Column: Looking at some local taxes and what they mean
There are a crop of sales tax items coming up on the Prescott ballot in August. The one for pensions needs some clarification, and the whole sales tax issue needs perspective.
The pension ballot item has gotten confused with general pension revision. Despite excellent coverage of the issue in this paper there is still confusion about it. Confusion in multiple ways.
There is confusion about past and future: Any pension reform would affect the future. This ballot item is about obligations Prescott is already locked into, regardless of any reform for the future.
There is confusion about scope: Pension reform would have to be enacted by the state. The fire fighters association has been trying to get the state to do that, including benefit cuts their association has proposed, and the League of Cities and Towns has also offered a plan. The ballot item, though, is strictly about Prescott. The issue of scope is easily confused because locales all around the state had their own pension plans, each with different details, which later all came under the grand umbrella of a state pension system. But the obligations from the past for each locale have to be worked out by each. So while reform would have to happen at the state level, just how big of a pension obligation, say, Phoenix, or Prescott have, is unique to each. This ballot item is about having the funds to deal with existing debts unique to Prescott.
These points of confusion lead to confusion about what to do. I still hear and read ideas along the lines of, if we just get rid of public safety pensions then we won't need this tax. Nope. Even if the state and city suddenly ended all pension systems tomorrow, Prescott still has commitments made in the past it has to pay off. That's what this tax is for. A five and one half cent sales tax, expiring in twenty years.
If this tax is not enacted, then the city's ballot literature warns of drastic effects: cuts to public safety, longer response times, higher home insurance rates, higher costs of borrowing for the city, drastic cuts like eliminating the library budget, etc. The numbers support how drastic the cuts would be.
Ironically a tight belt has contributed to this situation. The number of fire personnel has not grown with the city proportionately, leading to already longer response times, and fewer new employees paying into the pension system. If there had been more hired over recent years, the current pension shortfall would be somewhat less.
So this is something Prescott has to pay entirely separate from the issue of any future pension reform. Does the city pay it by this tax, or by the severe cuts and consequences? Now you're getting down to the real question voters have before them.
Griping about pension reform may not apply to this but there is plenty of room for other griping. Three gripes about bad leadership. One, the pension funds were mishandled in the past. They were heavily bet on investments that went sour in the dot com bust. Both the fact that the fund was structured, at that time, so that one person's bad judgment could lead to that, and the fact that those bad decisions were made, are both to blame.
Two, lack of serious financial regulation at the national and global level led to that dot com crash and the Great Recession. Without those the fund would be okay.
Three, the state sales-tax level. Sales taxes ought to be left to local governments. They're useful at a local level and for taxing the impact of tourists in tourist heavy areas, but they're severely regressive, hitting hardest on people who have to spend all their income to get by. This state has an absolute fetish about cutting income taxes and corporate taxes, but little qualm about shifting the burden to sales taxes, shifting the burden from higher earners off onto lower earners. At the state level, sales taxes are just lazy tax policy. If we didn't have state sales tax, local sales taxes would be a much smaller issue.
P.S. Prescott has declared today to be Kathleen Murphy day, for her nearly 40 years of leading Big Brothers Big Sisters. See the sidebar here for a jaw-dropping list of accomplishments from the city dedication.
Tom Cantlon is a local business owner and writer and can be reached at Comments at TomCantlon.com.