Next year marks the 50th anniversary of Guadalupe, the small town nestled between Phoenix and Tempe.
Guadalupe occupies less than a square mile of land, and it’s home to about 5,300 people, many of them Latino and Pasqua Yaqui tribal members. As the town enters its sixth decade, it’s facing a looming disaster: it’s just a few years away from going broke.
Sam Kmack, a watchdog reporter at the Arizona Republic, has been covering Guadalupe’s budget crisis. He wrote recently that as things stand, the town will run out of money in 2031.
Kmack joined The Show to talk about how the situation is nothing new. In fact, back in 2018, the town manager predicted that Guadalupe wouldn’t make it to 2023.
Full conversation
SAM KMACK: Ironically COVID saved the town. And once that hit the federal money, you know, COVID relief funds came in and that gave the town a little bit of wiggle room and kind of delayed the impending financial collapse. But now that money's run out and so the clock's been reset but it's still ticking.
SAM DINGMAN: So help us understand why Guadalupe is having this difficulty in paying their bills. What is it that they are spending too much money on and, and why isn't enough money coming in to cover that?
KMACK: I mean, there are a lot of different factors that go into it. When I went back and looked at their budgets. I saw that their staffing costs had gone up substantially and it's such a tiny town and its workforce in terms of the town staffers is very small. I think they have about 18 full time employees right now. But between 2020 2024 this year, the town employees got three back to back raises, and it substantially increased the cost of keeping the workforce on board, which almost entirely comes out of the or it does entirely come out of the general fund.
And the increase in spending on employees is about $1 million, which is about the current deficit that they're facing. And then in terms of why they're not able to fill those coffers and, and cover those costs, it's Guadalupe does not have a ton of different revenue streams, for its general fund, it mainly relies on sales tax revenue, which isn't totally unusual, but the town is so small. There aren't many businesses, mostly residential.
So a lot of the times, the residents who live there, their sales tax dollars will bleed out into other communities like, you know, they can drive some of them five minutes down the road and get to malls in Tempe or go do their grocery shopping at a Walmart in Phoenix. And there is no grocery store inside of Guadalupe. So their sales taxes from the purchases that they make outside of Guadalupe, they go into other cities’ accounts, they don't go into Guadalupe's funds.
But at the same time, even though Guadalupe isn't really able to fully capture all of their residents’ sales tax dollars or a, a good enough share of it to, to break even, Guadalupe has to pay for services for those residents just like that normal towns would pay for.
DINGMAN: So one of the other things that you point out in the piece though is that one of the reasons that a lot of these salaries have increased so much over the last few years is in a town this small, there is a need to pay people in a way that will incentivize them to stay in the community and do their work there rather than, than leaving to go elsewhere, right?
KMACK: Yeah, absolutely. I mean, Guadalupe, I think reasonably is worried about retaining employees and being able to hire people like their town manager, Jeff Kulaga, who's working for a salary that is far, far lower than what he could get working in any of the neighboring cities.
DINGMAN: So far, we've been talking about some sort of practical things that any community would face, you know, wanting to make sure there's enough tax revenue coming in? Are there any specific challenges economically that the town of Guadalupe faces that might differ a bit from other towns in the Valley?
KMACK: Another big thing is that they don't have a property tax, which typically in, let's say, Tempe, they have a primary property tax which everybody pays and that goes into the general fund and then there's sometimes a secondary property tax which voters have to approve. And normally what that does is allow a town to take on debt to fund infrastructure projects. And then the town will use that secondary property tax to pay off that debt over a period of, it's usually like 30 years.
But instead Guadalupe, they fund those infrastructure projects out of their general fund. that's just another drain on already overstretched like I said, a primary account.
DINGMAN: Yeah, but then I could also imagine from the standpoint of, you know, being a resident of Guadalupe, the lack of property tax could conceivably be a big part of what enables people to stay there long term.
KMACK: Yeah, absolutely. And the community seems to, based on people who I've talked to not be super on board with a property tax, but the town in order to continue functioning needs a property tax and, and, and far more afterwards.
DINGMAN: So, yeah, I mean, let's talk about like, how if at all, does it seem like Guadalupe is going to be able to address this over the next six years. I mean, what, what's on the table and, and what seems feasible based on, on what you found.
KMACK: Well, one is that property tax. That isn't going to happen until at least May of 2026. The Town Council voted to push it back and then the other kind of workable solution that's on the table is for the town to pay off its public safety pension system debt.
The town recently came into some savings because it got I think it was about a $500,000 grant, one-time grant, from the county to do some of the infrastructure projects that it would have, you know, otherwise had to pull out of his general fund. So with those savings, according to the town manager, Guadalupe should be able to pay off its public safety pension debt and that will save a significant chunk of cash because if the town pays it off all at once, they don't have to make interest payments.
So those are two really workable things and if those happen, the yearly deficit will shrink to about $500,000. So that still leaves Guadalupe in a tricky spot. And from there, it's not totally clear what the town does to tackle that. The town manager has talked about economic development, but there really is not much open space in Guadalupe for, for example, a grocery store.
DINGMAN: And I'm realizing as we're talking, I don't know the answer to this. What happens if a town just can't pay its bills?
KMACK: Well, there are a few different things but the most likely the town could sort of de incorporate, which, you know, would essentially mean it doesn't become, it stops being a town and it might become part of the county, which is kind of how the situation was before 1975. And then, you know, if that were to take place, then the residents would have less control over what happens inside of the town because they wouldn't have their own governing body.
DINGMAN: Right, to go back to the property tax example, that could put them in a situation where all of a sudden houses that they've lived in for decades, they have to start paying much higher tax on and, and might not even be able to live there anymore.
KMACK: Yeah, I mean, it's possible depending on what the county would charge in terms of taxes, what they would be responsible for. I mean, I mean, hypothetically they could be absorbed into one of the nearby cities but, you know, that's again, just speculation and I don't know what that would look like but I'm pretty sure that Phoenix and Tempe both have primary and secondary property taxes. So that's a far ways away. They do have time to sort out a fix before disaster happens.
