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Tempe meeting to focus on proposed property tax rate hike

Plan would increase valuation rate 39 cents

11 comments by Dianna M. Náñez -
The Arizona Republic

On Thursday, Tempe will host its first public hearing proposing a 39-cent per $100 assessed valuation property tax rate increase.

The hearing will follow a 7:30 p.m. council meeting.

The proposal would raise the rate to $1.79 from $1.40 per $100 of assessed valuation. The primary rate, which primarily funds operation costs such as salaries, is proposed to increase from .52 cents to .66 cents. The secondary rate, which funds repayment of bond debt to maintain city infrastructure, is proposed to increase from .88 cents to $1.13.

The $1.79 rate will generate $34.9 million, including $12.8 million of primary levy and $22.1 million of secondary levy, according to finance officials.

City Manager Charlie Meyer has said the proposal is based on Tempe changing its long-standing policy on property taxes. The policy would shift from a fixed property tax rate, which for several years has stayed at $1.40, to a floating secondary rate. The secondary rate would float according to the amount Tempe needs to collect to pay debt on bonds issued for capital assets and improvements such as street repairs and maintain a small debt-reserve fund. Tempe has estimated it would need to collect $22 million in secondary taxes this year to fund those items.

Although there is no statutory restriction on secondary collections, state law restricts cities to a 2 percent annual increase in primary property taxes on existing properties. Historically, Tempe has increased its primary rate by the maximum 2 percent. This year, that 2 percent increase, would result in Tempe collecting about $250,287 in primary taxes over last year.

Meyer has said that it would be irresponsible not to set the secondary rate so that Tempe maintains its infrastructure and bond payments. The rate increase would minimize the effect of falling home prices.

Secondary taxes are based on real-estate market valuations determined by the Maricopa County Assessor's Office. By next fiscal year, Tempe will have had a 35 percent decline in property values compared with three years ago. Ken Jones, Tempe finance director, said that equates to a 55 percent decline in secondary property tax collections if the rate was to stay at $1.40.

A small group of Tempe fiscal conservatives has balked at the proposal, saying that homeowners paid high tax bills for years because of the run-up in property valuations. They argue that residents deserve the tax break associated with falling home prices.

Mayor Hugh Hallman advocated for decreasing the property tax rate during the real estate boom, but the majority of the council voted to maintain it. Meyer has said that Tempe is using the $40 million in debt reserve funds collected during the real estate boom to pay down debt.

At a May 19 council meeting, Hallman said Tempe is not attempting to raise taxes with the new policy. Rather, the policy would deter the council from collecting a tax windfall should the real estate market return and property values increase.

Under the proposed policy, as debt is paid off and home values increase and secondary collections rise, the rate would decline. Based on Tempe finance projections, the rate would be $2.01 in 2012 and fall to $1.56 by 2030.

But Tempe resident A.J. LaFaro, a staunch critic of the proposal, attended recent council meetings and budget forums and argued that many residents would see an increase in their tax bill over last year if Tempe approves the $1.79 rate. LaFaro said he wants the city to make deeper cuts, rather than raise the rate.

To illustrate that impact of the rate increase, LaFaro calculated tax bills for City Council and Meyer showing that the majority of council members' tax bills would increase over last year if the rate change is approved.