Major job-creation threat to Arizona on horizon

Recently, the Helios Foundation had a “confidential” written draft proposal to go to the November 2020 ballot for an historic $1.5B tax increase where $500M would be an increase in the state transaction privilege tax, or sales tax, rate and $1B from a new statewide property tax.  The revenue would be utilized for K-12 ($1B), Early Education ($100M), Community Colleges ($100M), and Universities ($300M).

Their stated public desire is for the State Legislature to REFER the proposal to the ballot and have Gov. Doug Ducey endorse this approach rather than outright seek a costly signature-gathering campaign to take a proposition directly to the people.

Given, however, the governor’s stated aversion to a major tax increase and the current composition of the state Legislature, most observers believe it is NOT likely a referral would be forthcoming, thus the possibility has increased for a citizen-led initiative pitting the people against their elected reps to see how this may play in proverbial “Peoria.”

What is particularly troublesome is that the $1B proposed property tax increase involves a NEW special statewide taxing district which is the first in Arizona history. In particular, this is an increase of $1.60 per $100 of assessed value of all properties in the entire State.

This new $1B property tax increase would fall disproportionately on the commercial real estate industry as our assessment ratio used to calculate property tax bills is 1.8 times the burden on residential properties (18% versus 10%).

Put another way, while Class 1 (Commercial Property) has only 21% of taxable property in the State, we pay 36% of the roughly $8B levied annually where almost half goes to K-12 schools versus Class 3 (Residential) which has roughly 50% of taxable value yet only contributes a small share more than us at 37%. The other seven classes pick up the balance of 27% of all property taxes levied.

In other words, our current disproportionate share would only be exacerbated with a new added $1B property tax.

We already have among the highest commercial property tax burdens in the United States where many blue-ribbon committees like the Citizen’s Finance Review Commission (CFRC) from the early 2000s found it to be a major impediment to job creation.

While Building Owners and Managers Association of Greater Phoenix (BOMA) and Commercial Real Estate Executives for Economic Development (CREED) support more funding for K-12 education and are open to a less egregious tax being raised (i.e., a tax that is less anti-economic development or job killing such as ONLY a more modest sales tax rate increase), it is important to know that this proposal contains NO accountability or academic performance standards.

Hence, if we continue to pour more money into the education system, we need to make sure we spend more of each dollar in the classroom rather than administration overhead as a percentage than we did in 2000 which was the main purpose of Prop 301 and where we have lost ground in the interim.

Besides the imposition of a new special statewide taxing district which would be a first, we also are potentially facing the largest single tax increase, if passed, in state history.  It is almost an outright 15% annual increase for the entire state budget!

In short, this is the single greatest direct policy threat to our industry and continued job creation since the Portland urban growth boundary proposal that was defeated by the entire business community in November of 2000.  Stay tuned as there will be many twists and turns over the next year.

Tim Lawless is the Executive Director of BOMA of Greater Phoenix and the President of Commercial Real-estate Executives for Economic Development, or “CREED”.