An attempt to lower the fees cable companies pay cities falls one vote short at the legislature. We’ll look at why the cable industry and cities are at odds over fees and the number of cable channels given to local government.
>> José Cárdenas:
Tonight on "Horizon," businesses could see their property taxes lowered. Does that mean homeowners will pay more taxes? We'll look at a bill that attempts to make Arizona's property tax system more fair for businesses. Plus, an attempt to lower the fees cable companies pay cities falls one vote short at the legislature. We'll look at why the cable industry and cities are at odds over fees and the number of cable channels given to local government.
>> José Cárdenas:
Good evening. Welcome to "Horizon." I'm José Cárdenas in for Michael Grant. A bill that would ban sales of soft drinks and candy at many Arizona schools is closer to becoming law. The Senate gave preliminary approval to the so-called Junk Food Bill. The bill would end sales of the items at Arizona elementary and middle schools but not high schools. The House approved a similar version in March. The full Senate is expected to take it up later this week. If passed and signed by the governor, the ban would take effect in July of next year. A legislative bill aimed at reducing the fees cable TV companies and their customers pay cities fell one vote short of passage. House Bill 2563 would have limited the number of free cable channels and the amount of franchise fees cable companies provide to cities. After a tie vote in the House yesterday, the bill was brought back up for passage this morning. Only one problem... a lawmaker who would have cast the deciding vote in favor of the bill was at the doctor's office. House Bill 2563 failed to get the 31 votes needed for passage. Joining me to talk about the cable fees legislation are Susan Bitter Smith of the Arizona Cable Telecommunications Association and Kevin Adam of the League of Cities and Towns. Thank you for joining us to discuss this legislation. Susan, before we get into what happened today, flesh out the legislation itself. Tell us what's in it.
>> Susan Bitter Smith:
Certainly. Obviously this is the old adage one vote does make a difference, as it happened this morning. This legislation was intended to provide a tax cut for cable customers. Cable customers pay a 5-plus percent amount on their cable bills to cities that goes into their general funds normally and most customers don't really know where that money goes, but it was intended to cut their cable television taxes and to reduce the number of in-kind free services that cities are demanding from cable companies, which obviously raises the overhead and ultimately raises customer bills.
>> José Cárdenas:
Kevin, not exactly Florida or Ohio, but you were pretty lucky today, wouldn't you say?
>> Kevin Adam:
Well Jose, I think the legislature is extremely divided and very close on this issue. If you go back a week, the bill passed the Senate by one vote. Then again with it going down last night and the reconsideration today, it went down by one vote. So I think the legislature is very divided. I think that it's very even and split as far as their view on this bill.
>> José Cárdenas:
Susan, is this dead for good?
>> Susan Bitter Smith:
Well, I think both Kevin and I would tell you that you never say never in the legislative process, so we certainly think it's a very important issue. We hear from our customers all the time about this inequity. So we'll see if there's a way to continue to talk about this issue in a productive manner during the legislative session.
>> José Cárdenas:
Why is it important?
>> Susan Bitter Smith:
It's important because we have customers who are getting similar kinds of services, other video services, who are not taxed the same way as our customers are. Consequently, you have inequity in the tax policy, which clearly is not good to operate our business nor for our customers. We think it's important that be addressed. Clearly we have competition that is coming forward in a more voluminous fashion, and those customers are paying nothing in taxes either to the state or to the city.
>> José Cárdenas:
Kevin, there's a lot of appeal to the arguments that the cable industry makes. Shouldn't we be doing something to fix the status quo or change it?
>> Kevin Adam:
Jose, I don't think there's any question that there are some inequities out there, but they are created for many reasons, including federal and state law, and that greatly influences what cities can and cannot do. For example, cities are banned by federal law from providing a license fee on satellite television. So there's sort of a built-in inequity from that perspective. In addition, if you look at all of the various infrastructure that's in the public right-of-ways, phone service, utilities, electricity, for example, and cable television, they're all regulated and there are different laws in place again at every level of government dictating those that provide for different capabilities, or I should say authority. In addition, you have to take into account other differences. For example, phone service and electricity are considered public necessities whereas cable television is not. So this is an extremely complex issue, and because of regulations and laws that are at the federal and state level, there are differences -- or the ability of -- for one, we don't think cable should be treated equally to everybody else in the right-of-way and, secondly, because of federal and state laws, in many ways we're precluded from treating them differently.
