Challenges of Local Government

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State lawmakers have introduced a number of bills that would impact cities and towns in a variety of ways. Here to discuss what Arizona’s local governments are facing is Ken Strobeck, Executive Director of League of AZ Cities and Towns.

Ted Simons: State lawmakers have introduced a number of bills that would impact cities and towns in a variety of ways. Here to tell us what Arizona's local governments are facing is Ken Strobeck, executive director of the league of Arizona cities and towns. Good to see you again. Thanks for joining us.

Ken Strobeck: Thanks, Ted.

Ted Simons: Before we get started now, an overview of some of the things going through the pipeline, we just had a segment regarding competitive bids for city services. What do you think about that idea?

Ken Strobeck: It strikes me just a little as a solution in search of a problem. Right now cities in Arizona are incredibly well run. We have national awards for excellence in city management; we have a very accountable structure with the council manager form of government, and elected officials that are accountable to the public. I don't have any problem in seeing if there are efficiencies we can take care of and do things a little better, but we really don't need state laws telling us that we have to send everything out for bids and micromanaging the council process quite so much. I think it would be better to say, let's send a few things out and see what we can do, but let the city do that voluntarily rather than with the state law.

Ted Simons: So the idea of getting better ideas by using this particular process, you think, isn't necessary right now?
Ken Strobeck: I don't think so. I think we can get better ideas and try them without passing more laws that go into the state law books and stay there forever.

Ted Simons: There are a number of other bills, I want to get to them, but as a general overview, give us a state of cities and towns, and what they're facing, and what you're looking at as far as legislation and the governor's budget.

Ken Strobeck: It's a mixed message for cities and towns. Obviously we're in the same economy that the state is in, and so over the last three or four years we've seen our revenues just plunge. The average city budget is about 25 to 30% smaller than it was just three years ago. So we've really had to make a lot of cuts. We've had to also balance our budgets, as required by state law. We can't spend any more than we take in. So we've had to go through a variety of program cuts, personnel cuts, reductions, in order to actually make those budgets balance.

Ted Simons: How does state shared revenue work? Because we hear about folks wanting to cut back, there's a bill right there now, cutting back for 20 years to current levels, these sorts of things. How does it work?

En Strobeck: State shared revenue, the urban revenue sharing program is something that distributes 15% of the state's collected income tax back to cities and towns on a per capita basis, and the state keeps 85%. This was the result of a 1972 ballot initiative that said we're going to preempt cities from having their own local income tax, and instead we're going to have one income tax in the state rather than 90 different ones in all the cities. And that will be distributed back because it's in the best interest of the state to have strong cities and towns. That's really where the economy happens, that's where people live. But it's on a two-year delayed basis. And so as the state income tax collection two years ago were still going down, we're still going down in our shared revenue amounts for this year. It's down about another 18% this year, even as the state is kind of bottomed out and maybe seeing a little turnaround.

Ted Simons: So the idea of keeping that shared revenue at current levels for the next 20 years, or whatever the bill winds up being, considering the economic climate we're in, still a bad idea you say?

Ken Strobeck: Really a bad idea. As recently as four years ago, the shared revenue fund was $200 million more than it is today. It's only $424 million for this upcoming year. It was over $700 million a few years ago. And so when we see that kind of decline and say, what is the purpose of this, the bill that you're talking about, dedicates the city portion of shared revenue to pay off the bonding debt that the state incurred last year. Well, this was frankly the state's obligation; we believe that it's not right for cities and towns to have to shoulder that burden for the next 20 years.

Ted Simons: But for those on the other side who would argue it's all hands on deck, we're in a crisis right now, we've got to find things to work as best we can and take it from there, you say --

Ken Strobeck: It is all hands on deck. And we're being as cooperative as we can be. We've told the governor's office we're going to be supporting her budget proposals, even though it does impact us to the tune of at least $20 million that will come from cities and towns. The cities and towns voluntarily gave up their share of the increase prop 100 sales tax last year. That amounts to over $200 million a year. Last year they eliminated the L-TAF transportation fund, $32 million. So we have been participating, we continue to participate, but this freezing be of shared revenue is a terrible idea. When the economy turns around, we should all benefit the rising tide should lift all boats, not just the state government.

