State lawmakers eye local revenue

Cities could lose millions if proposed bills pass, officials say

KINGMAN - The Arizona Legislature may try to cover state expenses by going after local revenue.

Two bills introduced in the Arizona Senate Jan. 24 by Sen. Steve Pierce (R-Prescott), if approved, would change local tax codes and freeze the amount of urban revenue sharing funds that would be distributed to the local governments for the next 20 years. The Senate Finance and Rule committees are currently considering both bills.

According to the League of Arizona Cities and Towns, Senate Bill 1220 would repeal the Model City Tax Code effective June 30, 2012; force all cities and towns to have the same tax codes and definitions as the state; repeal any local taxes that don't meet state codes; and require the state to perform all tax collections and audits for local governments. Cities would still be able to levy sales taxes on items that the state does not tax.

The league feels that if the bill passes, it could cost cities millions of dollars in revenues without any benefit to the state.

Kingman City Financial Services Director Coral Loyd said she isn't too concerned about the financial impact the bill would have on the city.

The city only has a couple of taxes that are different from the state's tax code. What she is concerned is that the bill would remove some of the flexibility cities have to manage their tax bases. Tax bases are not the same from community to community, she said. Cities need to have some flexibility in order to meet demands and flex with the economy.

"I just don't understand how this bill helps the state or the local communities," Loyd said.

A second Senate bill may make the local revenue situation even harder. Senate Bill 1221 would limit the total amount of shared urban revenue funds circulated to local governments for the next 20 years to the amount of income tax the state collected in the 2010/2011 fiscal year, approximately $424 million, according to the League. The state-shared urban revenue fund collects state income and sales taxes and redistributes it to local governments according to population.

Any excess funds collected would be put in the state's general fund and used to pay down the lease on the state's buildings and to supplement the state's sales tax revenue to pay down the rest of the state's debts.

The city is very concerned about this bill, Loyd said. The city doesn't know exactly how much money it will get this year from the state-shared revenue fund. She does know that the fund collected 8 to 10 percent less taxes than previous years. If the bill passes and the freeze goes into effect, cities across the state could lose millions of dollars in revenue over the next several years as the economy recovers.

"Ten years from now there could be a huge negative impact," Loyd said.

Mohave County Sen. Ron Gould said he hasn't seen the details of either bill, but didn't like the idea of either one of them. He said he was all for the idea of cutting or simplifying taxes but not at the expense of local control.

SB 1220 would simplify the state tax structure, which would make it easier for large businesses to charge taxes, but take away too much of a community's flexibility in controlling their revenue sources, Gould said.

He wasn't too fond of Senate Bill 1221 for the same reasons.

In 2006 or 2007, the Legislature offered cities a deal where the state would do away with the state shared revenue program, lower state income and sales taxes and allow cities to set their own taxes to make up the difference. This would have given cities more control over their revenue and a competitive advantage over each other as to see who could offer the best tax rates, Gould said. It would also have given residents more control over taxes because it is easier to change things at the local level rather than the state level. However, the cities weren't interested, he said.

It is unfair to ask local governments to foot the bill for the state's debts, Gould said. "The cities aren't the ones that created this problem," he said. "They're (legislators) are asking them (the cities) to take a hit when the economy gets better."