Mon, Oct 13, 2008
Sue Conto, foreground, works out with her Jazzercise group in a facility rented from Oro Valley Parks and Recreation. If residents want better services or new programs, they're going to have to pay for them, says Stacey Lemos, Oro Valley's finance director.
A.E. Araiza / arizona daily star
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Tucson Region

Growing pains

Property taxes may move into suburbs

Slowing growth means fees, sales taxes won't be enough
By Aaron Mackey
Arizona Daily Star
Tucson, Arizona | Published: 10.28.2007
Like builders erecting houses for incoming families, Tucson's suburbs have spent the last quarter-century preparing a home for future residents.
Officials in Marana, Oro Valley and Sahuarita built roads, developed retail centers and planned for the future.
To create the roads, sewers and parks towns need, officials counted on new residents to pay more taxes and fees.
But the towns have been carried away by the growth, experts say, with 10 percent to 38 percent of revenue they rely on for infrastructure construction and improvement coming from development permit fees, construction sales tax and impact fees, an Arizona Daily Star analysis found.
That growth model isn't likely to continue — home construction permits for the towns are at their lowest point in five years. And, eventually, growth will slow to a point where it won't be able to pay for future needs.
That could happen at precisely the point at which the towns need more money. Like an aging house, the millions of dollars in improvements occurring throughout Pima County today will eventually need to be fixed.
Without growth to count on, local governments may need to consider everything from creating better jobs and diversifying revenue sources to instituting the very things the towns brag about not having: property taxes.
"What they are going to have to do is keep raising taxes to sustain themselves," said George Miller, Tucson's mayor from 1991 to 1999. "There is no magic here. Government taxes people to be able to deliver services."
He equated the three towns using growth to pay for their budgets to a household using its credit cards to pay its bills. At first it gives you more money, but eventually you have to pay up.
Flaws in thinking now surface
The current approach to urban planning works fine, as long as there are thousands of new residents and a red-hot housing market.
But with the bottom dropping out of the housing market, now, more than ever, the flaws in that thinking are beginning to show, said Rob Melnick, director of Arizona State University's Morrison Institute for Public Policy, which specializes in urban-planning issues.
The problems, if left uncorrected, could lead to larger economic crises that could threaten the services and programs residents have come to expect, Melnick said.
"If you get lulled into thinking, 'Let the good times roll' and they stop rolling, you could get into a lot of trouble," he said.
While he and others agree there's little chance the governments will collapse when growth slows, there could come a time when municipalities are forced to choose between fixing roads and putting police on the street should their budget philosophies remain unchanged.
Urban planners and politicians offer several potential solutions:
● Break the sales-tax addiction: The towns, which don't levy property taxes, could consider doing so.
● Debunk the mall myth: Because of the towns' dependence on sales-tax revenue, retail centers are seen as key economic-development tools despite concerns that the retail market could get oversaturated and that it rarely brings in high-paying jobs.
● Pay more than lip service to high-paying jobs: Local governments dole out large sales-tax breaks to developers but could do more to create economic environments conducive to attracting high-paying jobs.
● Hold to planning rules: Many of our community's land-use decisions are made in a political environment in which rezoning policies favor developers. More stringent planning standards — and determination to stick to them — could change that.
● Diversify the portfolio: Governments could spend money to lure high-wage job centers.
Ultimately, public officials should start thinking about a time when population growth is no longer the economic engine driving the region and the state, said Grady Gammage Jr., a senior research fellow with the Morrison Institute who has written extensively about Arizona's growth.
"We need to begin to shift away from a system that operates on the premise that the single goal of government is to get people to live here," he said.
New taxing strategies
Officials need to adopt new taxing strategies in the coming years because there are several problems with relying heavily on sales taxes, experts said.
The first problem is that sales-tax revenue is linked to growth, Gammage said. In the state's economic model, families move into new homes, and grocery stores, retail shops and malls follow.
That has worked well for Marana, where the operating budget is paid for almost exclusively by local sales taxes and shares from the state.
But when towns rely on sales taxes to pay for annual needs, they're betting that population growth will continue at a level equal to budget growth, Gammage said.
That could become a problem if population growth and retail spending level off just as aging infrastructure needs more upkeep, Gammage said. At that point local governments would have to consider new taxes, said Barbara Becker, the University of Arizona's Planning Program coordinator.
"Demands and expectations of what cities deliver don't diminish, but income streams do," she said.
The problem already has manifested itself in Oro Valley, said Mayor Paul Loomis.
"At a certain point you reach a growth level where your state-shared revenues and your sales-tax revenues … are not able to provide the full service that the population desires," he said. "We're right at that cut."
Other problems with sales tax include oversaturation of retail space that may not be needed, Melnick said.