Ted Simons: There's another bill out there that talks about the model city tax code, without getting too inside baseball here. But just in general, why shouldn't all Arizona cities have the same taxes as the state, and let the state collect those taxes as well? Why not, in other words, centralize this particular aspect of tax policy?

Ken Strobeck: Because cities and towns are different. And when they're very different, they're very local. The economy of the city of Safford is very different than that of Scottsdale. You're not going to have agricultural taxes in Scottsdale or tourist taxes in Safford. The model city tax code has some options that cities can use to tax separately, and what this bill proposes to do is take all of those away. It doesn't benefit the state, it doesn't transfer money to the state, it simply says, all those taxes you're collecting locally cities, they're zeroed out, you can't collect them anymore. It's really crippling for cities and towns in our flexibility.

Ted Simons: Bill also calls for state audits of local governments. Don't those happen already?
Ken Strobeck: They happen already. The auditor general gets a report on every single city and town that's audited every year on an annual basis.

Ted Simons: So is that increase in frequency do you think?

Ken Strobeck: I don't think so. It's pretty tough to go through an annual audit. They take a number of weeks already.

Ted Simons: Another bill out there limits shared revenue with local governments, and we talked about that one. There are other ones that -- just in general seem to say, again, that we -- that cities and towns maybe have too much in the way of flexibility. The state doesn't have -- the state needs that kind of flexibility right now. How do you respond?

Ken Strobeck: What's interesting is that over 25 years ago when the model city tax code was created, the definitions for the state and the definitomn for the city were very similar. Today they're quite different in a number of areas, and if you look at who moved, it's the state that's done the changes. Every year there's special interest groups that ask for exemptions for loopholes, for special treatment, and in fact we've got those bills going through this year. So the fact of the matter is, it's really the state that every year creates new loopholes, new exceptions, they do this in the name of, we've got to be helpful to these businesses, and those kind of things, but it moves it away and shifts the tax burden on to somebody else. That is what has created the difference between the local tax base and the state tax base.

Ted Simons: So what do you tell lawmakers when you see these bills, when they come to you, when you do to them with your concerns regarding these, what do you tell lawmakers about these bills? They live in cities too.

Ken Strobeck: They liver in cities, over 83% of the population in the state lives in a city and over 90% of the tax revenues generated in the city. Frankly, it's a matter of education, because many of the folks in the state legislature do not have municipal or local government experience. They come into the legislature and they're told by lobbyists by people who have made contributions to their campaign we've got to have this exemption are, or we got to have this change in the policy, and you should do this to the cities. But our mantra is, let us make those decisions locally. We're locally elected, locally accountable, and flexibility is really what we need to have at the local level.

Ted Simons: Real quickly, a couple of others, the sales taxes on residential rentals also being talked about, development fees impact on development fees as well. Do you see any of these bills as something that cities and towns could live with?

Ken Strobeck: You know, for the last six years we've negotiated with the home builders every year on impact fees. We've talked about it on this program and debated that in fact. And impact fees are very important with the principle that growth should pay for itself. This new bill, senate bill 1525, throws that completely out the window and all the negotiations that we've done over the last six years I think the home builders see this as an opportunity to go for the gold and get everything that they've ever wanted in impact fee bill, and I don't know that it's amendable. It really will be very harmful for that principle.

Ed Simons: OK. So last question, I'm the lawmaker, tell me about cities and towns. Your biggest concern right now?

Ken Strobeck: Our biggest concern right now is that the state legislature is really getting into a lot of things that may have a lot of unintended consequences. Cities and towns are working very well right now, we're the economic engine of the state. I think it's better to leave those things alone, let us continue to do what we're doing well and let's all share in the benefits of increased economy.

Ted Simons: Alright Ken, good to have you on the show. Thanks for joining us.

Ken Strobeck: Thank you.

Ken Strobeck:Executive Director, League of AZ Cities and Towns;

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