GOP lawmakers want to stop Arizona cities from imposing new taxes. Mayors say that'd be a problem

Arizona lawmakers are considering a pair of proposals that would stop cities and towns in Arizona from implementing new taxes or fees — or increasing ones they already have — through the end of June 2030.

One of the measures is a bill that would go to the governor, the other would go directly to voters this fall. Both won preliminary approval Wednesday in the state House.

During a committee hearing last month, the sponsor of both, Rep. Justin Olson, a Mesa Republican, said they’d help Arizonans deal with the high cost of living.

"It will cap that rate to make it easier for folks to make ends meet and to adjust to this high cost of living. And if a city can't live within its means with the existing rates, then it needs to find ways to be more efficient with the tax dollars," Olson said.

Olson said the moratorium would mean cities and towns would not add to the burden residents are bearing when it comes to prices.

At the same hearing, Greg Blackie with the Arizona Free Enterprise Club, which supports the proposals, told lawmakers cities need to tighten their belts.

"Any budget shortfalls are not a revenue problem. It's clearly a spending problem and a large one. As the sponsor already mentioned, city budgets have increased 60%, 70% over the last several years. What taxpayers or families have seen their budgets grow by that size? They haven't," Blackie said.

But cities, not surprisingly, have a different perspective. The Show spoke about this with René Guillen, executive director of the League of Arizona Cities and Towns, including about his members’ objections to this proposal.

Full conversation

RENÉ GUILLEN: Sure. And if you don't mind, Mark, just a little bit of context, too, for I think the perspective that my members, the mayors and their councils bring to this. When we look at these measures, House Bill 4030 and HCR 2052, you have to keep in mind really the world we're dealing with is a world where we've recently lost the rental tax, which the Legislature's own budget arm penned at impact of $230 million a year.

And we have the HURF (Highway User Revenue Fund), which is mostly the gas tax, which hasn't been touched and adjusted since the '90s. And this fall the voters of Arizona will be voting on the food tax, which would lock that in. So, in a lot of ways we've already had our revenues constrained. And so for the mayors of Arizona, when we see these measures that really would tie our hands when it comes to controlling our revenue and controlling our budgets. They see it as a major intrusion on that local control, that budgeting authority.

MARK BRODIE: So there's obviously the preemption concern that mayors and councils have. There's a sort of a revenue concern. Do you get the sense or do you hear from various cities and towns that some might be affected more than others if this, one of these were to go into law?

GUILLEN: I would say, you know, universally it is, you know, cities and towns are opposed. They are concerned. You know, I think for many of them, they see this as these bills as potentially existential.

Because when you look at cities and towns in Arizona, at the end of the day, we are service providers. If you look at the core of what cities and towns are required to do in state law, it is public safety and transportation. And so in a lot of ways you can't do that for free, unfortunately. So we need to be able to generate the revenue to provide those services. And so, yeah, I think every city and town is concerned about these measures because we have to be able to.

At the end of the day, nobody likes to pay taxes, right? But we need to generate that revenue to provide those services. And when you look at, you know, utilities, we have to generate those user fees and collect that revenue to provide those utilities. And in today's environment, you know, unfortunately, we are coming face to face with the fact that we live in a desert. And as we look in the news, and you've probably covered it, that, you know, the Colorado River isn't generating the water that it once was. And so that means water gets more expensive and we have to acquire that water and deliver that water and treat that water. And we need to be able to generate the revenue from our users to be able to do that.

BRODIE: Now, one of the supporters of this proposal said for cities that are ... concerned about budgets and budget shortfalls, the comment was this is not a revenue problem, but a spending problem. I'm curious, you know, what you make of that.

GUILLEN: Yeah, I think it's an interesting point. I mean, I think my, my initial reaction is it's an easy allegation to make. It would be helpful if there were examples. ... When I look at, you know, cities and towns, I often point to the fact that we are required by state law to have a balanced budget.

... We are not, you know, spending money willy nilly. We are, we are providing services. We have to have multiple meetings. You know, there's clear state law that dictates the process by which we develop and pass a budget. Another point I would say is when we are going to raise a tax or even a fee, there is a process in state law that requires us to provide additional notice to our residents that we are planning to do that.

So none of this happens in the dark. We have to be very transparent when we are raising revenue. We have to be very transparent when we are ... planning our budget and then adopting our budget. And frankly, I would point out, none of that applies to the Legislature.

BRODIE: If this idea were to go into law, either because the governor signed it or because it went to the ballot and voters approved it, what would that mean for cities? How would they react to this? What would it mean for their budgets and what would it mean for residents?

GUILLEN: Sure. So, you know, there's a couple of consequences that I think we would have to deal with. So, you know, within the parameters of the legislation, it creates this four-year moratorium. Now it does say you can raise, you know, taxes, fees, utility rates if they're approved at the fall of the even, you know, election year, the voters will approve it ...

BRODIE: If the voters approve it.

GUILLEN: The voter, local voters approve it with a 60% majority. Now, the problem there is, right, I think, you know, we all want government to run quickly and efficiently.

Well, that now means you're talking about government delayed. And I think we now know over, what, the last decade that inflation can mean a lot over two years. And unfortunately, infrastructure tends to not be getting cheaper, tends to be getting more expensive. So how much cost are you now adding to a project because you're now delaying that vote until you can get to the ballot? So there's one real-world impact that these measures would have.

Another one that we're learning is that, you know, the reality is with a lot of these projects, you will bond for them. So let's talk about infrastructure, right? Everybody would love to cash finance, right? I would love to cash finance, but guess what? I had to finance my car, I had to finance my house. I think that's how most of us are.

And when we are talking about water and wastewater and transportation facilities, we bond because you'd rather have that highway today, not in 20 years. You'd rather have that sewer or that water today than not in 20 years. So we use bonding for that.

Well, the reality is, when you look at the covenants that you enter into with these bonds, a lot of times there are terms in these contracts that actually require you to have the authority to adjust your rates to cover your debt service, to ensure that you have the revenue to be able to cover your bonds.

And failure to do so can result in those — in penalties. It can result in them becoming callable, which is financially dangerous. And then going forward, if these bills were in law, either because signed by the governor or passed by the voters, what would that do for the exposure risk on the bond market?

If you're a city in Arizona and you're trying to now issue bonds for future infrastructure, you've now got this albatross over your head of you've got these bonds you want to sell to build this infrastructure/ But you now have to have this big warning sign of, hey, I may not be able to generate the revenue through utility rates because of this restriction placed on me by the state.

BRODIE: Do you think that would ultimately result in fewer of these projects getting built?

GUILLEN: You know, it could. I think the other piece of that is it's going to shift that burden from the user fees, which I would like to think is, you know, a fiscally conservative idea. An idea that a lot of us would get behind, that the people using and benefiting from the service pay for the service, right. It's now going to shift that to the general fund.

And frankly, who do we fund out of our general fund? Those things that can't be funded with a user fee, like transportation, police, fire. Some of those key services. And so to your point, if you're choosing between funding a sewer infrastructure project or funding police and fire, you're probably choosing police and fire.