Food-tax repeal may hit city hard

By Dustin Gardiner
The Republic |

As political pressure builds to repeal Phoenix’s food tax, city officials have outlined sev­eral financial obstacles that could complicate such a move.

City Manager David Cava­zos this week sent a memo to the mayor and City Council list­ing major budget constraints to ending the tax, including con­cerns that it could affect the city’s perfect credit rating or result in a loss of revenue need­ed to help support police and fire services.

The update comes as some council members have re­newed calls to repeal the tax this spring, roughly two years before its 2015 sunset. The 2 percent tax on residents’ grocery bills is shaping up to be a contentious point of spring budget negotiations.

Mayor Greg Stanton, who pledged during his 2011 campaign to repeal the tax by April, has been a focus of much of the debate. He has yet to take a definitive position on the issue and could provide the crucial fifth vote needed to abolish the tax early.

“We still have significant challenges,” Stanton said, describing the city’s murky budget picture. “The economy isnot bouncing back as quickly as people had hoped.”

He said Cavazos’ memo points out the “stark circumstances” Phoenix faces as it weighs the food-tax repeal: revenue for the current budget year is less than projected. Stanton said he hopes the city can still eliminate or reduce the tax but that he plans to review detailed spending-cut options before making a decision.

Two of the council’s more fiscally conservative members, Jim Waring and Sal DiCiccio, said the city could immediately repeal the tax without affecting public-safety services. DiCiccio has questioned why the city spent tens of millions of dollars on employee raises and bonuses these past few years, costs that are fixed as part of the city’s contracts with unions.

“Delaying the promised repeal of the food tax is the kind of tactic that hurts the middle class and working families,” DiCiccio said. “If the food tax is to be removed by April 1, the public needs time to consider the details of how that will be done without affecting public safety, as promised.”

Council members created the emergency food tax in February 2010 as Phoenix was facing an unprecedented $277 million general-fund shortfall. The tax was proposed as a way to prevent large layoffs of publicsafety personnel and keep libraries and senior centers open. So far, it has generated about $127 million in additional revenue, or about $50million per year.

Although some council members hoped to remove the tax by April, Cavazos’ proposed time line makes that appear unlikely. He plans to present options for cutting the tax on March 26, along with the rest of his trial budget for the next fiscal year, which starts July 1. The council would have months to make a final decision.

City officials said two primary challenges will be maintaining the city’s AAA bond rating and continuing to provide support for public safety.

Phoenix has relied on money from the food tax to help pay for about $30 million in generalfund expenses per year, most of which goes toward public safety and court expenses. On top of that, $8 million goes to help support specialty police and fire funds that have run a negative balance.

“Because 70 percent of the city’s general fund is spent on public safety, I am concerned about how it would be affected by a possible repeal of the tax,” Councilman Michael Nowakowski said recently. “Phoenix’s leaders must consider that and all other consequences in the process.”

A loss in revenue from the food tax could also hurt how credit-rating agencies evaluate Phoenix, Cavazos said. A lower credit rating would require the city to pay higher interest rates when it borrowed money.

Cavazos and city budget staff will spend the next several weeks outlining the council’s specific options, including a budget with recommended service levels and another with cuts to compensate for the loss of the food tax. He said both options will be shown to residents at numerous public meetings.

“I think it’s pretty clear that we have lots of constraints, ” Cavazos said. “We have to work very carefully with our departments and listen very carefully to the public before we can fully identify what those consequences are.”

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