Additionally, retail centers — and the tax incentives towns give them — don't attract the high-paying employers that are crucial for long-term success.
Other, more reliable taxing sources need to be adopted, and politicians need to recognize their importance, Gammage said.
"We need to begin to talk about making property tax and income-type taxes more important components of municipal finances," he said. "That turns you away from being completely dependent on sales tax."
"Other ways to compensate"
If the towns were to wean themselves off sales taxes, the result would likely mean a property tax — something neither Marana, Oro Valley nor Sahuarita has.
In Marana and Oro Valley, the lack of a municipal property tax has become an attribute leaders list as a reason to move there.
Adding a property tax in Marana isn't likely to occur any time soon, as Mayor Ed Honea has repeatedly refused to entertain the idea.
Not having a property tax is something residents have come to expect, said Brad DeSpain, the town's utilities director, who helped form the town.
"Once you don't have it, it's extremely difficult to get it in," he said. "We'll have to figure out other ways to compensate for it."
In Oro Valley, if residents want better services or new programs, they're going to have to pay for them, said Stacey Lemos, Oro Valley's finance director.
For residents, that could mean having to swallow a property tax to pay for improvements such as the Naranja Town Site, a proposed 213-acre recreation area.
But that might be easier said than done. Oro Valley is the second-largest municipality in the state to not have a property tax.
Residents in the state's largest community without a property tax, Mesa, recently shot down an initiative to add the tax, putting officials in a bind, Gammage said.
"The bigger you get, the more complicated it gets to explain why you need to have a property tax," he said.
Governments could adopt a new tax if they are open with residents about what it would pay for, Becker said. "People will accept it when they realize that all those government services will shut down."
The value to having a property tax is that it's more dependable on an annual basis, so municipal leaders can better predict revenues, Gammage said.
Additionally, it's not dependent on a larger population to account for revenue growth.
Property taxes in towns such as Marana, Oro Valley and Sahuarita are inevitable, Morrison Institute Director Melnick said.
"At some point, the pressures from people who want stuff outweigh the pressures from people who don't," he said.
Development largely ad-hoc
In preparing for new developments or rezoning, municipal officials use words such as "master plan" and "comprehensive plan."
In reality, very little development is actually planned, Gammage said.
"All of our development decisions are made in an ad-hoc, political environment," he said. "That is a very pro-growth way of doing land-use decision-making."
Pima County used to swing every four to eight years between pro-growth and anti-growth slates of supervisors, said County Administrator Chuck Huckelberry.
But that meant the county never developed a coherent strategy for growth. Instead, developers, community groups and elected officials slogged it out, one rezoning at a time.
"We really did a poor job planning for growth in the 1970s and 1980s," Huckelberry said. "We woke up one day, and we had huge traffic problems in the Northwest, we had sprawl, we had a tax base that wasn't very healthy."
In other states, such as Oregon and Florida, planning and development is a much more deliberate process, Gammage said.
The county is already looking to change how it plans for the Southwest Side, including having tighter regulations on where commercial and retail enterprises go and requiring land for parks, libraries and other public services.
"There was a realization that the parcel-by-parcel approach was not allowing us to address the larger needs," said Carmine DeBonis, development services director for Pima County. "The same old approach was not working."
Livable wages needed
To secure a strong financial future, officials in Marana, Oro Valley and Sahuarita need to land enterprising industries that will pay employees a livable wage, urban planners said.
The towns need to funnel a portion of their current revenues into efforts to lure high-wage job centers, said Melnick.
The towns should be wooing multiple industries, realizing that many of the businesses will find another location.
"Most places that place big bets are going to lose," he said. "That pond isn't going to have an unlimited amount of fish."
But by mixing in a number of smaller employment centers while aiming for a big-time employer such as Raytheon, towns can guard against potential failures in the housing industry.
"That's why it's so important for public officials to diversify the portfolio," Melnick said.
Oro Valley has developed biotech and high-tech industrial campuses with Sanofi-Aventis and Ventana Medical Systems Inc.
Town Manager David Andrews said the industries allow for a more diverse tax base, though he said the two employers won't be a cure-all, adding that the town must focus on financial sustainability.
Marana leaders want to develop industrial centers near the town's airport and along Interstate 10 near the Pinal County line. Both areas figure to be crucial bases for job centers that can sustain and support the community.
The airport "is the key to the future of Marana," DeSpain said. "Once we can get that kind of business base and employment center, then I think you'll see where Marana will truly be a community where you can live, work and play."
Becker, of the UA's planning program, said the towns should be given credit for trying to move away from being bedroom communities.
"Whereas 10 years ago or more, a lot of these communities were somewhat satisfied to be residential communities, they're now more aggressive at getting a stronger tax base," she said.
● Contact reporter Aaron Mackey at 573-4138 or at amackey@azstarnet.com.