Click on the following link to read Arizona Senate President Steve Pierce’s response to CTC’s call for reform of Arizona’s public pension system:
Citizens Tax Committe President John Stevens today communicated with Senator Steve Pierce and Representatives Andy Tobin and Karen Fann to convey CTC’s support for two fundamental changes to Arizona’s public pension system.
His letter follows:
January 23, 2012
To:
Sen. Steve Pierce spierce@azleg.gov
Rep. Andy Tobin atobin@azleg.gov
Rep. Karen Fann kfann@azleg.gov
Re: Public Employees Retirement System
Like you, we are very concerned about the heavy burden on the taxpayers of Arizona by our public employee retirement system. Two features of the current system most in need of reform are:
CTC respectfully asks that you put this important matter near the top of the many budget-related issues being addressed.
Please let us know how we can be of assistance to you in your efforts to
make the necessary changes and improvements in this program.
_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
John R Stevens, President
Expert on Education Reform to Speak at Citizens Tax Committee Annual Meeting
The public is invited to attend a November presentation by Matthew Ladner, Ph.D. at the Annual Meeting of the Citizens Tax Committee of Yavapai County on Wednesday, November 30. Dr. Ladner is Senior Advisor at the Foundation for Excellence in Education. He is one of the nation’s leading experts on school choice, charter schools and special education reform. He will be discussing strategies to improve the effectiveness of our State’s and Nation’s school systems.
Dr. Ladner strongly advocates the adoption of innovative teaching techniques to produce fundamental improvements in educational results for our students while better husbanding our scarce public resources. As he sees it, “With academic results that leave much to be desired and a state government flirting with bankruptcy, Arizona urgently needs to embrace the future both to improve results and lower costs.”
The public is welcome to attend this important presentation. Admission is free. The meeting will begin promptly at 1:30 p.m. on Wednesday, November 30 and will be held in the Founders Suite of the Prescott Public Library at 215 East Goodwin Street in downtown Prescott.
Prepared by Joe Pendergast
The City of Prescott’s recent purchase of vacant acreage for the subsequent development of Trader Joe’s retail store inspired the Citizen’s Tax Committee to investigate the property tax consequences when a public agency essentially becomes the landlord for leasing to a private enterprise. It also prompted the question of property tax consequences when a public agency conducts a business venture in direct competition with privately owned and operated identical businesses, such as golf courses, restaurants, banquet halls, sports arenas, etc.
Government agencies, when owning and operating properties strictly for public interest use, are exempt from property taxation. This would include a City Hall, maintenance yard, sewage treatment plant, water system facility, police or fire station, and such. But what happens when the agency operates the property in like manner to a private investor? Let’s take the Trader Joe’s development as a clear cut example. The City of Prescott has purchased the property for $2 million and has leased it to an LLC for an annual rate of 6% of purchase price. That’s a very good investment and rate of return in today’s economy. But, it is something that a private investor could have done. The LLC, in turn, will lease portions of the property to Trader Joe’s and other retail businesses (Five Guys Burgers and Fries and others). The private investor could have done the same thing.
However, the difference between City owned property and private investor owned property is that the City will pay a reduced amount of land tax in comparison to the private investor. That particular acreage, last year, paid approximately $18,000 in vacant land taxes at 16% of appraised value. Once developed, land taxes are assessed to a private developer at 20% of appraised value, so that land should pay approximately 20/16 of $18,000 or about $22,500 in property taxes. If the City receives total relief because as a government agency it is exempt from property taxes, then the total $22,500 will not be collected on that parcel and the agencies participating in that tax money will not receive it from that parcel and it will have to be made up by the general citizenry within each of those agencies.
Remember now, property taxes do not only go to the City, only a small portion does. The major portion goes to educational districts (schools, colleges, etc.) plus some to the library, perhaps a fire district, etc. And those districts are not necessarily concurrent with the City boundaries. If the District boundaries are larger, then citizens outside the City will have to make up monies the City and therefore its citizens should be responsible for. If the District is smaller, then those within it will have to pay additional burden than if the entire City paid its share.
In any case, if the City would pay no or less land taxes than any private investor, then it can rent for lower fees and unfairly compete with private landlords. However, the State Legislature has been aware of this inequity and has attempted to correct it. For several years, there has been a “Government Property Lease Excise Tax”, commonly referred to as “Giblets”, for the County Assessors and County Treasurers to assign taxable values to Government Agency owned property leased to and/or used for essentially private enterprise undertakings. It is covered in State Statutes Title 42, Sections 1601-10, and attempts to equalize the property taxes of agency and private holdings.
According to the County Assessor, the Assessor sends annual requests to all agencies within the County asking that they inform the Assessor’s office of their “Giblets” properties so that they can be evaluated for assessment for that agency’s related tax burdens. Upon receipt of those listings, the assessments are made and the information then furnished to the County Treasurer for application of appropriate district rates, a tax bill is produced, and the bill then forwarded to the agency for payment. Unfortunately, sometimes agencies fail to respond, and consider all their properties to be tax exempt whether used for public or private use. Or, having responded, ignore the tax bill for similar reasons. It is the intent of the Citizens Tax Committee to overview this process to evaluate its success.
