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State of Inequity 

As Our Population Grows, The State Government Pulls In Plenty Of Tax Dollars. Local Governments Are Left To Pick Up The Costs.

THERE'S AN AGE-OLD argument around these parts about the costs of our frenzied population growth. Putting aside the benefits that may accrue economically to some, and the damage to the environment and people's lifestyles, the simple question is: Does all this growth pay for itself? Some people believe new citizens and businesses do ultimately pay for themselves through the higher taxes collected from them and what they ultimately generate economically. Others believe that massive population growth simply drives taxes higher for everyone because the new residents and businesses require an expansion of services and infrastructure they never pay enough to cover.

Guess what: Both sides are right. It just depends on which governmental jurisdiction you're talking about.

The burden of providing most services -- cops, roads, libraries, schools -- falls mainly on local governments. But for every tax dollar the local governments collect from us, two more go to Phoenix and into the coffers of the state. Is it any wonder then that state government likes population growth, while more local governments are waking up to the economic carnage all that growth causes?

A simple perusal of the government listings in the phone book will tell you who's responsible for what. The number of state employees working in all of Southern Arizona was a little under 21,000 full-time employees last fiscal year, with slightly over half of those at the University of Arizona. While we recognize that our state tax dollars provide $361 million to the UA, let us note that a big chunk of its total revenue comes from tuition, grants, and donations. Compare those 21,000 employees to the more than 30,000 full-time employees working last year in all the local governments in Pima County supported through local taxes.

The math makes it obvious. You send twice as much tax money to Phoenix as you pay here. In return, you get two-thirds as many people providing services (and two-thirds the local jobs). Either there's a whole lot of really important work being done for us up at the state capitol we're having trouble finding, or we're getting screwed. Or perhaps we should just accept the thesis made by certain free market economists who are thankful that we don't get all the government we pay for.

STATE GOVERNMENT MAKES out well on new residents. Local governments -- cities, counties and schools districts -- are the big losers and must constantly raise those taxes they may levy, usually property taxes, to cover the costs of all those new people. Arizona has experienced high growth rates for some time now. The state's population has climbed from 2,718,215 in 1980 to 3,655,228 in 1990 to an estimated 4,764,000 today. Pima County's population has likewise increased, from 531,433 in 1980 to 656,880 in 1990 to today's estimated 800,000. The net result is that state revenues have increased so much that the state Legislature has actually cut taxes. Lawmakers might have cut more, had the courts not intervened to redress the problem of inadequate and unequal educational funding, partially caused by rapid growth in many areas. Note that the local funds for school districts came from one source, the local property tax, the only real taxing authority school districts possess. Most other school financing depends on the beneficence of higher governmental authorities.

Approximately half of the revenue for the state's second-largest school district, Tucson Unified, currently comes from local property taxes -- $166 million out of more than $350 million, with another $10 million kicked in by Pima County from the same revenue source. Almost all of the balance, give or take a few bake sales and fees for after-school sports, comes from the coffers of higher jurisdictions, mainly the State of Arizona. The same holds true of the area's other school districts.

The combined budgets of the area's school districts (minus "in-and-out" extras like food service) is about $675 million. That tab is covered by over $300 million in local property taxes, about $270 million in state funds, another $50 million or so from the Feds, and about $20 million from Pima County -- which is also generated through property taxes as mandated by the state Legislature, which sets the tax rate. (That the Feds have policy roles totally disproportionate with the amount of tab picked up -- less than 10 percent -- lends credence to the arguments for reduction in involvement from D.C. in local school affairs, but again, that's another issue.)

The balance of the funds in the budget will be provided by borrowing, usually through the sale of voter-approved bonds -- an option that will be curtailed in the future unless the state Legislature again changes the rules.

School districts take the biggest bite out of local property taxes, as anybody who ever checked their property tax bill knows. Under the new school financing method, this won't change. It will simply mean that state government will now dole out some more of what it collects and distribute the load more "equitably."

Pima County, like other county governments, has a few more revenue options than school districts. They may -- as all but Pima and Mohave counties have done -- levy a sales tax. That's an option Pima County is currently wrestling with again. Voters rejected that option three times, twice as dedicated revenue steam for transportation and once to fund a new jail. Supervisor Ray Carroll has blocked the county Board of Supervisors from implementing it this year.

The amount in question: a half-cent on the dollar. While Pima County wrangles over this relative pittance, the state grabs a whopping 5 percent right off the top, and most incorporated towns and cities currently bag another 2 percent (Sahuarita only changes 1 percent), with the ability to raise it even higher. There are some towns in Arizona that have a 3 percent sales tax, and some counties -- among them Pinal -- that have a 1 percent sales tax of their own. Which means a restaurant tab in some Pinal County truck stops can hit you for 9 percent.

