Balancing Act

As the city's budget gets squeezed, Mayor Bob Walkup has got a proposition for you.

It's been a long honeymoon for Mayor Bob Walkup. Midway through his freshman term, the 65-year-old Republican still enjoys widespread popularity in a Democratic city.

Walkup was his usual ebullient self at January's State of the City address. For the second year in a row, Walkup's speech brought out an overflow crowd, with banquet workers scrambling to set up extra tables in a crowded Tucson Convention Center conference room as roughly 1,000 politicians, fixers and suits worked the room.

Walkup laid out the good news at the top of his speech. He noted that local poverty levels were decreasing, homicide rates had dipped 40 percent over the previous year, state lawmakers had found funding to keep Level 1 trauma care at University Medical Center and the water table was rising as much as 10 feet in some areas under Tucson.

Some of that doesn't sound so good less than two months later. The much-touted groundwater rebound came in places where pumping had drawn water deep below the average water table, so the increase was a natural result of reaching equilibrium in the wake of shutting down the wells. (See "Flow Job" in this issue.) Through last week, 14 people had been murdered this year in Tucson, putting the city on a path to a homicide rate double that of last year. A state budget crunch makes aid to trauma care unlikely beyond this year. And while wages have climbed slightly, big pockets of poverty persist.

Like the rest of the nation, the local economy remains tight, with state officials estimating that unemployment rose to 4.5 percent in January, compared to less than 3 percent about a year ago. The slowing economy has cut into sales-tax revenues, forcing city officials to trim spending. As Walkup told the crowd, "We will not be able to afford everything that we want and we may not be able to afford the things we currently have."

Last year, Walkup dipped into reserve funds to balance the budget. This year, he's moving closer to cuts in services even as many problems fester. Old landfills are leaking pollutants and need to be properly capped. Residential streets are riddled with potholes and lack sidewalks and streetlights. Downtown continues to wither.

The squeeze has pushed Walkup to ask voters to increase the city sales tax by a half-cent per dollar in May to fund transportation projects. But even if they approve the new tax, other big-ticket projects, like downtown's Rio Nuevo program, face increasing challenges without potential private dollars or public-sector partners.

AT THE STATE OF the City soiree, the crowd saw a preview of a TV ad featuring Walkup and City Manager James Keene looking forward to "budget magic."

In the next few months, Keene's tricks will include making reserve funds vanish, sawing a number of staff positions in half and, if he can cast a spell over voters, pulling a sales-tax hike out of his hat.

For the fiscal year that began last July, the city's budget hit a new high of $904 million, boosting city spending by about 11 percent, or more than $95 million dollars, according to Ned Zolman of the budget department. That total reflects both capital and operating costs, as well as state and federal dollars and enterprise departments such as Tucson Water that are funded through user fees. The increase was driven by inflation, rising healthcare insurance costs, and the launch of some capital projects approved by voters in recent bond elections.

The city's general purpose budget, which is spending the city can most easily nip and tuck, rose $27 million to $386 million, or roughly 7 percent. About half of that covers public safety, including cops, courts, city attorneys and the fire department. The remainder covers transportation, parks and recreation, libraries and the solid waste department.

To cover last year's budget hike, Keene recommended several new fees for city residents, including a $6 monthly solid waste fee. Although Keene calls it an "environmental fee" meant to pay for landfill cleanup, it was widely viewed as a fee for garbage collection by council members, who trashed the proposal. Walkup and the council also rejected Keene's suggestion to collect a sales tax on rent payments. They instead balanced the budget by dipping into reserve funds and trimming other areas of the budget, such as fleet replacement.

But that strategy only works in the short term. Eventually, citizens start to notice service cuts, says Zolman, "and then all of sudden, it's 'What happened? What are you guys doing?' There are consequences of not filling positions. Certain work that has to be done doesn't get done."

Delaying some projects, add Zolman, means a "geometric" increase in future costs.

City officials, for example, estimate the city is facing at least $60 million in landfill cleanup costs. Toss in the future pricetag of finding a new landfill as the current one fills up and the tab could rise as high as $100 million.

With last year's economic tailspin cutting into sales tax revenues, officials are trimming about $10.8 million in spending for the fiscal year ending June 30. Keene implemented a hiring freeze last fall and postponed some expenditures, hoping to carry $3 million into the 2003 budget. City staff is still crunching next year's numbers, with Keene scheduled to submit his formal proposal to Walkup and the council on April 8.

Late last year, Keene estimated his fiscal year 2003 budget was facing a $45 million shortfall--based on a general purpose budget that he would ideally increase at least $40 million, or 10 percent, to somewhere in the neighborhood of $426 million. Keene trimmed a quick $25 million off the bat by cutting inflationary increases, delaying environmental clean-up projects and dipping again into reserve funds rather than adding to them.

