The truth about Phoenix's property taxes

The Arizona Republic
Friday, May 6, 2016
Jennifer Stielow

Jennifer Stielow, AZ I See It 4:16 p.m. MST May 5, 2016

My Turn: Phoenix leaders need to be honest with taxpayers about bonds and properties it pulled off the tax rolls.

City of Phoenix leaders are telling property taxpayers they aren’t sending enough money to City Hall. This is an ironic message from a city that has abused its tax-exempt status to shield scores of major private developments from property taxes.

It’s absurd for a city to simultaneously shelter more than $1.5 billion in development from property taxes, only to complain the tax base is underperforming.

For decades, Phoenix has displayed an excessive appetite for abating property taxes in exchange for private development in the downtown area.

The grand excise tax scheme

The Government Property Lease Excise Tax law allows cities to use their tax exempt status by taking ownership of private property only to lease it back to the private entity. The private tenant is then required to pay the excise tax based on the size and use of the property.

However, in most instances, these deals are granted an eight-year abatement where they aren’t required to pay any tax at all. The tax burden associated with the property lease excise tax is dramatically lower compared with the property tax and — no surprise — the amount of excise-tax revenue distributed to the other taxing entities is also much lower.

The effect of the city’s broad use of the Government Property Lease Excise Tax not only diminishes city property-tax collections but those of the schools and other local governments as well. These deals for the politically well-connected also come at a cost to taxpayers because excluding these major developments from the property tax roll results in higher tax rates to help offset the lack of value.

In fact, despite all of the growth in downtown Phoenix over the last 20 years, the combined property tax rates have actually increased.

The great big bond lie

Since 1995, the city has imposed a fixed tax rate of $1.82 to fund both its operations and debt payments on voter-approved bonds.

By 2010, this fixed tax rate allowed the city to accumulate $324 million in its bond reserve fund, which was three times the amount needed to pay the annual debt service. The original intent for the excessive taxation, according to the recent city manager’s report, was to pay off the debt early.

However, given the massive drop in property values during the recession, the city used the excess reserves instead to pay the normal debt service and called it “tax relief.” The truth is, the city is snared in the lie it peddled in its last two bond elections, where the key campaign theme was that $900 million in bonds wouldn’t raise taxes.

City leaders should come clean on the reasons behind their drive to raise property taxes.

First, the city should have been honest with voters that $900 million in bonds would absolutely raise taxes. Once sold, these property tax-backed bonds have to be paid back. If the property tax base contracts, the debt service tax rate is increased to generate the required amount.

Second, the city should admit it can’t have it both ways by pulling properties off the tax roll and expect the tax base to grow.

Jennifer Stielow is the vice president of the Arizona Tax Research Association.