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.

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John Dougherty
Contact: John Dougherty