A notable property tax increase proposal will be going to Pima County voters in November. In Proposition 400, Pima Community College asks voters to approve a seven-year property tax levy limit override, the first community college to do so since voters approved the constitutional limits in 1980.
So far, the publicity surrounding this increase has a familiar ring, demonstrating once again the power local government has to "manage the message."
PCC's sales pitch is that the secondary tax rate, to fund both the override and the continued debt service on general obligation (G.O.) bonds approved in 1995, will not exceed 42 cents per $100.
PCC came to the 42-cent figure for this election because 42 cents was presented as the "not to exceed" rate from the 1995 bond question. The rate for debt service, which has jumped around considerably since 1995, is currently set at 38 cents. Thus PCC's claim so far has been that the difference between this year's rate and 42 cents is not a tax increase.
PCC's plan is that as property values increase and the debt service rate decreases, the difference between the debt rate and 42 cents will automatically become the rate used to fund the override. PCC publicity and recent news coverage refers to this 4-cent difference and an average levy of about $8 million. Not mentioned is PCC's analysis projecting the rate to climb during the seven years to 20 cents, yielding $12.5 million in property taxes.
A pamphlet produced by PCC for public consumption describes the net effect of the override as "$4.40 per year" for a home with a market value of $110,000. That figure only takes into account the 4 cents. However, another analysis presented to the PCC Governing Board looked at just the planned override and pegged the first year impact at over three times that amount ($18.66). The rate for the override is projected to grow each year until, by the seventh year, (assuming, as PCC did, 4 percent growth in valuations) the taxes for the override are 47 percent higher than during the first year. Over the life of the override this hypothetical homeowner would pay a total of $156 in additional taxes. A business with a million-dollar full cash value would pay $3,545.96 over the seven-year period.
It is enough that PCC is soft peddling the tax increase, but it has also issued statements suggesting there is no tax increase at all. A press release from PCC states that it will ask voters "to approve the continuation of a secondary tax." The district's Bulletin provides this statement from Chancellor Bob Jensen: "We're not asking the community to increase their commitment, just to maintain their current contribution."
The Arizona Tax Research Association has raised its concerns directly to PCC officials regarding the way the district has positioned this proposed tax increase to voters. However, we believe it is also important that voters be offered a more complete understanding of the implications of a YES vote.
First, PCC cannot guarantee that the secondary rate "will not exceed 42 cents." The debt service payments on the G.O. bonds are backed by property taxes irrespective of changes in value. If values drop, as they did in the early 1990s, it is possible that the secondary rate could exceed 42 cents.
Second, voters approved the 1995 G.O. bonds for specific capital projects with finite debt service schedules. The debt service obligations associated with those bonds usually decline over time. As new construction is added to the tax rolls, the property tax burden is shared by more and more taxpayers, resulting in lower rates for each individual property owner. Such decreases in the debt service rate should not automatically be viewed as an opportunity to shift taxes to the operating budget. PCC recently refinanced their bonds, taking advantage of lower interest rates.
Officials would like voters to recognize their "good stewardship" by putting the difference "back in." We applaud the district for exercising their fiduciary responsibility, but frankly, the refinancing of debt is nothing more than what taxpayers should expect.
Third, unlike most states, where all property is taxed at the same rate, Arizona taxes business property at 2.5 times the rate of homeowners. Each year when tax rates are set to fund government budgets, the tax burden is shifted from homeowner to business property through differential assessments.
Economic development has long been a goal in Pima County. But such efforts keep running into the same wall: extraordinarily high local government tax rates. This fact has caused local government officials to resort to offering tax breaks to large employers to entice them into the area, a practice that is patently unfair to the county's existing taxpayers.
PCC should clearly communicate the merits of its requests for additional spending, not soft-peddle the tax impact. As for voters, their consideration of Prop. 400 should take into account what the new taxes will fund and vote on the merits of those requests, not on some fantasy that it is free.
Michael Hunter is vice president of the Arizona Tax Research Association, a taxpayer watchdog organization established in 1940.