Keene is now trying to trim roughly $20 to $22 million more from his proposed budget, which he estimates will total between $380 million and $385 million.

Among other impacts, those cuts could mean fewer cops, librarians and parks and rec classes. In a January presentation before the council, Keene outlined the potential impact: a 5 percent trim to the police department totals $5 million; a 10 percent cut to Parks and Recreation is $3.9 million; a 10 percent cut to library funding is $2 million. Keene says doesn't expect to ask for such a deep cut in public safety, but the trade-off is bigger bites from other department budgets.

Keene didn't directly ask for a waste-disposal fee or a rental tax this year, but in his January presentation, he reiterated that Maricopa County communities rely on those mechanisms.

Zolman makes the case that such fees can be used to make community investments.

"A person who's going to bring an optics firm to Tucson really does want to make sure there are certain amenities like parks, libraries, a good school system," Zolman says. "And those kinds of things require investment. And we really don't do the best job we could on the investment side of the equation because it costs money and folks say, 'Well, it doesn't help me.' Well, it does. They just don't understand that it helps them, from a community viewpoint first, and it could help them because if they have a business, they could find themselves doing more business with more customers coming to town."

But staff arguments have had little impact on politicians who fear public backlash to new fees. Walkup promises a hard line again this year.

"The first effort will be in cost reduction," Walkup says. "The manager has talked about taking a look at the revenue side, but I tell you the mayor and council is not warm to that idea."

BUT THE MAYOR IS more than warm to the idea of raising the sales tax to boost transportation spending. He's positively burning to see voters agree to crank the sales tax by a half-cent to raise an estimated $40 million a year over the next decade to buy three souped-up, grade-separated intersections, some wider arterials, repair of residential streets and a slight bump in transit spending.

Walkup says his plea for a sales-tax hike shouldn't be seen as support for higher taxes.

"To me, that's a completely different issue than legislating a tax increase," Walkup says. "I'm letting voters have a precise say in 'Do you want to do this or do you not want to do this.' "

It's a careful distinction, particularly considering that Walkup himself is the biggest booster of the sales tax election, which will put his popularity to the ultimate test.

Since defeating Democrat Molly McKasson in 1999 by casting himself as a moderate Republican against a leftist Democrat, Walkup has governed from the center. He's kept the business community mostly happy without angering too many neighborhood groups. He remains solidly opposed, for example, to what he calls the "trap of easy money" from transportation impact fees, but has resisted political pressure from local political heavyweight Karl Eller for relief from the city's tough billboard regulations. He's angered Second Amendment activists on the right by supporting a push for background checks on all firearm sales at TCC gun shows.

The strategy appears to have worked with voters. Private opinion polls show Walkup is one of the most popular local politicians. Last fall, Republicans Fred Ronstadt and Kathleen Dunbar both won office by campaigning on Walkup's coattails.

That GOP victory was made possible by heavy turnout on the city's East Side, where voters in Ward 2 and Ward 4 overwhelmed the lower turnout in the central-city precincts where Democratic candidates fared better than Republicans.

While they may be Walkup's people, the city's East Side voters opposed a ballot proposition boosting the state sales tax by six-tenths-of-a-cent to fund schools less than two years ago.

Walkup's challenge lies in getting their support for the transportation sales tax, which has been rejected by Pima County voters twice since 1986. Whether he can pull it off remains to be seen, but he does have one advantage: East Side voters frequently face long commutes, which may push them to support the proposal.

If the prop passes, Walkup wins big, as the leader who broke the long-standing curse against transportation sales taxes in Pima County--and he might solve some of his budget woes in the process. While city officials say the new tax dollars will supplement and not supplant existing funding, they've only promised to keep transportation spending at its current level. With inflationary increases from state and federal funds, the city could eventually use general fund dollars--now about $42 million--for other areas of the budget.

If voters reject the sales tax, Walkup will face the first big defeat of his administration. He's already said there is no Plan B for increased transportation spending if voters say no.

The sales-tax proposal has drawn spirited albeit impecunious opposition in some quarters. Two groups have launched formal campaigns against the proposal, but neither is expected to raise significant campaign funds.

Meanwhile, Walkup is leaving little to chance. Despite the tight transportation budget, he's invested a big chunk of transportation dollars on a PR campaign for the sales tax. The city spent a total of $375,000 on the "Let's Go Tucson" program that involved polling, public outreach and regular meetings of a citizen committee to hammer out the proposal. City officials have since launched the Transportation Improvement and Traffic Congestion Improvement Program, or TITCRP, to continue an "education program" about the sales tax. Michael Graham, spokesman for the city Transportation Department, said the latest spending figures would be available later this month.

