The City of Phoenix held community budget hearings throughout the month of April allowing residents and businesses to comment and make suggestions on the City Manager’s Trial Budget before final decisions are made. The Phoenix Association of REALTORS® (PAR) took an active role in helping shape what will end up being the final budget for the next fiscal year which is important because it will decide how the City of Phoenix will spend taxpayer money and how city services could be impacted. An increase in property taxes is one of several options being proposed in the trial budget. Although PAR does not want services to be cut, we do not believe an increase in property taxes is a fair and equitable solution and therefore do not support this option. PAR encouraged the Phoenix Mayor and City Council to consider alternatives. The following is a letter PAR sent to the Mayor and Council expressing our concerns.
Note: A copy of the Phoenix budget can be found at: https://www.phoenix.gov/Documents/PHX_Budget_For_Community_Review_Final.pdf
City of Phoenix Trial Budget Implications
On behalf of the Phoenix Association of REALTORS® (PAR) and it’s nearly 9,000 members, we want to express our appreciation for giving us the opportunity to review and comment on the “City of Phoenix Trial Budget.” Over the past few weeks, our CEO, Diane Scherer and V.P. of Government Affairs, Marc Scher had the opportunity to meet with Phoenix City Manager, Ed Zuercher and Phoenix Chief Financial Officer, Denise Olson to discuss the options outlined in the City of Phoenix Trial Budget and review potential concerns that we believe will affect the housing industry.
Because this document is critical to the future operations of our City, the Phoenix Association of REALTORS® wanted to be an active participant in discussions as it relates to the City’s decision whether or not to increase property taxes in Phoenix as outlined in option 1 of the trial budget.
After careful consideration of PAR’s policy manual and the options Mr. Zuercher outlined, the Phoenix Association of REATORS® respectfully encourages you and the City Council to choose an option other than increasing property taxes as proposed in his trial budget. We realize it’s the City Manager’s job to present various options but believe this specific option will hurt property owners.
Option 1 increases property taxes by 19.5% by raising rates from $1.82 to $2.17 as proposed in the 2016-17 Trial Budget. Some may think that raising the property tax rate is the best way for Phoenix to manage its debt, preserve its bond rating and restore and add service, but we believe using property taxes does not fairly and equitably distribute the burden to ALL Phoenix residents who benefit from such increases. A property tax unjustifiably penalizes a specific segment of the community, property owners. By increasing property taxes, you are discouraging home ownership and contributing to making homes less affordable.
As you know, the home buying market is on the rise and the City of Phoenix has been collecting more and more taxes as valuations continue to rise. Has the City of Phoenix done any long range projections on how much more tax they will be collecting as home values continue to rise? Another very important projection is understanding what the future holds if the city were to increase property taxes. How long would it take before future City Councils were tasked with increasing taxes even further to meet additional growth?
PAR understands the tug-of-war between raising taxes or seeing cuts to services in the public areas. We also understand the sacrifice city employees made by taking cuts during the economic downturn. However, to be fair, the private sector also took cuts. Our membership declined by almost 50% and we had to do the same job on significantly less income. Our members also had to survive on significantly less pay than a 4.6% cut. We realize that borrowing against the City’s $60 million reserve to pay debt isn’t ideal because it wouldn’t allow the City to restore pay, but increasing taxes on property owners isn’t the way to resolve this issue.
Our concern is that the City is now considering balancing a budget on the backs of property owners which only makes up only about 60% of the community versus spreading the tax burden to all citizens who live, work and shop in the City of Phoenix which is a more equitable solution. Phoenix needs to look at cutting additional expenses before looking to raise taxes. The increase in tax rate, along with the increase in property values would be too much for some and could possibly drive our millennials and seniors out of the Phoenix home buying market making by making it unaffordable.
We are also concerned that this is just the beginning and that the City could entertain an additional property tax increase in the near future. As you know, option 1 only restores 2.6% of the pay but increases the city’s secondary tax rate by .35 cents for a combined property tax rate of $2.17. That’s a monthly increase of approximately $4.25 for the average homeowner. This will allow the city to use its $60 million surplus to pay for critical upgrades, new services and to partially restore employee compensation.
Just this year, Phoenix sales tax just went up .7% to overhaul its transportation system. What this meant for rental housing was an increase of .3% as the City’s privilege (rental) tax increased to 2.3% from 2%. Water and sewer rates just went up 2.6% in March and now the City wants to increase property taxes by nearly 20%. With the passage of prop 117 in 2015, more of the property-tax burden shifted away from commercial-property owners to homeowners increasing the average tax bill by $50. Where do the increases end? Property tax is one of the few taxes citizens have “no” control over. By improving their homes, they are ultimately penalized with higher valuations which equate to higher taxes.
The National Association of REALTORS® has reported that the percentage of first-time homebuyers in December 2015 was the highest it had been since August 2015. Thirty-two percent of all homebuyers in December 2015 were first-timers, a 2 percent rise from the previous month. It was also a 3 percent rise from December 2014. By increasing property taxes in the City of Phoenix, you will effectively be driving the percentage of homebuyers down as they will not be able to afford homes.
The Phoenix Association of REALTORS® encourages you not to raise property taxes. Thank you again for your consideration of our concerns and your willingness to include us in these important discussions as they relate to the future growth of our city.