>> José Cárdenas:
Well, maybe not equal to everybody, but what about their main competitor, which is satellite?
>> Kevin Adam:
Satellite, again, the main challenge there is we're banned by federal law from having an equivalent type tax placed on satellite. But with that said, we think that the impact to the customer, to the cable customer, is minimal. If you're talking 5%, which is essentially the fee that's allowed at the federal level, if you have a $40 monthly cable bill, 5% is $2. Based on this legislation that would have reduced it to 4%, you're talking about going from $2 to $1.60. So your monthly bill would go from $42 to $41.60.
>> José Cárdenas:
Susan, what about that? First, the argument that your beef really isn't with -- at the state level or cities and towns, that you should be talking to the federal government, what about that?
>> Susan Bitter Smith:
In fact, cities do regulate cable TV, so they have the ability not to charge this disproportionate tax on cable customers. That's the reason that we're at the state level now, is to make sure we that have equivalent treatment across the board because cities have been unable to address that policy at the local level. In fact, that tax is ranging anywhere from 5.5% all the way to 8.7%, depending upon which city that you're in, and that is real money. $2 a month is significant money on anybody's bill, and it adds up over time, and we continue to hear from our customers it's real money and they wonder why they're paying it and other kinds of providers aren't assessing that. Kevin's point about right-of-way is a very interesting one because the phone company, which has competition, the power company and gas company, are all in the same rights-of-ways with the same kind of piping and conduit, yet they pay nothing, and they provide nothing in in-kind services. There's no free phone service, no free utility service to the city. The cable operator is being treated differently, which consequently reflects on rates to the cable customer. That's the reason we're at the state legislature, for relief there, to make sure at the end of the day that we are in a win-win situation and the cities are in a win-win situation, because as you've just heard, the satellite competitors pay nothing to the cities. Under the bill, it would reduce the amount the customers would pay but still have an amount there which is being reduced over time because we have competition that is out there at a substantially less rate because they aren't paying a 5-percent-plus tax.
>> José Cárdenas:
Should we be talking to our congressional delegation about legislation that would allow cities and counties to tax or to charge a license fee to satellite?
>> Susan Bitter Smith:
We certainly could do that, but at the end of the day the real issue is why are cable customers paying it when other right-of-way users -- beyond the satellite issue, you have users in the right-of-way whose customers are not paying taxes for the use of rights-of-way. Why should cable television customers be treated any differently? That is a state issue and one we hope the legislature will address.
>> José Cárdenas:
Kevin, what do you say about that?
>> Kevin Adam:
Well, a couple things. First off, again, if you're talking about phone or electricity or sewer or water, those are public necessity. They're not equivalent to cable television. I think secondly, we are unable, again, because of the federal law, to treat cable equally with satellite. But also to get back --
>> José Cárdenas:
What about treating them equally from one city or county to the next as opposed to this range of rates that Susan was talking about?
>> Kevin Adam:
Well, I think the needs and the impact differ from city to city, and I think that's, I think, probably the best way to approach that, is to have a cap, which we currently have at the federal level at 5%.
>> Susan Bitter Smith:
Actually, it really isn't 5%. It's 5 plus another fee on that, and in fact in Tucson that tax is ranging all the way to 8.7% because there's additional taxes on top of that. Therein lies the problem. It is significant money. Many cities have become dependent upon that money to subsidize other things. And even though the end of the day, even in Phoenix, what we were talking about in terms of reducing the fee would be one-tenth of one percent of their whole budget, it's a big component to cable customers on their bill.
>> José Cárdenas:
In terms of the impact, though, we're talking millions and millions of dollars to the City of Phoenix, and you have Mayor Gordon saying that, what, 150 firefighters or police officers who wouldn't be on the streets --
>> Susan Bitter Smith:
It's a little frustrating every time you talk about city budgets, not just us, but anybody else, the specter of firefighters being cut gets trotted out by the cities. You and I both know that's not what's going to happen by any stretch of the imagination. Again, one-tenth of 1% of the City of Phoenix budget is not going to be used to cut a firefighter or police officer. It may mean they need to be more creative about what they do in the budgeting process. As Kevin knows, the bill was intended to have a five-year phase-in period to accommodate capital improvement program budgets, which we thought was a legitimate request on the parts of cities, to allow opportunity to phase in additional budget readjustments and to accommodate for growth in cable subscribership, which at the end of the day would end up being a very low impact on cities altogether.
