Prescott 2050

Funding Interim Report

Interim Sustainable Funding Committee Report

Vision:
1. Identify fair, predictable, sustainable revenue sources for the purpose of maintaining the quality of life and maintaining controllable growth in the City of Prescott.

Current Sources:
State law limits the types of tax a city may impose.  Prescott currently has:

Retail Sales Tax:
• Predictable, subject to economic conditions
• 30-40% paid by non-residents
• Vulnerable to competition from other municipalities
• Highly dependent on the auto and construction industries
• Sales tax is the only variable option open to Arizona municipalities
• City charter requires voter approval of increases
• Sensitivity to rates in other communities
• Limitations on double digit rates (possible voter revolt)

Construction Sales Tax:
• Equivalent rate to retail sales tax.
• It affects new projects and new residents
• Not fair to all
• 24 municipalities in Arizona impose higher rates on construction.
• 16 of those municipalities also impose impact fees
• Progressive tax
• City charter requires voter approval of increases
• Common among these 24 municipalities is that they are smaller cities experiencing rapid growth
• The state believes 50% of any increase in construction taxes should be restricted to provide public services and infrastructure for new development.

Impact Fees:
• A popular way of funding development
• The impact fees in Prescott have been limited by prior administrations to residential only.
• Due to this, the cost of growth has been shifted in part to current residents.
• There are many limitations in impact fees:
o Developer is required to pay the impact fees when the permit is pulled, and is not reimbursed by the end-user until the project is completed.
o New residents tend to move to areas where there is a quality of life – impact fees delay the completion of recreation facilities, libraries and schools.
o Smaller communities are penalized where it can take years to build up sufficient funding for needed infrastructure.
o Inflation – the cost of existing homes closely track new homes, so the increase in impact fees inflates the value of existing homes.
o Affordable housing prospects pay proportionately more in impact fees than a more expensive home.
o Impact fees often end up in litigation.

Property Tax:
• Fair to all, but makes up a very small portion of a municipalities budget.
• Increases in property taxes are limited by state law.
• Significant increase in revenue can only come from increased real estate valuations.

Operating Budget:
• Currently $210 million

Capital Needs:
• Can be funded through:
o Several different types of bonding
o Community Facility Districts
o Public/Private partnerships
o Enterprise Funds

Alternative Potential Funding Sources:
• Tax on services
• Real estate transfer fees

In summation, the 2050 Sustainable Funding Committee has investigated all of the above funding sources, and believes that they represent the majority of revenue sources available to the City of Prescott.

During the next 3 months, the committee will make recommendations to the City for all of the above sources of revenue.