The City of Tucson collected about $129 million in sales taxes this year. Oro Valley grabbed about $3.5 million, Sahuarita got roughly $500,000 and South Tucson pocketed $1.5 million. Marana ran off with close to $8 million. Pima County residents paid the State of Arizona three times that -- almost $450 million -- in sales taxes (and euphemisms that mean the same) collected here.

Like schools, counties primarily depend on the property tax as a revenue source. Pima County residents and businesses will pay close to $200 million in property taxes to the county, City of Tucson folks will be in for another $18 million, while all the other towns but South Tucson have no property tax -- yet. The state will pull a few million bucks from the property tax on business including equipment.

Pima taxpayers also paid $44 million to Pima Community College and over $5,000,000 to the Central Arizona Water Conservation District in property taxes. Other jurisdictions continued the process including fire districts and the Ajo-Lukeville Health District. Total property taxes levied by all Pima County jurisdictions last year totaled about $600 million.

WHILE THE STATE grabs a piece of many of the taxes local governments levy, it pretty well keeps a monopoly on a whole bunch of others. Gasoline taxes are 18 cents per gallon for autos to the state, which also exclusively handles automobile licensing. Both revenue mechanisms have intricate formulas that rebate portions of both to local governments; there's another 9 cents a gallon for commercial vehicles called a use tax. Pima residents coughed up $465 million last year. Less than half is used or redistributed to roads here.

Pima residents ship over another $100 million a year out in vehicle taxes, about $30 million of which comes back. You pay your road taxes to the state, they take out what they think they need for the stuff they're responsible for -- often more freeways in the Phoenix area -- and the rest of the state and the local subdivisions contained therein get some of what's left over.

The state's biggest chunk comes from another exclusive tax: income. Almost $350 million a year from around here goes into the state's coffers and is doled back in a myriad of ways, none of which comes anywhere near equaling the amount paid out.

(It's beginning to make a genuine case for secession and the formation of Baja Arizona as a separate state. Maybe we could get NATO to bomb us and have the Feds do something really useful, like rebuild everything. That's one way to fund Rio Nuevo.)

Think about it from an individual perspective and it becomes obvious. Imagine you just moved here from out of state. What are the first taxes you'll begin paying? Sales, gasoline, vehicle and income taxes make you an instant revenue source for state government, while you're simultaneously an instant liability for all the other jurisdictions you just joined. Most of them will have to wait until later in the year to collect anything at all of substance -- generally, your property tax, either directly or as your portion of the rent you're paying. Incorporated towns will get a small piece of the sales tax, while providing you the road you drove on to spend it. Your kids will immediately start school and entitle that school district a partial payment for the additional student. You'll flush your toilet into a local sewer. Your kids will play in a local park and check out books from a local library. Your neighborhood will be patrolled by a local cop, and any criminal caught will go to a local jail. If you're too poor to afford health care, you'll go through a local government to get care from a local provider, with the state providing a partial rebate to local government. Most of the government services you use will be local, while the bulk of the taxes you'll be paying will go to the state.

The state will even get a piece of your insurance premiums, another instant and exclusive revenue source. Pima County ships almost $25 million a year north on that one. And if you need a professional license, the state will charge you for that privilege too. Cities collect another business license fee from all businesses, and a variety of other fees. Counties get a few more, but they are, with few exceptions, comparatively chump change.

Counties and cities do have some limited exclusive revenue fees they can impose. The county collects a sewer fee and the city gets water bills not only from those within the city limits, but many outside of it. In both instances, the funds collected must be used for the purposes they were collected and cannot be diverted for other things. Some creative bookkeeping has been used, but by and large both jurisdictions spend sewer-user fees on sewer expenses and water bills on water expenses.

And the state sometimes allows local governments to use other special taxes, which is where we acquired the controversial RV tax -- 50 cents a night on each recreational vehicle to fund the baseball stadium. This is another piece of chump change hardly worth the fight, as it generates under $200,000 per year. Other specialty taxes are placed on utilities and utility franchises by cities, bringing in about $13 million for Tucson. There are also options like a bed tax, which generates close to $7 million for Tucson. Pima County's $1.5 million in bed tax revenues joins the county's rental car tax in being allocated solely to baseball stadiums. Tells you a lot about the priorities of our state Legislature.

STATE GOVERNMENT DOES allow local jurisdictions one source of revenue they are denied: debt. Cities, counties and school districts all are able to do one thing state government in Arizona cannot by constitutional restriction -- they can go into debt as long as the voters approve. This is one way that growth can theoretically help pay for itself, with the expenditures for those costs that growth causes being covered by the new residents, who are taxed to pay off the bonds. But there are a couple of flaws in that theory.

