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Walking a Tightrope 

The City Council belatedly studies a no-impact property-tax boost to balance the budget.

Property tax increases that could pull the city from a $10 million shortfall on City Manager James Keene's proposed $894.5 million budget would add not a penny to the tax bills of more than 80 percent of Tucson's homeowners.

Even if the City Council triples or quadruples the city's low property tax rate 83,853 of the city's 101,729 homeowners would get no direct increase in their bill. The city property tax costs the owner of a $100,000 home just $14.06 a year. That's $1.17 a month, not enough for even a monthly espresso or latte.

State law would protect those homeowners because they already pay chronically high property taxes the Pima County Board of Supervisors and the Tucson Unified School District board levy. State law caps residential property taxes at $10 per $100 assessed value but pays excess levies from the state general fund; Tucson homeowners in TUSD are already capped.

The City Council has been slow to examine a property tax increase and just began to do so Monday after Democrat Shirley Scott, of southeast side Ward 4, won unanimous support to kill Keene's proposed 2 percent tax on rental property. That tax, derided for its harm on the poor, seniors and struggling workers, was designed to raise $7.5 million a year.

It was a turnaround that progressed over last weekend. In an interview Friday, Republican Mayor Bob Walkup said the only thing that was not on the table for budget discussions was a property tax increase.

One day earlier, Democrat Steve Leal, the council's senior member, also said property tax increases had not been a subject of any of the budget talks.

With some uncertainty, the council Monday agreed to consider a 27-cent increase in the city's combined property tax rate: nearly 3 cents added to the secondary rate, used to pay off bond debt voters approved in 1994 and 2000; and 24 cents added to the primary rate, used for routine government operations.

The city's combined tax rate now is just under $1.13 per $100 of assessed value, with 14.06 cents for primary and 98.6 cents for secondary. The increase in secondary--to $1.02 per $100--was already built into Keene's budget. The increase in the primary rate is deceptively high, 71 percent, and would increase the primary rate to 36 cents per $100.

Unlike Pima County and school districts, which have no sales taxes, the city relies very little on property taxes to support its $381.4 million general fund for the fiscal year that begins July 1. Keene's initial budget plan anticipated about $3 million in primary property tax revenues. Keene also has proposed a $6 per month garbage collection fee, a concept rejected numerous times. It would raise $4.2 million. Meanwhile, the city's 2 percent sales tax, on all purchases except grocery food and medicine, will generate $164.5 million.

Sales taxes and property taxes still provide residents "a smoking deal," says Leal, who is seeking a fourth term in southside Ward 5. Businessman and lobbyist Jesse Lugo is challenging Leal in the Democratic primary.

Indeed, for those payments city residents get police and fire protection, garbage collection, half of the cost of the library system, parks, and a host of other services. In stark contrast are the thousands of Pima County residents who live outside the city and are members of one of 17 fire districts. Fire district property taxes can run as high as $3 per $100 assessed value, or $300 a year for the owner of a $100,000 home. For that, the homeowner gets only fire service. They must pay separate monthly fees for garbage collection.

Keene, in his first year, has struggled with his spending plan. The council rejected his proposed cuts to outside agencies, which Walkup said in an interview showed the council was headed in the wrong direction.

Still, Walkup said then that tax increases were "not on the table" even though the increase in the primary rate would do nothing either to the tax bill for his Starr Pass home, for which he is paying $2,305 in total taxes this year, or to the tax bills of 82 percent of Tucson homeowners.

Vaguely familiar with the state law capping primary rates, Walkup said a move to use it to Tucson's advantage "to me is a bit of negotiating in bad faith."

Walkup also expressed worry that an increase would "shove us right up to the limit" allowed under the City Charter. That limit is $1.75 per $100 assessed value in total city property taxes. The total rate, before the council began looking at the primary rate increase, would be $1.16.

Tripling the primary rate to 42 cents, putting the total rate at $1.44, would bring in close to $10 million in new revenue.

Walkup and other city officials have more than one reason to not do it.

Business properties do not benefit from the state cap on primary taxes and also pay taxes at a ratio 2.5 times higher than that for homeowners. On the other hand, business has received several tax breaks in the last five years, including exemptions for many small businesses on equipment.

And the property-tax bills for homeowners not within TUSD boundaries would go up. There are 7,900 residential properties in the city that are within the Sunnyside Unified School District on the southside; 4,888 in Amphitheater School District; 4,091 in Vail School District; 981 in Flowing Wells Unified School District and 16 in Tanque Verde School District.

City officials also are telling the council that too big of an increase in the primary rate could threaten the city's bond ratings--just as the officials are planning meetings with Moody's Investor Services and Standard & Poor's to prepare for new bond sales. Kay Gray, the city's longtime finance director, said the rating agencies, among other criteria, want to see the city leave a cushion in available tax authority. That cushion is 25 cents per $100 assessed value, leaving the city with a de facto $1.50 cap.

And Ned Zolman, the city budget director, acknowledges "there is an amount of allure" in a property tax increase, even for just a year, that could arrest some city money trouble. But he says it would be a "short-term" fix when the city is planning on long-range solutions and investment.

The cap on primary property taxes came from a state law spun from California's infamous Proposition 13 of the late 1970s. It has provided the Democratic majority on the Board of Supervisors with cover from political retribution while it raised property tax rates to record levels with three consecutive increases in 1997, 1998 and 1999.

Within Arizona's property tax system, the two broad categories for cities, towns, counties and school districts are primary, for daily operations including personnel, and secondary, for most voter-approved debt (bonds).

The pile of taxes Arizona property owners face depends on where their property is located. All Pima County property owners pay taxes to the state, the county, Pima Community College and the Central Arizona Project. They also could pay a property tax to Tucson, South Tucson, one of 16 school districts, one or more of 22 improvement districts, one of 17 fire districts, one of three irrigation districts and one health district.

Pima County, which levies the highest combined taxes of any of the state's 15 counties, has three components of secondary taxes to go with those levied to pay off voter-approved bonds. They are for libraries, flood control and fire-district assistance. These hit every property, even those within the city of Tucson, for about $5 a year on a $100,000 home.

State law provides homeowners with two levels of protection. First, the primary tax rate for school districts is lowered 35 percent, which comes from the state general fund. So TUSD's ultra-high primary rate of $7.11 per $100 of assessed value ($711 a year on a $100,000 property) is trimmed to $4.62 per $100 ($462 for a $100,000 home). TUSD sprawls from the Pascua Yaqui Village on the southwest side to Sabino Canyon on the northeast and has nearly half--107,133--of the county's 217,717 homeowner parcels.

The next state break caps at $10 per $100 of assessed value the combined primary rates of counties, school districts, cities or towns, community colleges and state education assistance.

Pima County supervisors, who begin hearings May 22 on a proposed $942.3 million budget, have shown no inclination to cut the record-high $4.07 primary tax rate that was the result of three straight increases ending in a 30-cent (11 percent) boost two years ago. Add to the county's $4.07 the TUSD net rate of $4.62, Pima Community College's $1.14, the city's current 14 cents, and state education assistance of 51 cents--the total tops the $10 limit by 48 cents already. For the owner of a $100,000 home, the extra $48 in a one-year tax bill is paid out of the state general fund, spreading the pain among all Arizonans.

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