Walkup is also lobbying developers and other deep pockets for contributions to a pro-tax political committee that has adopted the "Let's Go Tucson" brand name established by city tax dollars. The group will likely raise hundreds of thousands of dollars for a extensive campaign that will include media ads, mailers, phone calls and a sophisticated early vote program.

Members of both opposition groups have sued the city over the grade-separated intersections in the proposal, saying they violate the city charter's Neighborhood Protection Amendment, which requires voters approve such intersections after city staff have finalized the design and calculated the cost.

Walkup says the ballot proposal will "absolutely" meet the requirements of the Neighborhood Protection Amendment, but admits that the design on the ballot will be "philosophical" and the costs will be estimates. Voters, says Walkup, "will know all the things they really need to know about the GSIs."

AS A FORMER executive with Hughes Aircraft, Walkup has targeted the high-tech field for job growth since he took office. But that field was rocked by layoffs earlier this year, with Bombardier and Raytheon announcing they'd let hundreds of workers. Walkup remains confident they'll be absorbed into the local workforce.

Both Raytheon and Bombardier may be boosted by their recent inclusion in the city's recently formed federal Empowerment Zone. The Empowerment Zone, focused primarily in a 17-square-mile area straddling I-10 and I-19 from Pastime Road on the north to Irvington Road on the south, grants various tax breaks for employers who hire people who live within its boundaries.

But even the Empowerment Zone impact was overstated, with Walkup and other officials saying Tucson would be eligible for a slice of up to $17 billion in federal funds. The actual figure will depend on participation in the program, but officials now say the local impact will be in the hundreds of millions of dollars.

Officials remain hopeful the Empowerment Zone will provide a shot in the arm of the city's downtown redevelopment project, Rio Nuevo, which Walkup says is going "gangbusters."

John Jones, the city official who has been overseeing Rio Nuevo since voters approved the concept in November 1999, is slightly more cautious in his assessment.

The project will allow the city to sell at least $80 million in bonds which will be repaid from sales tax diverted from within the Rio Nuevo district, which includes most of downtown and travels down Broadway Boulevard, including El Con Mall and Park Place.

In the two years since voters approved the project, the city has been laying the groundwork for the sale of the bonds, which could happen later this year, Jones says.

Last week, the city accepted a proposal to begin negotiating with a Boston-based firm to develop a downtown aquarium. The deal was not without controversy; the city snubbed the local team that had been developing the aquarium concept since the mid-'90s, while some council members questioned the viability of an aquarium, given the trouble such facilities have faced in other cities.

Other proposals in the original Rio Nuevo plan are foundering. Plans for an IMAX theatre have gone nowhere and no private developer has stepped forward to build a new downtown hotel.

Tight budgets are stalling the original public projects as well. The city has been talking with the UA about moving the Flandrau Planetarium downtown to complement the aquarium with an expanded 100,000-square-foot science center that would be nearly four times the size of the current campus facility. But with the state budget crunch, the UA will have trouble justifying the $35 million cost, even with the city offering to kick in an additional $10 million from Rio Nuevo funds, says Jones.

The same budget problem has slowed plans to move the UA's Arizona State Museum and the Arizona Historical Society. Discussions with the latter organization, which recently underwent a leadership change, are off for at least a year, according to Jones.

The city has been talking with the Tucson Indian Center, a non-profit social-service outreach organization, about developing a cultural center on the Rio Nuevo parcel, but the meetings have produced no solid commitments.

Walkup says he's been talking with UA President Peter Likins about using part of Rio Nuevo for university housing for married and graduate students, who were living at recently closed Christopher City complex near Fort Lowell and Columbus Boulevard.

One of the first projects funded by Rio Nuevo bonds, which could begin being sold as soon as this fall, could be downtown's Fox Theatre. The $10 million rehabilitation project spearheaded by artist Herb Stratford recently won $1 million federal grant from Housing and Urban Development. The theatre could eligible for somewhere in the neighborhood of $3.3 million, says Jones, but that leaves Stratford with a steep fund-raising goal.

With little happening within the Rio Nuevo's boundaries, Walkup has taken to touting the city's annexation of planned 575-room Marriott resort at Starr Pass as a big boost. His excitement over the $250 million hotel seems to symbolize Walkup's determination to find a positive spin. Sure, the original big plans for Rio Nuevo have stalled and the Marriott falls outside the Rio Nuevo district, but the deal is "a very positive sign that Tucson is doing the right thing economically."

"If in this office, we took a policy of woe is me, the sky is falling, we would create a self-fulfilling prophecy," Walkup says. "In social economics, a very extraordinary part of the outcome is emotion and perception and attitude and confidence."

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