>> José Cárdenas:
We're just about out of time. Kevin, last word, 15 seconds, what can we expect in the future?
>> Kevin Adam:
Jose, I think that's difficult to say. To borrow from Yogi Berra, "It ain't over 'til it's over." Clearly there's time left this session. I think we do plan on over the summer seeing if we can't do something in the way of a more comprehensive reform, but to go after a specific tax break for a specific special interest is not the way to do it.
>> José Cárdenas:
Kevin, Susan, thank you for joining us on "Horizon." Property tax relief may be on the way for businesses in Arizona. But it could come at the expense of homeowners. Several fiscal policy reports over the years have shown that Arizona businesses pay a disproportionate share of property tax. That's because commercial property is taxed at 25% of assessed value compared to residential property that is taxed only at 10%. A bill to reduce the property tax burden for businesses is part of the budget negotiations between the governor and legislative leaders. In a moment, I'll talk to one of the sponsors of the bill and an opponent, but first, Paul Atkinson profiles the issue.
>> Paul Atkinson:
Technicians work on retail sales equipment at Tolt Technologies' repair facility and headquarters. The company leases space at a Tempe industrial complex off Kyrene Road. Like other tenants, Tolt pay property tax as part of its lease at the Tempe Commerceplex. The industrial and business complex is owned by EJM Development. The California-based company owns and builds commercial properties, most like the Tempe Commerceplex where Tolt is located are in Arizona. But EJM also owns buildings in the surrounding states, California, Nevada, Utah and New Mexico, giving it a unique position when it comes to dealing with various state property taxes. Tenants at the Tempe site pay 12.5 cents per square foot in property tax. In California, almost a quarter of that, 3.2 cents. New Mexico tenants pay 4.8 cents per square foot. Nevada and Utah pay a little bit more but nowhere near what businesses in Arizona pay.
>> Fred Stiles:
In Arizona, the property taxes on the side of expenses for what tenants or business owner who owns their own building would pay on an industrial warehouse, manufacturing kind of building, are more than two times what they would pay in either -- any of the other adjacent states, California, Nevada, New Mexico or Utah.
>> Paul Atkinson:
In Arizona commercial property is taxed at 25% of assessed value, homes at 10%.
>> Fred Stiles:
In every other state, everything is based on value, and whether it's a house or a commercial building, you pay your fair share based on the value of the property. Whereas in Arizona, you could have a $1 million house and pay two-and-a-half times less an $1 million commercial building. So it's not about -- I don't think any of this is about business shouldn't pay as much tax or whatever. It's all about fairness, and we're more than happy to pay our fair share of property taxes.
>> Paul Atkinson:
Senate Bill 1095 offers commercial property owners some relief. It lowers the assessed value of businesses from 25 to 20% over a 10-year period starting in 2007.
>> Fred Stiles:
It's not a large savings, but it's a step in the right direction to modernizing Arizona's tax system and making it -- putting it closer to -- in the right direction of getting equal to the surrounding states, our competition.
>> Kent Paredes Scribner:
I think any effort to look at the tax structure, specific aspects of the tax structure, like property taxes for business, to look at that in a vacuum, I think, is irresponsible. I think it's shortsighted. If we're serious about looking at how our tax structure supports our public needs, and in particular our schools, then we need to look at it comprehensively, look at the entire tax code.
>> Paul Atkinson:
Kent Paredes Scribner is superintendent at the Isaac School District in West Phoenix. He says property taxes are important to school districts like Isaac because of the lack of funding from the legislature. Local property tax revenues help the Isaac District pay for materials and instruction that led to improved test scores. The district went from six underperforming schools to none. Scribner worries about any decrease in funding if Senate 1095 becomes law.
>> Kent Paredes Scribner
If that were to happen, it would have a significant adverse consequence on our schools. We as a local community here in Isaac, our citizens have made a decision to invest in their children through passing a budget override. This has allowed us to lower our class sizes, it's allowed us to provide our teachers with opportunities for individualized instruction. It's allowed us to redirect other resources so we can do supplemental -- so we can purchase supplemental materials for student learning.
>> Paul Atkinson:
Schools and other local governments may have to raise property tax rates to make up for the lowering of the assessed value which commercial property is taxed. That's one reason Senate Bill 1095 increases the homeowners rebate from 500 to $600 over a five-year period.
