PRESCOTT — Back in 2009 and 2010, when Prescott was dealing with double-digit annual declines in its sales tax revenues, city officials heard a consistent question: Why so dependent on sales tax?
For a number of reasons related to state-imposed limitations, the city’s main departments — police, fire, community development, streets, and parks and recreation – are all funded largely through sales tax.
So, when the recession hit in 2008, those departments felt immediate impacts as the sales tax numbers plummeted — dropping 4.9 percent in 2008, 14.2 percent in 2009, and 10.5 percent in 2011.
A common theme during that time was the need to diversify the city’s revenues.
Why then, some residents have asked, would the city now be considering elimination of one of its few alternate revenue sources, the property tax?
That was one of several questions that came up during the city’s Strategic Plan Committee meeting Friday, Jan. 13. The committee has recommended taking a sales tax increase to Prescott voters in August as a means of paying down crippling unfunded liabilities with the public-safety pension (PSPRS).
While the three-member City Council committee ultimately decided that the full council should decide Jan. 24 on whether to put the issue on an August ballot, they also evaluated a number of issues that had come up earlier in the week.
Councilwoman Jean Wilcox, who chairs the Strategic Plan Committee, noted that she had received significant feedback on the proposal to couple a 0.75-percent sales tax increase with the elimination of the city’s portion of the property tax (which brings about $1.6 million into the city’s general fund each year).
For instance, during last week’s meeting of the Yavapai County Democratic Party, Wilcox said she heard from a number of people who were “astounded we would even consider doing away with property tax.”
The opponents of the proposal contend that property tax serves as an “equalizer,” Wilcox said, while sales tax is seen as a “regressive tax” that has a more severe effect on lower-income residents.
“It gave me a concern that we may lose some votes if we put the two together,” Wilcox said of the sales-tax-increase/property-tax elimination proposal.
But Councilman Steve Sischka, also a member of the Strategic Plan Committee, questioned the validity of that argument, calling it “a class warfare situation,” which “gets into the realm of who bears the burden” of tax increases.
“That’s not even valid, as far as I’m concerned,” Sischka said. “It’s getting into the weeds.”
And Councilwoman Billie Orr, another of the three council members on the committee, added that she sees elimination of the property tax as “a selling point for economic development.” Such a move could help to attract new businesses to the community, she said, which would help the local economy.
In addition, Prescott City Manager Michael Lamar and Budget and Finance Director Mark Woodfill pointed out that without the growing commitment to the PSPRS debt, the city’s general fund would have been able to weather the recent recession, despite the sales-tax losses.
“PSPRS is a big drag on the general fund,” Woodfill said. In the coming fiscal year, for example, the city will be required to pay about $6.3 million toward the PSPRS unfunded liability.
With the additional projected $10.7 million in revenue from a 0.75-percent sales tax increase, Woodfill said, the city would be able to pay that PSPRS obligation, as well as cover the $1.6 million loss from the elimination of the property tax, while still paying down the unfunded liability.
Also complicating the sales tax elimination proposal is the fact that the city would need to get voter approval to re-implement the tax at a future date.
Sischka maintained that should not be a deterrent. “I’m all for coming back to the people, because I’m one of the people,” he said.
The sales tax issue – whether to call an election in August, and which option should go on the ballot – is expected to be on the Prescott City Council’s agenda for its 1 p.m. Tuesday, Jan. 24, study session, as well as its 3 p.m. Tuesday voting session.