Dustin Gardiner

The Republic | azcentral.com

Attention Phoenix homeowners: Higher city property taxes are headed your way this fall.

The City Council voted 5-4 Friday to raise the city's property tax rate for the first time in 21 years — an increase that will cost average Phoenix homeowners about $51 more per year, assuming their home's assessed value is about $192,000.

City officials said although they don't take a tax increase "lightly," the hike is needed so the city can pay its debt for bonds used to build police stations, libraries and other infrastructure projects. Without the tax hike, some city leaders said they would be forced to cut services or use part of its surplus to cover those payments.

Critics said the tax increase is unnecessary given the city has a $60 million surplus and tax revenues flowing to the city are at a record high.

Money from the tax increase balances the city's $1.22 billion operating budget for the new fiscal year, which council members had previously approved. It took effect at midnight Thursday. That budget assumed the council would support a $37 million property tax increase.

Mayor Greg Stanton, who supported the tax, said the city has given taxpayers relief in recent years by keeping its property tax rate fixed while home values fell, causing collections to drop. The tax is based on property valuations from the county assessor.

"Without this revenue, the budget is null and void," Stanton said before the vote, adding that the budget provides vital services residents need. "And now it’s time for this council to vote for the revenue that will make that budget a reality."

Other Valley cities have "floated" their tax rates up and down with property values to avoid drastic changes in revenue when the housing market shifts. Stanton said Phoenix should do the fiscally responsible thing and "float" its rate going forward.

City increases taxes and spending

City Manager Ed Zuercher said without the tax hike, the city would immediately be forced to freeze hiring and identify services to slash. He said residents at city budget meetings overwhelmingly felt the increase was "worth it" given the services it would support.

Councilmen Sal DiCiccio and Jim Waring sharply criticized the city for raising taxes at the same time the city has a surplus and passed a budget that increases spending. DiCiccio motioned for the council to kill the tax and spend the next few weeks looking at alternative options, but a majority of the council rejected that push.

"At the end of the day, it doesn't make sense," DiCiccio said. "It's time to start putting our feet down and start saying that the taxpayers need to be protected. ... That is our job."

The city's budget increases spending by using its $60 million surplus to begin restoring pay and benefits for city employees who took cuts the past six years, equip police officers with body-worn cameras and fund other programs.

Although a majority of the council voted for the budget, the certainty of the property tax vote came into doubt after Vice Mayor Kate Gallego said she had trepidation. Gallego voted for the budget but opposed the tax increase.

On Friday, Gallego said the city should have done more to minimize the tax hike. Gallego has suggested the city could draw the money from a tourism sales-tax fund — money that could otherwise help build a new downtown sports arena for the Phoenix Suns and other sports teams.

"While I have supported the city budget, from the beginning I made it clear that we should pay for this budget with a funding mechanism that maximizes the value for our residents and protects against a backdoor tax increase to subsidize new sports facilities for millionaires and billionaires," Gallego said in a statement.

Ultimately, a narrow majority of the council supported the increase. Stanton and council members Laura Pastor, Michael Nowakowski, Daniel Valenzuela and Thelda Williams supported the rate hike.

Council members Gallego, DiCiccio, Waring and Debra Stark opposed the increase. Stark was appointed to the council June 14 to fill the seat vacated by Bill Gates, who resigned to run for the Maricopa County Board of Supervisors.

Taxpayers will see the increase in their bills from the county this fall. The rate change will affect hundreds of thousands of property owners in Phoenix, including both residential and commercial owners.

Though Phoenix has said the tax would cost an average homeowner about $51 more per year, the impact will differ greatly for individual homeowners because property taxes are based on valuations from the county assessor.

Some examples of how the increase could affect residents' taxes from the city:

$49.32 increase for an owner in northeast Phoenix whose home is valued at $188,000.

$190 increase for an owner in Arcadia whose home is valued at $812,600.

$13.04 increase for an owner in Maryvale whose home is valued at $80,000.

$84.55 increase for an owner in Ahwatukee Foothills whose home is valued at $313,000.

Those home values reflect full-cash valuations from the county assessor's office, which are a conservative estimate of what a home is worth and are typically 10 percent to 20 percent lower than what a home could sell for on the market.

Why increase taxes now?

Phoenix has kept its property tax rate steady since 1995, a move that allowed many homeowners to pay less in taxes to the city when their property values fell during the recession. Now, the city's property tax rate will increase from $1.82 per $100 of net assessed value to $2.17 — a 19.2 percent hike.

Property valuations have already been climbing in the past two years. The city's rate hike would increase homeowners' taxes on top of increases they're seeing because of growing property values.

City property taxes make up only a portion of a typical homeowner's bill. Although the city has not increased rates for two decades, other jurisdictions, such as Maricopa County and school districts, have increased their rates, causing many residents' overall property tax bills to rise.

Phoenix officials pushed for a property tax increase now because the city's safety cushion for paying debts on bond projects is shrinking, though that account still has about $116 million.

The city kept the rate flat after the housing-market crash by using a reserve fund, which had a large surplus, to help make its debt payments on bond projects. Other cities, meanwhile, have "floated" their tax rates so they go up and down with home values. Phoenix officials want to "float" the city's rate going forward.

Without a tax hike, that reserve would have dipped below its minimum recommended balance of $75 million in the next year, officials said, and could have negatively affected the city's credit rating.