Mesa, Ariz., Faces Secondary Property Tax for 1st Time in 60 Years

DALLAS -Mesa, Ariz., will levy a secondary property tax for debt service for the first time in more than 60 years if voters approve a $408.8 million general obligation package in November.

The city of 450,000 is the largest in Arizona - and probably the largest in the United States - without a property tax, according to deputy city manager Bryan Raines.

The City Council voted on July 4, 1945, to set the property tax rate at 0% because profits from the city-owned electric system and sales tax revenues were sufficient to run the city, Raines said.

"The property tax has always been on the books, but no City Council has ever raised it up from zero," he said. "We're making it very clear to our residents that a secondary property tax will be levied if these bonds are approved."

Current plans call for a secondary property tax of 30.85 cents per $100 of assessed value to be levied beginning in fiscal 2009 if the bonds are approved. Secondary property tax revenues are dedicated to GO bond debt service under state law.

In May 2006 voters overwhelmingly rejected a measure to reimpose the property tax but did approve an increase in the city sales tax to 1.75% from 1.25%.

Without a property tax, Raines said, Mesa must depend on utility system revenues and the sales tax for debt service.

"We have a high reliance on some elastic revenue sources, and are facing a serious condition with our sales taxes," he said. "Right now, we're not even meeting the level of sales tax revenues as we did last year."

Raines said sales tax collections in Mesa during December 2007 were 10% less than in December 2006.

Mesa has approximately $256 million of outstanding GO debt that must be serviced from the general fund because of the lack of a property tax, Raines said. The city's GOs are rated AA-minus by Standard & Poor's and A1 by Moody's Investors Service.

"We're paying $20 million to $25 million a year on debt service from our general fund, and that's money other cities raise through the property tax," Raines said. "That puts a lot of pressure on our general fund revenues, while every other city in our region and probably in the United States uses property tax revenues for debt service."

Voters will face two bond questions at the November general election. One would authorize $178.2 million of GOs for public safety projects and the other would authorize $230.6 million of GOs for streets and roads.

Bond proceeds will allow the city to get to work on 10 street projects that previously were not scheduled to be completed for the next five to 15 years, Raines said, saving an estimated $21 million in construction costs.

"We're planning to leverage quite a bit of money from state and federal sources with the bonds," he said. "We will get $90 million from the county-wide sales tax earlier than expected by using the proceeds as matches for specific projects."

The road program includes 46 projects that would add 100 miles of new road lanes and rehabilitate another 200 miles of lanes.

The 16 public safety projects include four new and two replacement fire stations, upgrades to the emergency radio system, a new police station to replace a smaller facility, and improvements to the police and fire training academies.

Mesa expects to issue the first tranche of bonds with a $52.2 million sale in fiscal 2009. Plans include selling $108 million in fiscal 2010, $143.2 million in fiscal 2011, $61.7 million in fiscal 2012, and completing the authorization with a $37.4 million sale in fiscal 2013.

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