Work session focused on funding comes up short

KINGMAN - Kingman City Council gathered Friday for a work session centered on revenue and funding strategies for the future, but other than the decision to move forward with the elimination of impact fees, not much was figured out.

As many know, Senate Bill 1525 says development fees cannot be collected after Jan. 1 unless it's for a "necessary public service." The statute also requires all existing impact fee programs be replaced by August 2014, meaning cities need to come up with new fee ordinances, procedures, infrastructure improvement plans and fee studies by the deadline.

Staff's recommendation to Council on going forward with these changes is three-pronged. First, eliminate impact fees except for those collected for wastewater because the city has outstanding wastewater debt. Next, increase water connection fees to capture infrastructure costs. Lastly, plan to raise construction sales tax in 2014.

Staff had originally recommended raising construction sales tax by January, but the statute says without one in place before June 1, cities cannot implement one until 2014.

Councilwoman Carole Young said development fees were originally put in place to help pay for growth, which hasn't happened due to the ailing economy. She argued that their elimination might be a chance to provide incentives to builders and businesses, adding that the city can reevaluate the situation in 2014.

Mayor John Salem agreed and added that this could work out to be a test to see if incentives actually work. Although Salem doubts construction will amount to much in the next couple years, he said growth is coming back someday.

The city's finance director, Coral Loyd, suggested drafting a construction tax ordinance that goes into effect in 2014 in order to "close the loop."

Vice Mayor Robin Gordon liked that idea and said putting a complete plan in place is the path the city should take.

It will be good for the community to see that there is a long-term plan in place, Young said.

At some point in the near future, staff will come back to Council with draft ordinances covering the elimination of impact fees, modification of water connection fees and institution of a construction tax in 2014.

As for the future construction tax, any ordinance created can be changed in the coming years if needed, Loyd said.

After dealing with the impact fee debate, Council looked at several revenue options - which have been circling for months - including a 2-percent room tax, a 0.15-percent increase to sales tax and a $2 property tax to fund.

Council asked that staff come up with several options for both short- and long-term revenue options in order to deal with Kingman's financial shortfalls, including the $1.6 million the city is short for public safety.

Based on Department of Revenue data, Kingman is the 75th cheapest city to live in Arizona tax-wise, Loyd said. This is a problem because the city's main funding source is sales tax, which is a volatile source of revenue, meaning there are peaks and valleys the city must contend with.

Earlier in the meeting, Councilman Richard Anderson argued that if one takes out tourism and an estimated amount for car sales, each person in Kingman pays less than $100 a year in sales tax to support where he or she lives, eats, works and plays.

He also posited that millions of dollars a year is spent by the community out of the area on clothing, electronics and other things. Then there are internet sales, which come with zero sales tax, Anderson said.

"People who can afford it are getting their toys somewhere else," Anderson said.

That means that people on fixed and low incomes are the primary payers of sales tax in Kingman, he said, adding that raising sales tax will affect them the most.

"I own a home, and the only tax you get from me is city sales tax," Anderson said, adding that's not fair or right.

It's time for a primary property tax and a lowering of the sales tax, he said. That would reduce the amount of taxes many people are paying.

Councilwoman Erin Cochran said many people would feel like they're being taxed out of their homes. If Council decides to move forward with a primary property tax - which the community can only institute through a vote - it's time to start educating the public now, she said.

Salem argued that it would be penalizing property owners, something he's not too keen on doing.

The earliest a primary property tax could appear on a ballot would be November of 2012. For that to happen, the issue would need to be packaged and ready for a vote by May. If it were to pass, the city could not start sending out bills until 2013, so it's a 12-18 month outlook at least, Loyd said.

It would be for the future of the community, Loyd said: "I would think our grandchildren would say thank you for doing that."