The Arizona state General Fund is flooded with revenue. Latest projections show the state with $1.2 billion in ongoing revenue and a cash balance upwards of $6.5 billion in FY2024. This is by far the largest budget surplus in state history and doesn’t even include the $1 Billion stashed away in the rainy day fund.
When the state is sitting on a pile of cash this big, it means one thing: they are taking too much of your money. And the answer is simple: give it back to taxpayers.
With Republicans at the Legislature and Governor Ducey planning to provide a large and comprehensive tax cut, one special interest group is already lobbying hard behind the scenes to kill that plan: local cities.
The fight of course is over money. 15 percent of income tax revenues are shared with cities. In Phoenix, that accounts for just over $241 million this year, or roughly 4.8 percent of their $5 billion operating budget. Phoenix is arguing that the proposed income tax cut would result in a $65 million reduction in shared revenues; or 1.3 percent of their operating budget.
Of course, this estimated “cut” in revenue is seriously flawed. It fails to take into account that shared revenues from the income tax are based on collections from two years prior. Considering the tax package wouldn’t be fully implemented for another 4-5 years, any potential decrease in shared revenues would not be fully realized for at least 6-7.
Additionally, complaints about static reductions in revenue fail to include any dynamic analysis of economic growth and the corresponding increases in tax revenues, both from income and TPT collections, promulgated by tax cuts.
The passage of Prop 208 made Arizona the 9th highest income tax rate in the nation. It has already begun pushing small businesses to relocate to lower tax states, taking their jobs and income, property, and TPT tax revenues with them. Make no mistake, the loss in revenue for cities such as Phoenix will be much larger if no action is taken to address Arizona’s uncompetitive income tax climate. In fact, a study by the Goldwater Institute found that the Prop 208 price tag to state and local revenues will amount to a $2.4 billion loss.
Knowing that a debate over a potential 1.3% reduction in revenues 7 years from now won’t generate much sympathy to stop the tax package, the city of Phoenix has decided to tell lawmakers that if the legislature cuts your income taxes, cities will be forced to cut police officers on the street. In other words, legislative tax cuts would be responsible for “defunding the police.”
This rhetoric can’t be described as anything other than complete hogwash.
Here is the real bottom line: The City of Phoenix is downright reckless with taxpayer money. The city spends like drunken sailors. They’ve never seen a tax increase they don’t like. And they don’t think twice about fleecing the taxpayer every opportunity they get.
In 2015, Phoenix raised their transportation excise tax in order to waste billions on boondoggles like light rail. They have spent billions on a “Sky Train” hardly anyone uses and then jacked up fees by 200 percent on ride sharers to pay for it.
In 2017, Phoenix’s spending appetite was so colossal they extended the amortization of their pension debt, to free up a few million dollars for one time spending at the cost of billions to taxpayers down the road.
For years Phoenix ran a hotel that never managed to make a profit. In 2017 they finally shed the asset, but not before a staggering $200 Million loss to taxpayers.
All this reckless spending has forced the city to constantly raise taxes and fees. Just last month, Phoenix approved raising their water rates for the 5th time in 6 years on top of rate increases for trash and recycling.
On top of these tax and rate increases, research done by the Arizona Tax Research Association shows the city has also received over $24.6 million year to date in FY2021 (with four additional months of collections to go) from remote sellers. This is new revenue to the city due to the passage of 2019 Wayfair legislation. If these new monies were scored, that 1.3 percent revenue loss would actually be a potential 0.8% reduction realized in 6-7 years, a fraction of the money Phoenix has wasted in just the past couple years.
With tax increase after tax increase and revenue windfalls from the state, the city of Phoenix does not have a revenue problem, it has a spending problem. The legislature providing relief to taxpayers (who will surely be more responsible with their own money than Phoenix will be) will not cause any city to “defund the police.”