The Glendale, Ariz., City Council is considering options for raising the city’s sales tax and property tax rates to cover an anticipated $35 million revenue shortfall in fiscal 2013.

The council directed staff last week to develop a phase-in of an increase in the secondary property tax of 61 cents over two years.

A plan to increase the tax rate by 54 cents per $100 was rejected by the council at last week’s budget workshop session.

Taxes on an average $176,000 residence would rise to $296 a year from the current $242 when the tax hike is fully implemented. The increase will extend through fiscal 2017.

Revenue from the secondary property tax is dedicated to debt service. The increase in the rate is needed to compensate for a decline in Glendale’s revenues.

Glendale generated $29 million from the property tax in fiscal 2010, but expects revenues to fall to $15.7 million in fiscal 2013.

Secondary assessed value totaled $1.3 billion in fiscal 2012, down 26% from fiscal 2011. A 14% reduction in assessed values is expected in fiscal 2013.

A proposed 0.7% increase in the city’s sales tax rate was informally adopted at the budget workshop.

With the increase to 2.9% from the current 2.2% rate combined with the Maricopa County and Arizona sales taxes, the rate within Glendale would rise to 9.5%.

The proposed sales tax includes groceries. The council rejected a 0.8% increase that exempted groceries.

The sales tax increase is expected to generate $23 million a year.

The City Council will vote in early June on whether to adopt the two tax hikes that were given preliminary approval last week.

The fiscal 2013 budget will go into effect July 1.

Moody’s Investors Service lowered its rating in January to Aa3 from Aa2 on Glendale’s $202 million of outstanding general obligation bonds, and to A1 from Aa3 on $266 million of second-lien debt issued through the Glendale Municipal Property Corp.

Standard & Poor’s also dropped Glendale’s GO rating in January to A-plus from AA.

Over the last two years, Glendale has spent $50 million to subsidize the Phoenix Coyotes pro hockey team to keep it as a tenant in a city-owned sports arena.

The city has $400 million of authorized but unissued debt.

City officials said the new property tax revenues being sought would service the existing debt with no new money planned.

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