city is on track to pay off the money in about 19 years. But multiple councilmembers said they don’t want to wait that long.

The tax currently generates about $700,000 in revenue, but with the change, that will increase to an estimated $1,600,000 annually. With this increase, an additional $450,000 per year will be going to both the firefighters and police pension plan.

Raising the use tax from 1% to 2.281% also brings it in line with the local sales tax rate.

With the extra money going into paying off the pension, the tax increase should reduce the amount of time the city is paying off the pension fund by about two or three years, according to documents presented at the budget retreat.

The tax rate increase will go into effect this August.    

At the meeting on June 18, Councilmember Charlie Odegaard said he believed the measure made sense purely out of an issue of fairness. As a small business owner, he said he didn’t think it was fair that products bought outside Arizona by residents could be taxed less than products purchased locally.

Only Councilmember Jamie Whelan voted against the measure, but at that same meeting in June, she said she only opposed it because she did not believe the city should be putting the additional money toward the pension.

She pointed out that the extra money does not change how long it will take to pay off the fund drastically and suggested the money could be better spent on other things, such as paying for what the state will charge the city due to the local minimum wage law.

But Odegaard said he believes the city should be paying off the pension as quickly as possible, adding this is one good way to do it without asking voters to support a sales tax increase on the 2020 ballot.

Councilmember Jim McCarthy agreed.

“I consider the unfunded pension liability to be at a ridiculously high number,” McCarthy said.

Primary property tax levy

More controversial among councilmembers was the increase to the primary property tax levy. After raising the levy by a total of 14% the last two years, the council voted to opt in for the maximum allowed 2% annual increase to the levy.

This increase would bring the revenues generated by the primary property tax to $6,892,243. The owner of a residential property with an assessed value of $300,000 would see their taxes increase about $12. The owner of a commercial property with an assessed value of $1 million would see their taxes increase by about $75.

Much like the use tax, the budget Council passed on June 18 included things funded by the higher property tax levy. As such, if Council had voted against raising the levy, parts of the budget they passed last month would go unfunded.

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With the new revenues, the council funded two new positions, a lighting specialist to help protect Flagstaff’s dark skies and an affordable housing development coordinator.

The revenues will also offset the cost of allowing city staff to only work a half day on Christmas Eve. Previously, staff have gotten Christmas Day off but had to work a full day on Christmas Eve.

All this costs the city a combined $141,000.

But that didn’t stop three councilmembers from voting against raising the tax levy: Regina Salas, Whelan and Odegaard.

And Mayor Coral Evans critiqued the council somewhat for building and approving a budget but lacking strength when it came to increasing the necessary taxes to pay for the budget.

“I want to remind everyone that when we do our budget process, we spend six months on our budget process, and each step we took along the way we had to vote and give direction as to how we wanted to build this budget,” Evans said.

Evans pointed out that both funded positions and the holiday were unfunded in the preliminary budget drawn up by the city manager, but Council specifically added them in.  

The secondary property tax levy, which is dedicated to paying back voter-approved bonds, will remain flat this year. Revenues from the secondary tax are still projected to be higher than last year because of the growth in value of existing properties, something that also affects the primary property tax.

The use tax and the primary property tax levy saw pushback from outside the council as well.

Steve Finch with the Flagstaff Lodging, Restaurant & Tourism Association spoke in opposition to the tax increases, and in a statement, Joe Galli with the Greater Flagstaff Chamber of Commerce said the decision was troubling.

“Our concerns include the increased use tax and increased property tax revenue, on top of the increasing city sales tax, July 1, and increased city water, storm water and trash fees over the last 12 – 18 months.  Where does it end? The business community and residents continuously face local economic pressures due to the high cost of living,” Galli wrote. “This city budget shoots for the moon, and gets there!”

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Adrian Skabelund can be reached at the office at askabelund@azdailysun.com, by phone at (928) 556-2261 or on Twitter @AdrianSkabelund.

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