The Phoenix City Council last week voted to defer almost $200 million of bond-financed projects until property valuations rise enough to support the additional debt without increasing the city’s secondary property tax.
Councilors decided to keep the combined property tax rate at $1.82 per $100 of assessed valuation for the next two fiscal years. The rate has been stable for 14 years.
The council rejected a staff proposal to increase the primary property tax rate, which finances municipal operations, by 2% each year. The secondary property tax rate, which supports Phoenix’s general obligation debt, would be set annually at the level needed to meet debt-service requirements.
The city had planned to spend $400 million of bond proceeds on capital projects in fiscal 2011. Work will go ahead on $205 million of bond-funded projects next year, but action will be delayed on $39.8 million of projects until fiscal 2012 and $156.3 million of projects until fiscal 2013.
Finance director Jeff DeWitt and budget director Cathleen Gleason said without an increase in the property tax rate the city would not be able to meet debt service from the secondary tax as early as fiscal 2017.
Phoenix’s GO debt is rated AAA by Standard & Poor’s and Aa1 by Moody’s Investors Service.
Voters approved $878.5 million of GO bonds in 2006.
Gleason and Dewitt said preliminary figures from the Maricopa County Assessor’s Office show a 20.4% drop in property valuations for 2011, on top of a 14.7% drop in 2010. That will bring revenue from the tax to 2006 levels, they said.
“Maintaining the maximum primary levy and the fixed rate of $1.82 is forecasted to result in our inability to pay debt service in approximately 2016-17,” Gleason and DeWitt said in a memo to the City Council. “This is when estimates show the secondary property-tax reserve fund will be fully depleted, and the annual secondary property tax revenue will not be enough to pay the debt service.”
With the two-year delay, DeWitt and Gleason said, Phoenix will not need to sell more of the 2006 bonds until July 2012.
“This in turn delays the corresponding increase in debt service to coincide with forecasted improvement in assessed valuation, reducing the pressure on the secondary property tax rate,” they told the council.
Phoenix property tax revenues are expected to decline to $284.1 million in fiscal 2011, down from $321.8 million in fiscal 2010.