So far, lawmakers and the Governor’s Office have avoided conjuring the greatest fear of local governments – changing the formula that determines who gets what from the collective pot of money they all share. But if the state can’t find a way to balance its budget, lawmakers may decide to resurrect the idea of keeping some of the tax revenue that traditionally has been sent to local governments.
The system, known as state-shared revenue, provides up to 70 percent of some local governments’ general fund budgets. Small communities rely most heavily on their portion of the revenue.
Ken Strobeck, executive director of the League of Arizona Cities and Towns, said most cities rely on the shared money for at least 40 percent of their general funds. And as the state’s budget situation becomes bleaker, local governments are increasingly concerned that their slice of the pie will get smaller.
“It would be absolutely devastating because that is the core of the general fund amount of cities and towns,” Strobeck said. “It’s usually the second-largest source of revenue, behind only local sales tax.”
Voters approved a ballot measure in 1972 that stripped the ability of local governments to levy income taxes and put restrictions on local property taxes. So the state collects those taxes for all government bodies and distributes the revenue to cities and counties based on a pre-set formula. Cities get a portion of all income taxes collected by the state, and both municipal and county governments get portions of the state’s sales tax revenue as well.
In fiscal year 2009, the state distributed more than $1 billion in sales tax revenues and $735 million in income taxes, according to the Arizona Department of Revenue.
“Any dollar that is taken away from governments or imposed services without funding means another police officer laid off or another firefighter,” said Phoenix Mayor Phil Gordon, who recently led a successful push for the City Council to approve a 2 percent tax on food sales.
Local governments have good reason to be worried. Changes to the revenue sharing formula have been proposed numerous times in the past.
Just more than a year ago, Senate President Bob Burns considered changing the formula, though he has since backed away from the idea.
“It’s something that we fight almost on an annual basis,” said Charlie Cassens, interim city manager for Lake Havasu City.
Karen Peters, a lobbyist for Phoenix, said she’s worried lawmakers will change the shared-revenue formula. However, she said it would require a two-thirds vote by the Legislature. Under Proposition 108, any increase in state revenue requires approval by a supermajority of lawmakers.
“Bob Burns, I think, in a perfect world, would alter the formulas,” Peters said. “He does not believe in the philosophy behind revenue sharing. I don’t think that’s changed, but I think that he recognizes that there is this hurdle that he has to get over that may be too high.”
Paul Senseman, a spokesman for Gov. Jan Brewer, said no budget- balancing options have been ruled out. But he emphasized that Brewer’s budget proposal didn’t include changes to the shared-revenue formula.
“The governor is very comfortable with the budget proposal that she made,” he said.
Still, Gordon isn’t convinced.
“The governor said she will not take state-shared revenue,” he said. “But with respect to the governor … the Legislature has not been listening to the governor.”
Many lawmakers said they don’t want to change the shared-revenue system. Most, if not all, of them have been bombarded with pleas from local governments in their jurisdictions to leave the formula unchanged.
Rep. Lucy Mason, a Prescott Republican, said she would oppose changes to the formula. Other lawmakers, however, might try to take any money they can get, she said.
“You’ve got a lot of them who are new. They only have one year under their belts of being here at the Legislature,” she said. “I think, at a time that we are all looking for revenues, I think anybody can do anything at this point and not understand the chaos that they might be creating.”
Not everyone is opposed to the idea. Sen. Ron Gould, a Lake Havasu City Republican, said he sees no choice but to go after the shared revenue. He said it’s only a matter of time before the Legislature runs out of options.
“I hate to have to push part of our problem down on cities and towns, but I don’t really see another alternative,” Gould said. “It’ll happen. It’ll have to happen.”