The first: the cycle never seems to end -- there are always more schools, parks, roads and pipes that are needed, and government always expands at a faster rate than the population. New citizens not only require more from existing services, they demand more new services, too. We constantly hear the cliché that our transportation plans will be solved if we'd just have better planning for roads. OK -- then will somebody please point to the growing community anywhere in America that actually solved its traffic problems?

The second flaw: if the growth hadn't occurred, most of these new projects -- roads, schools and sewers -- wouldn't be necessary in the first place and revenues collected could be used to benefit existing residents, maybe even by lowering their taxes. The best-case scenario after weighing what the state collects and is responsible for, along with what local governments similarly do, is that population growth is an economic push. Why gamble when the best you can do is break even?

You can get an argument on the break-even thesis. What is inarguable is that state government has laid off much of the costs of providing services, including any debts that occur, to local jurisdictions.

Which shouldn't surprise us. Higher levels of government will always take care of themselves first and dump on jurisdictions below them. The Founding Fathers understood that; it's the principle behind the concept of Federalism. Unfortunately, Arizona was not blessed with as high a level of founder, and there is not even a theoretical case for "county's rights."

We'll continue to debate whether new people bring enough revenue to cover the costs they generate, but two factors suggest that they don't. One is the ever-extending per-capita cost of government at all levels that is beginning to make servicing citizens too expensive. The other is the example of states and communities that have experienced rapid and sustained population growth, such as California and its many subdivisions, where taxes have continued to climb and where services in many sectors have begun to deteriorate.

When the service deterioration reaches a critical point, the funding (and control) tend to be transferred upwards to state governments as an act bordering on desperation. That's what occurred with both welfare and health care -- once exclusively local functions -- and is now happening with education.

Growth is obviously a financial loser for local governments. The Growth Lobby does itself no service by denying this. It could regain some of its lost credibility by 'fessing up and trying much harder to at least partially mitigate the problem it helps create by pushing the executive and legislative branches of our state government to more equitably distribute the taxes already collected.



GOVERNMENT EMPLOYEES IN SOUTHERN AZ BY JURISDICTION (1998 FTE'S)

UA 10,520

State of Arizona 9,694

Arizona School For the Deaf and Blind 416

AURA 348


LOCAL

TUSD 8,187

Pima County 7,028

City of Tucson 5,497

PCC 2,048

Sunnyside 1,914

Amphi 1,873

Marana School District 1,211

Flowing Wells 645

Catalina Foothills 564

Vail 315

Sahuarita School District 247

Indian Oasis 242

Continental School District 210

Town of Oro Valley 169

Town of Marana 137

Altar Valley School District 107

Town of South Tucson 90

Ajo School District 79

Tanque Verde School District 37

Town of Sahuarita 17



GENERAL OBLIGATION BONDED INDEBTEDNESS BY JURISDICTION

(These are debts to be paid back by direct taxes, as opposed to Revenue bonds, which are to be paid back by specific future revenue sources -- which are sometimes future taxes, but often future fees.)

Pima County $153,280,000

Pima County Flood Control District $7,360,000

Pima County Community College District $85,630,000

City of Tucson $203,069,070

Vail $12,110,000

Continental $4,730,000

Altar Valley $105,000

TUSD $356,935,000

Marana $62,005,000

Flowing Wells $17,150,000

Amphitheater $102,960,000

Sunnyside $61,875,000

Tanque Verde $9,895,000

Ajo -0-

Catalina Foothills $64,525,000

Sahuarita $15,665,000

Indian Oasis $110,000

Total $1,157,404,070

The above does not include the dollars owed to the federal government for Pima County's share of the Central Arizona Project through the Central Arizona Water Conservation District.

An additional $350 million in general obligation bonded debt has been approved by numerous jurisdictions, with the bonds awaiting issuance.



1998 REVENUES COLLECTED IN PIMA COUNTY BY SOURCE AND JURISDICTION

(* estimated )

TAX - STATE - COUNTY/SCHOOLS/CAP - CITY/TOWNS

Income $350 million* 0 0

Sales $450 million 0 $143 million

Gasoline/Use $465 million 0 0

Motor Vehicle $125 million 0 0

Insurance $25 million* 0 0

Estate $12 million* 0 0

Luxury $10 million* 0 0

Utility/Utility Franchise 0 0 $13.5 million

Bed Tax 0 $1.8 million $6.8 million

Property 0 $255 mil/$365 mil/$5.2 mil $17.9 million

Give or take a few smaller taxes, this means we all pay about twice as much to state government as we do to all local governments combined.

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