Like all Arizona cities and towns, the City of Tucson is subject to an expenditure limitation, a State-imposed limit on the amount of money the City is allowed to spend during a fiscal budget year. In compliance with Article 9, Section 20 of the Arizona Constitution, the City’s spending limit for any given year is currently calculated by: (1) taking as the initial base the amount the City spent in the Fiscal Year 1980 budget year; (2) adding the amounts of the permanent adjustments to that initial base that were previously approved by the City’s voters in 1981 and 1987; and (3) multiplying the resulting total by specified population and inflation factors.
By the Budget Year that begins July 1, 2015, the City’s actual revenues are anticipated to exceed its current spending limit as calculated under this constitutional formula. This could restrict the City’s ability to spend these revenues on needed City services and infrastructure.
Accordingly, the City is now asking its voters to permanently adjust the City’s base expenditure limit by $50 million. If approved by the voters, this increase will allow the City to continue to provide the services it currently provides to its residents by adjusting its spending limit to accommodate the revenues it is actually receiving. The proposed permanent base adjustment will not impose any new or additional taxes, will not increase existing property or sales tax rates, and will not permit the City to spend more than it receives in revenue. It will merely assure that the City is not prevented from spending all of the revenues it does receive.
What is a Permanent Base Adjustment?
A permanent base adjustment is an adjustment to the maximum amount of money the City would be allowed to spend during a fiscal budget year under state law (i.e., state-imposed expenditure limitation). It is a mechanism through which the City will be able to maintain City services and programs at their current levels, if approved by the voters. Permanent base adjustments that were approved by City of Tucson voters in 1981 and 1987 have provided the needed capacity for the City’s revenue growth experienced since that time. However, it is projected that this cushion will not be adequate in future years and expenditures of local revenues will have to be annually capped in order to comply with the state-imposed limitation.
What is a State-Imposed Expenditure Limitation?
It is a spending cap that is calculated annually by the State of Arizona for cities and towns. The base for this calculation is initially the amount each city spent in the Fiscal Year 1980 budget year, which is then adjusted upwards by any permanent base adjustment already approved by voters as well as a population and inflation factor. For Fiscal Year 2014 (the current budget year), it has been projected that actual expenditures may come within $40 million of the state-imposed limitation; however, this gap will close quickly in the coming fiscal years.
Why is the Question of a Permanent Base Adjustment on the Ballot?
Although the Arizona Constitution imposes expenditure limitations on all cities and towns in the state, it also allows the voters to approve a temporary or permanent adjustment to these limitations. Currently, approximately 85 percent of all Arizona cities and towns operate under either a temporary or permanent alternative expenditure limitation.
Like most municipalities in Arizona, Tucson has experienced significant growth since 1979, which is the base expenditure year. In fact, the City’s population has increased from approximately 319,000 residents in 1979 to a current population of approximately 520,000. This growth has also entailed significant economic growth as businesses and industries thrive and contribute to the City’s sales tax base as well as ultimately to its infrastructure needs.
Each year, the City adopts a detailed budget that estimates the revenues that will be received in the coming year and allocates those revenues accordingly to the services and programs the City’s residents expect. These services and programs, along with related/necessary capital improvements, are planned according to careful projections and assessments about the community’s needs and preferences, with input from the City’s residents during the budgeting process and throughout the year. With the proposed Permanent Base Adjustment, Tucson’s voters will have the opportunity to decide whether the City should continue to provide the types and amounts of services it currently provides to its residents by providing the means for an expenditure increase over the state-imposed formula.
In recent years, the rising costs of municipal services and needs such as those for public safety, fuel, and construction have exceeded the growth factor used to calculate the state-imposed expenditure limitation. Projections show that beginning in Fiscal Year 2016, the City will collect more in revenue than the state’s expenditure limitation will allow it to spend. In other words, the City soon will not be able to spend all the revenues it collects to provide services for its residents. This could impact the City’s ability to make needed expenditures for water infrastructure, environmental services, and transit. A permanent base adjustment will allow for local control of City spending levels in order to address priorities and needs unique to the City of Tucson, rather than restricting expenditures to the state’s limit.
Will the Proposed Permanent Base Adjustment Increase My Taxes?
No. Approval of the Permanent Base Adjustment would only allow the City to spend the funds it currently has and reasonably anticipates receiving in future fiscal years. It does not authorize or cause the City to impose any new or additional taxes, or to spend revenues it does not have or reasonably anticipates receiving. It does not change the property or sales tax rates.
Why is $50 Million the Amount of the Permanent Base Adjustment being proposed?
The City’s expenditure limitation was negatively impacted by approximately $22 million when the City of Tucson lost population relative to the entire state in the 2010 Census. In addition, financial plans for the City utilities (Tucson Water and Environmental Services) show increasing future needs for infrastructure purposes (e.g., landfill closure, water line replacements and recharge facilities). These expenditures would be fully paid for by fees charged to the users for these services but could have to be delayed due to an annual state-imposed expenditure cap. The $50 million would provide a solid sufficient capacity for future years; as did the two adjustments approved by voters in the 1980s, over 25 years ago.
What are the Consequences of a “Yes” Vote on the Proposed Permanent Base Adjustment?
Approval of the proposed Permanent Base Adjustment will enable the City to expend the revenues it receives to continue providing services to the community at their current levels, absent any significant decrease in anticipated revenues.
What are the Consequences of a “No” Vote on the Proposed Permanent Base Adjustment?
If voters do not approve the proposed Permanent Base Adjustment, the City’s total expenditure limitation will possibly not be adequate to provide for needed services starting in Fiscal Year 2016. If this is the case, then significant cutbacks would have to be made in City services, programs and capital projects. The City’s expenditures will be limited by the state’s expenditure formula. Over time, the City’s ability to expend the sales and property taxes generated as a result of increased private sector development will be limited.
Where can I get more information about the Permanent Base Adjustment?
To schedule a group presentation or ask a specific question, email to email@example.com or call 791-4204.