History of Deceit
The City of Phoenix's $878 million bond election, early voting in which is already under way, comes down to one issue: trust.
Do you believe bond proponents' pitch trumpeted by Phoenix Mayor Phil Gordon that the bonds can be sold "with no new taxes"?
Or do you think it's impossible to go that deeply into debt without someone, somewhere, getting stuck with the bill -- which almost always means higher taxes?
After all, somebody has to pay for the bonds that will cost an estimated $1.8 billion over 30 years, including interest. This works out to payments of $58 million a year in principal and interest.
At first glance, the city's claim that taxpayers won't pay more appears to be valid. But the reality is, such an assertion is simply hogwash and continues a long pattern of duplicity by the city when it comes to public financing of major projects.
The fact that bond promoters have billboards all over town promising "No New Taxes" is disingenuous at best and makes me wonder how many more shenanigans lurk ahead when the bond money would be distributed.
It's not that I'm against most of the projects that will receive money if voters approve the bond issue in the election that culminates on March 14, when polls are open throughout the city (these days, most people vote absentee).
The most high-profile project, to be financed with $188 million in bond money, is construction of Arizona State University's new downtown campus -- a project I believe is crucial to transforming Phoenix into a major cosmopolitan center.
I just don't like how slick the city government has been in implying the bond issue won't cost citizens more money than they are currently paying in property taxes.
That's a flat-out lie.
The city even admits this is misleading propaganda on page 13 of the official information pamphlet sent to registered voters. The pamphlet states that the $878 million bond issue will require "an average annual secondary property tax rate increase of 29 cents per $100 of assessed valuation over the life of the bond."
That's pretty damn clear -- there will be a secondary property tax rate hike. The tax increase is equal to about $29 on a $100,000 residential home and $720 on a $1 million commercial property.
Of course, the city then adds a caveat -- made possible by the complicated nature of property tax assessments, which include two categories: the primary property tax rate, whose proceeds are dedicated to the city's general fund for operation and maintenance expenses, and the secondary property tax rate that raises money to pay off voter-approved debt.
The primary and the secondary tax rates are added to determine the combined property tax rate. The City of Phoenix has had the same combined tax rate of $1.82 per $100 of assessed valuation of property since 1993.
To keep the appearance that the bonds can be repaid with no additional property taxes, the city promises voters that it will lower the primary property tax rate by an amount equal to the increase in the secondary property tax rate, thereby keeping the overall property tax rate the same.
The city hopes that voters just shrug their shoulders and say, "The combined property tax rate stays the same, so who cares? I'll vote yes."
What the city doesn't tell you is this:
A state-mandated formula combined with extraordinary growth in Phoenix automatically forces the city to reduce its primary property tax rate every year.
But rather than pass the savings on to property owners, the city instead assumes more debt that must be repaid by higher secondary property taxes. The city sets the value of a bond sale so that -- when the increase in the secondary property tax rate needed to repay the bonds is added to the declining primary tax rate -- the combined tax rate remains equal to $1.82.
It's a clever maneuver designed to make it seem that the bonds would be repaid with no more taxes. But in fact, the proposed bond sale wipes out all the potential benefits from lower primary property taxes that could have been passed on to property owners.
"This is just outrageous what they are doing," says Randall Pullen, a leading opponent of the bond election who was soundly defeated by Gordon in the 2004 mayoral election. "This is an expansion of city government that is appalling."
Lauri Wingenroth, the city's deputy budget director, tells me that Phoenix already has set its current primary property tax rate at the maximum allowable by state law at 86 cents per $100 of assessed valuation. She says the city projects that its maximum primary property tax rate will decline to 79 cents by 2009 and 59 cents in 2031.
But taxpayers won't benefit from the primary property tax rate's decline because Phoenix already has $1.3 billion in outstanding debt from bond programs approved by voters in 1988 and 2001. If voters approve the current bond package, the city will be carrying $2.2 billion in bond debt that will eliminate any chance of a property tax reduction for decades to come.
The primary and secondary tax rate dance is just one part of the city's smoke-and-mirrors philosophy on property taxes. The total amount of property taxes you pay is based on the combined property tax rate multiplied by the assessed valuation of your home and business.
As everyone knows, property values have soared in the past two years. Maricopa County Treasurer David Schweikert says the average residential parcel will see a 52 percent increase in assessed valuation. Property tax valuations are being mailed this week to property owners.
What this means is that a home worth $100,000 last year will now be valued at about $152,000. Therefore, the property taxes collected to repay the City of Phoenix's latest bond package will jump from $29 to $44 for the same property.
No matter how you cut it, the bond issue will result in citizens paying higher property taxes.
Mayor Gordon says rising property values are a positive sign, and, indeed, they are, if you can afford the higher property taxes that come along with it.
"Property values in a desirable city are going to go up whether there is a bond election or not," Gordon says. "We didn't raise the tax rate."
But the city didn't lower the tax rate to compensate for the higher property values, either. Instead, it wants to add more debt.
Pullen says the city could reduce the value of the bond sale by half and still provide residents a bit of property tax rate relief. But the city, Pullen says, doesn't want to ever reduce the overall property tax rate for political reasons:
"Once the tax rate goes down, you can't get it to go back up because it's a tax increase, and no one is going to vote for that."
It does appear that the city is overzealous in its desire to sell bonds and is even having difficulty spending the bond money approved five years ago. Voters approved a $754 million bond package in 2001 -- and the city has yet to spend $164 million of that.
Now the city wants to add another $878 million in debt for a wide array of projects, a number of which stray far from the traditional role of using bonds to pay for major capital projects such as roads, sewers, water treatment plants, open space and recreational facilities.
Among the more unusual projects the bond issue would fund is the construction of several small high schools, along with environmental cleanups that should be the responsibility of private businesses. The ASU investment is particularly controversial since city bonds traditionally aren't used for state-funded universities.
There certainly is an appearance that the city is piling on unnecessary projects to increase the amount of the bond issue so the combined property tax rate won't decline.
I find that extremely troubling.
Why should we trust the city now when it already didn't level with us in the past on two major downtown projects?
One of these is the massive $40 million parking garage on the northwest corner of Seventh Street and Washington downtown that loses hundreds of thousands of dollars a month. The city had the audacity to tell the public it was building the 3,000-space garage to serve (get this!) the newly opened science center.
This lie was bandied about to avoid a public vote that would've been necessary if the city had revealed that the garage's real use was parking for Bank One Ballpark, now Chase Field ("Parking Mirage," April 25, 1996). It's unlikely voters would've approved spending money on the structure that critics derisively dub the Garage Mahal.
Even more outrageous is the city-owned, 1,000-room, $350 million convention center hotel. The city also sneaked this one past the voter-approval requirement by creating a "municipal corporation" that last November sold $350 million in bonds supposedly to be repaid from proceeds from the hotel.
Once again, the city promised citizens that the project wouldn't cost them a dime, but careful examination of bond documents shows that taxpayers are on the hook for shortfalls between revenue generated by the hotel and the cost of repaying the bonds.
The hotel is the boondoggle from hell that no private developer would dare to undertake because it's a guaranteed financial loser. I predict the project, which will break ground next week, will bleed the city for years to come ("Stick It To 'Em," July 8, 2004).
Given the city's history of deceit on these two projects, and its misleading "No New Taxes" campaign for the current bond election, I urge voters to reject the bond package and force the city to come up with a proposal that provides funds for needed projects and lowers the combined property tax rate.
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