David Smith: Funding capital investments in Scottsdale

Recently, a fellow citizen sent me an email with the following comments: “I agree to the needs of most of the items in the 6 bond packages, but I don’t think I am sold on how to fund it.  Long term debt (paid by property owners only) or a sales tax (paid by everyone)?”

Thinking others may have the same question, I want to share the answer I sent him:

Dear Lou:

David Smith

David Smith

You’re more than half-way there if you agree with most of the needs!  So let’s talk about how to pay for them:

Cities generally try to match their tax assessments according to (1) the “service” provided and (2) the benefitting parties.  It is by no means a perfect process, but the reasoning and objectives are sound.

To fund “current-year services” (like police and fire protection, community services, etc.) a city uses current-year revenues like their local sales tax and various user fees.  Since the benefitting parties of these services are predominantly local citizens, the local sales tax is considered to be the best match between services and benefitting party.  And, since a portion of our local sales taxes are paid by tourists (the city estimates about 15%) the sales tax is also a way to have tourists pay “their fair share” for current year services as well.

To fund “multi-year services” (like buildings and roads that will provide usefulness for several future years) a city uses revenues spread over a period of future years that approximates the average life of the assets (20 years, in the case of these bonds.)  For capital investments, the benefitting parties include local citizens, but businesses also benefit as do non-resident investors (including snowbirds.)

Unlike sales taxes, about a third of all property taxes are paid by businesses (including hotels that pass the tax along to tourists) and another significant percentage falls on non-resident investors. So that’s what it comes down to.  By using a property tax, the cost is spread over the useful life of assets and, most importantly, citizens of Scottsdale only pay about half the bill.

Let me reduce it to the financial bottom line for this bond election:

The property tax impact on the average value home in Scottsdale ($371,000) will be $3.55 per month or about $43.00 per year.  (This is determined from the legal disclosures on page 13 of the Voter’s Pamphlet.)

The cost for the average Scottsdale family of imposing a sales tax to raise $100 million is easy to estimate.  If 15% ($15 million) of the tax is paid by tourists, that means citizens pick up the other $85 million.  Since there are about 100,000 families in Scottsdale, that means each family’s share would average $850…all in one year!

Editor’s note: Mr. Smith is a Scottsdale City Councilman. During the years 2010 to 2014, Mr. Smith served as Scottsdale’s city treasurer and chief financial officer

You are encouraged to leave relevant comments but engaging in personal attacks, threats, online bullying or commercial spam will not be allowed. All comments should remain within the bounds of fair play and civility. You can disagree with others courteously, without being disagreeable. Feel free to express yourself but keep an open mind toward finding value in what others say. To report abuse or spam, click the arrow in the upper right corner of the comment box.

Facebook Comment