In the late 1970s a property-tax revolt broke out in California with the famous Prop. 13. By 1980 the revolt had spread to Arizona, and voters approved a constitutional amendment capping homeowner primary property taxes at 1 percent.
Since there was nothing specifying what the penalty to counties and other local taxing districts for violating the 1 percent cap would be, the Arizona Legislature voted to put in subsidies to the tax districts where the 1 percent cap would be broken.
That was fine during Arizona’s boom years of the 1980s, 1990s and even the early 2000s. Over time, that obligation, like most government subsidies, continued to grow. By the time we were looking at fiscal year 2017 in the state budget, the subsidy would have swelled to almost $24 million when we were facing more than a $600 million deficit.
It was decided it would be reasonable to put a cap on the subsidy. Since the Great Recession hit in 2008, everyone, including households, businesses and state governments, have had to tighten their belts. It was time for high-taxing and high-spending districts to do so as well.
When funds are so tight, it was disheartening to find that some local taxing districts had started taking advantage of the system.
As the Arizona Tax Research Association explained in its May 2015 newsletter:
“Maybe the most notable examples of the perverse incentives associated with both the cap and the state subsidy were the local elections to create a primary property tax in two Pinal County towns. The town of Superior (1995) and the (city) of Maricopa (2006) both moved fire protection from existing fire districts funded through secondary property taxes (secondary taxes are not subject to the 1 percent cap) into town fire departments funded through a primary property tax.
“In both instances, town officials were quite open about their strategy to leverage the 1 percent cap on primary property taxes thereby shifting existing homeowner tax obligations to the state general fund. The (city) of Maricopa took the bold step in the publicity pamphlet of precisely calculating for the homeowner/voter that they would be insulated from the entire cost for the new primary tax. It should come as no surprise that the primary tax rates for both towns have skyrocketed.”
To its credit, the leadership in Maricopa is working with state legislators to address this situation.
Almost all of the counties in Arizona have managed to live with the new limits on subsidies for the 1 percent cap. In fact only two of our 15 Arizona counties, Pinal and Pima, will still be over the limits. Pima County was responsible for the vast majority of the projected $24 million subsidy, largely due to recently enacted tax increases.
It isn’t right to expect the taxpayers from across our state to bail out the high tax and spending habits of a few local taxing districts.
That’s why I was proud to support this change in our state budget last session: a fiscally responsible budget that finally leads us back to a structural balance without any gimmicks.
It’s time for certain local taxing districts to make the hard decisions and become fiscally responsible as well.