>> José Cárdenas: Joining me to discuss Senate Bill 1095 is Senator Dean Martin, co-sponsor of the bill. Also here is Senator Jorge Luis Garcia who voted against the bill both in committee and on the Senate floor. Senators, thank you for joining us tonight on "Horizon." Senator Martin, what exactly would this bill do to improve Arizona's competitive situation?
>> Dean Martin:
Right now, depending on which study you look at, Arizona is the third or fourth highest in the nation when it comes to commercial property taxes. What that does is it basically pushes commercial property that's capital intensive out of the state. Businesses that need capital don't come here because of our high property tax system. That's why we see so many call centers, because a telephone and a desk don't cost as much.
>> José Cárdenas:
Do we have any actual hard information as to what business opportunities we've lost because of this?
>> Dean Martin:
It's difficult to track because -- because of our property tax system. We never make it on the list except in very few situations, and so you have to make it on the initial list in order to know you were cut. We're never even making it on a lot of lists because of our property tax situation. What this bill does, and what we're trying to do is something we have been working on over the last 20 years, is try to provide relief in the corporate property tax arena without negatively impacting every other classification such as homeowners. That's a very tough nut to crack.
>> José Cárdenas:
Senator Garcia, you have been against this bill, I understand, from the beginning. Why?
>> Jorge Luis Garcia:
There are many other issues that face Arizona that need to be resolved before we can extend a tax cut.
>> José Cárdenas: Such as?
>> Jorge Luis Garcia:
Well, just like community colleges and universities over the past five years, six years because of the budget crunch that Arizona was in faced a reduction of over $150 million. This past year, we've had universities and community colleges have maintained their funding, but the $150 million that was lost before has never even been addressed. The issue with elementary schools and high schools, the State of Arizona has a responsibility now to build those, and we could be building those. The final one is all day kinder. The money we're going to be spending on the tax relief, which is about $10 million a year, 11, $12 million a year, would almost pay for one year of kindergarten for 75% of the school.
>> José Cárdenas:
Do you think tax relief is appropriate?
>> Jorge Luis Garcia:
I think tax relief is appropriate. I just don't think it's the time for it.
>> José Cárdenas:
Senator Martin said we have been working on this for 20 years. When would be the right time?
>> Jorge Luis Garcia:
Well, obviously it's been a while, and I was always -- I was in the House of Representatives 10 years ago when there was a major tax relief for the utilities. At that time I spoke out against it because of the pressing need back then. Now we have different needs. I think Arizona has to address those needs. The issue here that it's going to attract more business, I don't think so. Arizona continues to grow, continues to create jobs.
>> José Cárdenas:
What about that, Senator, and how much would this improve our competitive situation?
>> Dean Martin:
Substantially. One of the best research data comes out doesn't come from the State of Arizona, doesn't come from any of our state agencies. It actually comes from the Reno Chamber of Commerce that puts out a comparison between Phoenix, Arizona, Reno, Nevada, San Jose and L.A., and all three other options, Arizona plays out the worst. We're the most expensive place to locate your business and so they're actually selling against Arizona because of our commercial property tax system. So our goal in this whole situation was to provide the relief that's necessary so we can create the high-income jobs, because you can't create a high-income job, high-wage job unless you have high productivity. High productivity means you need a lot of capital for machinery, equipment and space for that to go in. In order to be able to do this, we have to provide some relief, and so what we're proposing here is a system it takes 10 years to fully implement. It will implement slow enough that regular growth we're experiencing will actually cover the cost of implementation for almost completely.
>> José Cárdenas:
Any sense of where it would move us in the ranking? You said before we're third or fourth highest. If this passes, where would it put us?
>> Dean Martin:
We're hoping to break -- get out of the top 10. That would be our goal, would be out of the top 10. Because if you're in the top 10, you're disregarded by a lot of businesses before they even start. I think we can get us down into the 12 or 13 range.
>> José Cárdenas:
What about the impact that this would have on homeowners and on schools. Both of those that are subjects important to businesses relocating. Doesn't this just shift one perhaps inequitable tax to another group, which would also impact our attractiveness to companies considering relocating.
