Nixing food, rental taxes will hurt Arizonans
Several state lawmakers are exploring the elimination of local government food and rental taxes with the intention of providing inflationary relief to Arizona families.
While fighting inflation is certainly a worthy endeavor, these efforts fall short of benefiting all Arizona families and offer a permanently damaging solution to a temporary problem.
First, these cuts would not benefit all Arizonans. Of Arizona’s 91 cities and towns, only 70 impose a food tax, which means 3.2 million Arizonans in 21 communities would not benefit from a cut.
Similarly, 75 cities and towns impose a tax on landlords who rent property — leaving 5.7 million Arizonans (who either own their homes or live in a jurisdiction without a tax) with no benefit.
Concerned with a recession and a funding cliff, GOP legislative leaders are urging caution with a continuation budget for next fiscal year. Yet, they are proposing the elimination of the food and rental tax revenues, which will result in permanently slashing $350 million or more from local annual budgets.
Eliminating these taxes will likely simply lead to other tax increases, budget cuts, or both.
This is precisely what happened in Arizona when the Legislature repealed the statewide food tax in 1980. By 1983, in part due to the lost state food tax revenue, the state enacted mid-year budget cuts and a temporary retail tax increase from 4% to 5% to fill the budget shortfall.
This temporary tax increase was retained annually for five years until it was made permanent.
We would likely see similar tax increases in local property or sales taxes to make up for lost revenue if these taxes are repealed – effectively nullifying the intended benefits. Alternatively, if cities cannot increase taxes, they undoubtedly face cutting budgets and diminishing local services.
It is important to understand that these local revenues are primarily deposited into the general funds of cities and towns. The biggest spending category for our general funds is public safety.
Fire and police are our largest agencies, and most of the general fund spending is on personnel and employee-related expenses.
Other spending areas would most certainly be impacted, too. However, it is naïve to believe budget reductions on the magnitude required by the loss of these revenues could be undertaken while sparing public safety.
It is simply mathematically impossible.
Moreover, it is especially troubling in the public safety space given inflation, rising salaries, increased pension costs, challenges surrounding recruiting and retaining personnel, and retirements.
There is also a misperception that cities and towns are flush with revenue from both the taxation of online sales, otherwise known as Wayfair, and the 3% increase in state shared revenues associated with the recent flat tax.
This is wrong.
The online sales legislation contained a personal income tax cut to both offset the online revenue gains and avoid a tax increase. And the 3% state shared revenue increase was included in the flat tax to hold local governments harmless and avoid a $285 million dollar budget cut to cities and towns.
Providing Arizona’s residents inflation relief makes sense. However, inflation is a temporary cycle, and we should be looking for temporary solutions. For example, last year, the State of Illinois provided a one-time credit to their residents using state general fund dollars.
Perhaps the current $1.8 billion state budget surplus or the $1.5 billion rainyday fund balance could be sources of one-time monies to provide Arizonans with some form of temporary relief.
Ultimately, these tax cuts, while wellintentioned, are misguided.
We urge lawmakers to find better solutions that do not drain local coffers and harm public safety, and that benefit all Arizonans.
Douglas Nicholls is president of League of Arizona Cities and Towns and mayor of Yuma. Kevin Hartke is vice president of the league and mayor of Chandler. Al Gameros is mayor of Globe, and Kate Gallego is mayor of Phoenix. Reach them at douglas.nicholls@yumaaz.gov, kevin.hartke@chandleraz.gov, mayor@globeaz.gov, and mayor.gallego@phoenix.gov.