When the flat income tax proposal first made its way around the state legislature, projections of its impact on the budgets of cities and towns in Graham and Greenlee counties were dire, with town managers saying tens to hundreds of thousands of dollars would be stripped from city and town budgets in the two counties. Now, they aren’t feeling the same impending dread that they did before.
“The final budget is not going to have as negative an impact as we thought,” said Rudy Perez, Clifton’s town manager, “that’s no longer a concern.”
Perez explained that through lobbying efforts by municipal officials throughout the state with, the help of the League of Arizona Cities and Towns — an organization that connects and lobbies for the interests of Arizona cities and towns — the legislature agreed to increase the shared revenue, the percentage of state income tax revenue that cities and towns get, from 15% to 18%.
“If that hadn’t happened it would have had a very definite negative impact, but we don’t have to worry about that now,” Perez added, “hopefully.”
A study put out by the League of Arizona Cities and Towns estimated that even raising shared income tax revenue between the state and towns and cities to just 17% would result in a net loss of $245 million to the budgets of cities and towns in the state. Increasing the shared income tax revenue to 18% though, equalizes the effect of the income tax cuts, which mainly benefits the wealthiest of Arizonans, meaning that the budgets of towns and cities across the state won’t either increase or decrease but stay the same as they would have been if the flat income tax had not been passed, in theory. It all depends on the state’s economy though.
“Of course, we can’t know for sure, because we don’t know what the economy is going to be like (in the next few years),” said Tom Belshe, the executive director of the League of Arizona Cities and Towns.
“The theory is that the impact will be minimal and mitigated,” said Safford town manager John Cassella. “We have to see how the numbers play out... it’s a question of how does it actually unfold.”
Heath Brown, Thatcher’s town manager, agreed, adding that he doesn’t think the new flat income tax will affect Thatcher. Instead, Brown said the town’s income should remain the same as it was this year.
But confusion about what the actual effect the flat income tax will have on local budgets has caused some town managers to be a little less optimistic.
John Basteen, Duncan’s interim town manager, said he thinks the flat tax will result in the state taking money from the smaller towns to help finance their needs.
“The shared revenue tax and the state sales tax, the portion that the state gets, they distribute to the cities and towns based on population. So if the state is going to take a cut they usually take that from the cities and towns to make up for the shortfall on their end. I don’t know exactly how much that will entail for us or how much we’re going to lose on population. We’re not going to be hurt as bad as the bigger cities, but we will see an effect,” Basteen said.
The future of the flat tax situation is riddled with unknown situations, Basteen said. However, he’s certain the town will see a cut of income from the state in taxes, but he just doesn’t know how much.
“I think, depending on the cuts, that we’ll have to find other ways. We don’t want to tax any more,” Basteen said, “We need to look at ways to cut in our budget if that is what it calls for. We’re not going to cut things that would take things away from the citizens, like parks.”
“Anything with budgets is a guessing game,” said Sean Lewis, Pima’s town manager.
After discussions with the Arizona League of Cities and Towns, Lewis said that he’s not going to get too worked up or worried about what the effects of the flat income tax will have on Pima’s budget.
“It’s just such a variable,” Lewis said, “The tax is going to change daily. I’m not going to stress about it.”