Wes Gullett airs plan to fill gap if food tax is tossed

by Lynh Bui – Oct. 13, 2011 12:00 AM
The Arizona Republic

Phoenix mayoral candidate Wes Gullett has made immediate repeal of the city’s 2 percent food tax a central campaign theme, insisting there is money in the budget to make up for the annual $50 million potential loss in revenue.

To achieve that goal, he has offered a reform plan that relies on renegotiating labor contracts with the city’s seven employee unions and associations to make up for lost revenue. But he also has cited another way to cover repeal of the food tax – a more than $200 million “slush fund,” as he describes it, built into the city budget.

While Gullett appears to have the majority needed from sitting members of the City Council to repeal the food tax, how long it would take and how it would impact the city budget is up for debate.

Rival Greg Stanton also has called for repeal of the food tax, but not until April 2013, saying a careful review of the city budget and the impact to public safety is needed before making decisions.

He has called Gullett’s plans “reckless” and said Gullett’s proposals rely on $200 million of “magic money” that isn’t available in the budget.

Reform plan

Gullett’s government-reform plan proposes replacing the food-tax revenue with the following savings from the city budget.

– $18 million: Reduce the amount of merit and longevity pay to employees from the annual $30 million. More than 90 percent of city employees receive merit and longevity pay, based on a previous review by The Arizona Republic. Gullett says the program should be reformed to a more merit-based system where perhaps 30 percent of employees receive performance raises or bonuses.

– $3.7 million: Eliminate the money Phoenix pays to labor unions to fund union-officer salaries and union activity. This is something negotiated in labor contracts, but Gullett says membership dues should pay for it.

– $29 million: Eliminate the city’s deferred-compensation plan, which is an additional retirement-savings plan beyond the city pension. The program is voluntary and allows employees to contribute a certain amount of their salary to the savings plan instead of electing salary increases.

– $6 million: Find efficiencies across city departments. Gullett doesn’t have specifics on where these savings would come from yet, but he says it would be easy because it’s less than half of a percent of the city’s $2.5 billion operating budget.

– $1 million: Outsource the city’s elections department.

The sum of these reforms totals nearly $58 million, more than enough to cover the roughly $50 million that comes in annually from the food tax.

But, outside of finding efficiencies and outsourcing elections, these reforms can’t take place without changing employee labor contracts. The raises, the union-officer salaries and deferred compensation all are part of labor contracts the city will start renegotiating in January. Final contracts won’t be voted on until at least March, and the contracts won’t kick in until the start of the new fiscal year, which means the savings wouldn’t be realized until at least July 2012.

Effect of ‘slush fund’

Gullett said there is close to $216 million in the city’s operating budget that can be used to replace food-tax income – money he’s referred to as a slush fund.

He arrives at the number by comparing the city’s actual spending reported for the 2010-11 fiscal year that ended June 30 ($2.28 billion) and what the city has budgeted for the 2011-12 fiscal year ($2.51 billion).

The difference is $230 million, or 10 percent. Then he allows for a small increase in city spending from last year to this year and knocks the number down to $216 million.

Gullett says there is room in that 10 percent increase to find savings that would pay for the food tax.

“Nobody has said that Phoenix is going to spend 10 percent more this year than they would last year,” Gullett said. “We have this food tax to pay for this imaginary $200 million.”

More than $146 million of the money Gullett is talking about is either the city’s rainy-day fund or unspent, earmarked federal grant money that can’t be used for any other purpose. Another $31 million is from increased pension costs or increased health-care costs, according to figures from the city’s budget and research department.

Phoenix Budget and Research manager Mario Paniagua said comparing actual spending at the end of one year to what the city plans to spend the next isn’t recommended. A budget is what gives the city the authority to spend, and the city might not spend all of it at the end of the year.

If a majority of the City Council decided to tap the city’s rainy-day fund to cover the cost of eliminating the food tax, it could be done.

But Paniagua said there could be consequences.

“Adequate contingency funds are important to bond-rating agencies and can affect the city’s AAA bond rating,” Paniagua said. Lower bond ratings could lead to higher borrowing costs.

This year’s budget also includes $62 million in federal stimulus money to improve neighborhoods that was budgeted for the last year but wasn’t spent. That carryover also accounts for part of the more than $200 million Gullett cites and can’t be used to pay for the food tax.

How it adds up

Increased pension costs, increased health-care costs, the contingency fund, and stimulus money make up $177 million of the difference between what the city actually spent in 2010-11 and what the city budgeted for 2011-12, based on numbers provided by the city’s budget and research department.

The rest of the money includes increased operating costs to run a new library, a new fire station, reopen city pools and test the Phoenix Sky Train, among other costs, Paniagua said.

It also includes $17 million in unexpected employee costs because fewer-than-expected vacancies are planned for the current year. Some of this can be used to repeal the food tax, but the City Council will have to make policy decisions on what should stay and what should go, Paniagua said.

Gullett, however, doesn’t trust the numbers from the city’s Budget and Research Department.

“It’s a shell game they play,” Gullett said. “They just found a bunch of numbers to make up for the difference and say we can’t get rid of the food tax.”

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