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1:41 PM Thu, Nov. 15th

Proposed sales tax hike: Shoppers to pay 75 cents more on $100 purchase

TAX HEIGHT? The cost of closing the pension gap

PRESCOTT – For about 47 cents a day – roughly the cost of a pack of gum, an apple, or a postage stamp – Prescott residents reportedly could close the gap in the city’s public-safety pensions.

City officials say a 0.75-percent sales tax increase over the next 10 years would be sufficient to pay down Prescott’s $81 million in unfunded liability with the Public Safety Personnel Retirement System (PSPRS).

They estimate that would cost residents who earn the area’s median income of $46,000 per year about $173 per year (or about 47 cents a day).

And depending on the option chosen by the Prescott City Council, the total tax burden could be cut by more than half for property owners – through an elimination of the city’s portion of the property tax.

By eliminating the city’s property tax at the same time it increases the sales tax by 0.75 percent, the city says the total tax burden would drop to $82 per year. (That is assuming the $46,000 median income, and ownership of a home with an assessed value of $300,000.)

The two tax proposals are currently under review by the Prescott City Council and its Strategic Plan Committee as a way to pay down the “unfunded” amount expected to be needed in coming years to cover the cost of pensions for city police officers and firefighters.

The city has grappled with the issue for years, as the unfunded liability has continued to rise, along with the annual amount the city must pay out to PSPRS of its general fund.

An earlier pension-fix proposal for a 0.55-percent tax increase failed with the voters in August 2015, and now the City Council is poised to vote on whether to take another tax measure to the voters in August 2017.

During a Friday afternoon, Jan. 13 meeting, the Strategic Plan Committee – made up of three council members – agreed that the City Council’s Jan. 24 meeting agenda should include a vote on a possible August ballot issue.

Although the committee initially considered setting a special election in May for the sales tax proposal, members appeared to agree Friday that they should focus on an August vote to allow more time to inform the public about the measure.

Still to be decided: Whether the issue should be on the ballot at all; which of the two options should be on the ballot; and the ballot language.

During Friday’s meeting, Councilwoman Billie Orr, who serves on the Strategic Plan Committee, emphasized the minimal impact the sales tax increase would have. “It’s 75 cents on $100,” she said.

That means that for each $100 of groceries, household items, and residential rent paid by Prescott residents, the tax increase would add 75 cents.

The additional tax would be in addition to the 2 percent that the city already has in effect (1 percent for the general fund, and 1 percent for a voter-approved street-improvement program).

Based on information from the city, the existing 2-percent tax costs residents about $460 per year. With the additional $173 from a 0.75-percent increase, the total city sales tax burden would be about $633 per year.

Adding in the $91 in municipal property tax (based on a $300,000 home), the total current city tax burden is $551. Depending on the tax option chosen by the council, that would go up to $724 per year (under a 0.75-percent sales tax increase), or $633 (under a sales tax increase combined with elimination of the property tax).

City officials emphasized that the annual tax burden for Prescott residents is considerably lower than that for other quad-city communities.

For Prescott Valley residents, for instance, city information indicates that residents pay a 2.83-percent sales tax, as well as a fire district property tax – for a total estimated tax burden of $1,477 per year. (Prescott covers the cost of its fire department through its general fund, and residents pay no additional fire-district property tax).

In Chino Valley, the municipal sales tax of 4 percent, along with the fire district tax, brings the total municipal tax burden to $2,009, according to the city.