Council reintroduces sales tax increase

KINGMAN - What was meant to be a brief budget update Tuesday evening quickly evolved into the City Council's first overt move toward raising the citywide sales tax for the upcoming fiscal year.

Financial Services Director Coral Loyd had been asked to give council members an update on the current state of the city's various fund balances, particularly the general fund, which is the main fund that can be used for discretionary spending. While the city does have nearly $43 million in total fund reserves, the vast majority of that is earmarked, and can only be used for specific purposes such as utility investment or debt servicing.

Loyd explained that the general fund began the current fiscal year last July with about $8.5 million in reserve, which was sufficient to maintain the departments it usually pays for - police, fire, parks and the various non-utility city departments like finance, city clerk, city attorney, etc. The problem, she said, was the continuing decline in state-shared revenues, particularly the Highway User Revenue Fund, which the city had previously relied on to pay for its street maintenance program.

Loyd said that, due to more than $1.5 million in state cuts and falling gas tax returns over the past several years, the city has had to dip into the general fund in order to make up the difference. She warned that continuing to do so would eventually deplete the general fund balance to the point where it could begin to negatively impact the city's bond and credit ratings. She estimated that that would probably happen once the fund drops to somewhere between $5 and 6 million, which could happen in as little as two years at the current rate.

"It depends on what happens, and this is why we're constantly communicating and having all these meetings," Loyd said. "There's a lot of uncertainty. We'll do the best that we can to keep you informed of what's going on legislatively as well as what we'll see in the local economy."

At that point, Mayor John Salem acknowledged that the city had already cut "to the bone" and that state-shared revenues were unlikely to return anytime soon. With few other realistic options available, Salem proposed raising the city sales tax .15 percent, which would bring the combined city, county and state sales tax to an even 9 percent from the current 8.85 rate.

"This is an ongoing problem, and I propose this to the Council right now - we're not in an emergency situation, but not to address this I think would be irresponsible," Salem said. "This is probably not very politically favorable on my part, but I think it would be more irresponsible if I were to not do anything."

Salem was met with immediate opposition from Vice Mayor Robin Gordon and Councilwoman Carole Young, who both agreed that a sales tax increase should be a last resort, and that the city should do everything it can to cut internal costs first.

"I don't think we've done that, and until I feel confident that everything's been done," Gordon said. "We heard a lot of suggestions at (last week's) town hall meeting, some may be viable, some may not, but I don't feel we've had that discussion yet, and until I feel confident that's been done, I would not be in favor of any kind of raise in the sales tax."

Young said she did not want to place an additional burden on Kingman's already hurting business sector. She added that the city has never taken the opportunity to hold its own brainstorming session on how else to raise new revenues, something she said the city should do soon.

Councilwoman Janet Watson, however, agreed with Salem, saying that Council would be remiss in its duties if it did not create a permanent, reliable funding source for future street maintenance costs.

"When I think about how important it is that we not let our streets continue to deteriorate year after year and we know that the HURF money is going away and what's gone is not coming back, we have no way to cover that cost," she said. "None of us want to raise taxes, I know you don't. But to be realistic, I agree we would be remiss if we didn't put together some type of plan to say ... 'We can't let our streets just become full of potholes and dirt roads.'"

Gordon argued that the city could take other measures to cut costs such as closing city offices for one day of the week and furloughing certain city staff or selling off some city properties.

But Watson retorted that the city has already cut millions from its budget in the last few years alone, including defunding nearly three dozen staff positions and deferring important equipment replacements and upgrades for the police and fire departments. She argued that the city can only go so far in the face of massive state funding cuts.

Councilwoman Erin Cochran agreed that selling buildings and furloughing workers would not solve the structural funding problem the city faces.

Councilman Keith Walker also spoke up in favor of finding a permanent solution for the disappearing HURF funds.

While the street department estimates it will take about $1.5 million to bring the street repair schedule back up to date, Walker pondered how much that cost would increase if the city were to continue to neglect the streets for another year or two.

"There's never a good time to raise taxes," Walker said. "But I agree if we don't do something to start replacing that HURF money, what's the financial burden going to be on the city long-term if we let these roads get away from us? It's astronomical how much it's going to cost us."

City staff agreed to put the sales tax increase as a formal item on an upcoming Council agenda, most likely for March 15.