>> Dean Martin:
First of all, the impact to homeowners was a number one priority and concern of the finance committee. I chair the finance committee. We were not going to accept any legislation had that a negative impact on homeowners, and we put in a number of safety features into the bill that was passed to either offset any increase or actually prevent an increase from occurring in the first place. The biggest provision was extending it over 10 years. What that allows is the reduction is less than 2% of the whole change each year. We grow 4 to 8% each year in new valuation. This is new construction, new homes, new businesses. So that the change in the bill is smaller than the new construction that exists. That's the biggest protection we can have. We're letting the new homes and new businesses essentially bring in more revenue and more value than we're pulling out of the system.
>> José Cárdenas:
Senator, do you agree homeowners would not be impacted negatively by this legislation?
>> Jorge Luis Garcia:
To a large extent. There would be some impact, and it would be quite minimal and more towards the outyears.
>> José Cárdenas:
So who suffers from this bill? Is it simply a fact we lose some revenues we wouldn't be spending on things that you think are higher priorities or is there impact from the bill itself?
>> Jorge Luis Garcia:
No, I think the impact is that fact that there are other priorities that need to be addressed, that Arizona needs to address.
>> José Cárdenas:
Senator Martin, Superintendent Tom Horne has some problems with this because he does think that it will have a negative impact on school districts and their bonding capacity. What do you say to that?
>> Dean Martin:
Well, we're going from 25 to 20% of the assessed valuation, pulls out essentially 5% of commercial valuation. There is some valuation lost. All of the models we have looked at, all the studies and all the data, shows that we're going to stimulate more value back into the system by bringing down and making ourselves more competitive. We're already competitive, but we increase the value by every time a new business locates here. Second, state basic aid. This is essentially the difference between Jorge and myself on this issue. State basic aid is a function where the state comes in and makes up any loss in a school district from property taxes. So the state's general fund will pick up that difference. Any money a district lose the state will have to come in and pick it up. That will be -- we're looking at $11 million cost to the bill that we couldn't do in some other area, but the magnifying impact, what this will do to our economy is so great, and it puts us on the track that for 20 years we've been trying to crack this nut, so to speak.
>> José Cárdenas:
As I understand, part of the Superintendent's objection is process. In other words, he thinks we should be doing this as part of overall tax reform as opposed to what he would describe as a piecemeal approach. What do you say to that?
>> Dean Martin:
Well, this is overall reform. The property tax system, essentially we're forming the biggest outlying issue in the property tax system, and it's the inequity that exists there, the higher valuations, and this is, really, the largest piece of reform we've moved through the legislature in at least a decade. We've made cuts before, but this is true reform. When it comes to trying to take the entire tax system together, you can't do that. You have to break off bite-size pieces. It's just not possible to throw out the old tax book and bring in a new book. It's not that simple.
>> José Cárdenas:
Senator Garcia, the governor has made it fairly clear that she supports this kind of tax relief for business. What do you say to that?
>> Jorge Luis Garcia:
Well, she had in her State of the State some tax initiatives. She had proposed reducing the business personal property tax rate. She had some tax incentives. So, I mean, that's -- that we knew going in, that was her interest, and she would be supportive of that. The reality is that even though she is the governor and she is a Democrat, we may not agree with her all the time, and this is one of the times I disagree with her.
>> José Cárdenas:
Senator Martin, is this going to pass?
>> Dean Martin:
I think so. The bill we put up, 1095, was vetoed as part of the budget package. We're going to put it up again as part of the next budget package. I think that will be the last time we'll send this up this year. If it gets vetoed again, I don't think we'll see it again this year. But I believe that the governor will sign it the next time we put the bill up.
>> José Cárdenas:
Gentlemen, thank you for joining us. Senator Martin, Senator Garcia, thank you for joining us on "Horizon."
>> Merry Lucero:
A 250-acre cotton field at Dobson Road and the Loop 202 in Mesa is a prime piece of real estate at the center of a contentious fight. The battle is over the Riverview Project. Voters will decided on three propositions -- pass a tax incentives package for the development. The pros and cons Wednesday on "Horizon."
>> José Cárdenas:
Thursday, a look at Arizona's housing market. Will the huge increase in home prices continue? Are homes too costly for the average family to afford? Then on Friday, don't miss an inside look at the week's top news stories on the Journalists Roundtable. That's it for tonight's "Horizon." I'm José Cárdenas. I'll see you back here tomorrow night.
Susan Bitter Smith:Arizona Cable Telecommunications Association;Kevin Adam:League of Cities and Towns;