Two excellent editorials appear in today’s Arizona Republic. Both extend a theme presented in a Goldwater Institute comment discussed in a prior post on this blog, namely, fallacies underlying arguments for government expenditure programs designed to create jobs.
A trenchant editorial by Amity Shlaes, Rethinking Bastiat and Broken Windows, presents a wonderful discussion of some truths propounded by nineteenth century French economist, Frederic Bastiat and their applicability to the current debate over government’s proper role in resolving our economic woes. Shlaes begins her essay by pointing to the outspoken proponents for increasing government expenditures – any government expenditures – as a way of increasing jobs and reducing unemployment. It’s an appealing notion that government can fix what ails us simply by throwing some money at the problem, but as the following quote from Dr. Shlaes makes clear, Bastiat found a problem with this simple minded logic:
In the summer of 1850, just before going to Paris, Bastiat laid out the now-famous parable. Disaster happens. A thief breaks a man’s window, or a storm does. The man has to pay the glazier to fix it. The glazier spends his money at the store. When enough windows are smashed, voila: a visible benefit, new jobs for the glass industry.
True enough, noted Bastiat. The window replacement is what is seen. What about that which is not seen? “Since our citizen has spent six francs for one thing, he will not be able to spend them for another. It is not seen that if he had not had a windowpane to replace, he would have replaced, for example, his worn-out shoes or added another book to his library.”
The same holds for a government: when it repairs windows — cleans up hurricane damage — it is not using the same money for other causes that might be more worthy, such as reducing government debt or taxes.
Shlaes highlights Bastiat’s belief that government benefits, subsidies and encouragements “amount to plunder because they replace the invisible hand of the market with the hand of the state, and place political goals ahead of productive ones”.
Of course, those calling for increased government expenditures as a way to promote job growth argue that the broken window fallacy does not apply to our federal government at a time when unemployment is high. They claim that there is no need to reduce any other federal government spending or to increase federal taxes when a new stimulus program is added or an old one is expanded. The idea is, an increase in net federal government spending will increase the deficit temporarily, but it will increase jobs and economic activity by so much that increases in government revenues in the future will more than offset the temporary increase in the deficit.
And this brings us to George Will’s editorial, Our floundering “federal family”, which excoriates the current Administration in Washington for its completely unwarranted confidence that it is capable of manipulating the economy into good health. What evidence do we have that government stimulus during the past several years has done more good than harm? We know that the skyrocketing national debt has created extraordinary levels of uncertainty regarding what future actions will be taken to prevent government default, and that uncertainty is a major factor discouraging consumer spending and business investment and expansion. For a far more articulate indictment of the Administrations hubris, consider the following excerpt from Will’s editorial:
For two years, there has been one constant: As events have refuted the Obama administration’s certitudes, the administration has retained its insufferable knowingness. It knew that the stimulus would hold unemployment below 8 percent. Oops. Unemployment has been at least 9 percent in 26 of the 30 months since the stimulus was passed. Michael Boskin of Stanford says that, even if one charitably accepts the administration’s self-serving estimate of jobs “created or saved” by the stimulus, each job cost $280,000 — five times America’s median pay.
And research by Garett Jones and Daniel M. Rothschild of George Mason University’s Mercatus Center indicates that just 42.1 percent of workers hired by entities receiving stimulus funds were unemployed at the time. More (47.3 percent) were poached from other organizations, and 10.6 percent came directly from school or outside the labor force.
Obama’s administration, which is largely innocent of business experience, knew its experts would be wizards at investing taxpayers’ dollars. Oops. After receiving more than half a billion stimulus dollars in loan guarantees, bankrupt solar-panel maker Solyndra has shed nearly all of its more than 1,100 workers.
There is simply no basis for the view that increased federal government stimulus is the answer to our current economic woes. As Mr. Will observes quite sensibly, “The economic policy the ‘federal family’ should adopt can be expressed in five one-syllable words: Get. Out. Of. The. Way.”
Be sure to read the comment by Goldwater Institute Economist Byron Schlomach entitled Government: A lousy venture capitalist. Schlomach highlights the folly of government efforts to spur the economy by lavishing incentives (aka subsidies) on business ventures that politicians and bureaucrats decide are deserving of taxpayer support. The primary focus of his comment are recent government subsidies for alternative energy ventures.
Interestingly, Dr. Schlomach’s indictment of these failed economic development initiatives neglected to mention our State’s embarrassing history of failed subsidies for alternative energy solutions. If you forget the infamous “alt-fuels” fiasco that rocked Arizona about ten years ago, you should read refresh your memory by reading one of the various reports on this apparently forgotten episode (e.g., Anatomy of a Debacle: Arizona’s Alt-Fuels Program). Schlomach does, however, highlight the unfolding sordid tale of how the federal government managed to blow about a half billion of taxpayer money on the failed Solyndra venture in California (see more on this most recent example of why the government has no business playing venture capitalist with our money in, for example, Solyndra Loan: White House pressed on review of solar company now under investigation in today’s Washington Post).
How many times do we have to repeat the same mistake?
In the following letter to Prescott Mayor Marlin Kuykendall, CTC Chairman Bill Warren expresses CTC’s rationale for supporting an internal search for City Manager candidates rather than a national search assisted by an executive search firm.
Mr. Marlin Kuykendall, Mayor
City of Prescott
201 South Cortez Street
Prescott, Arizona 86303
I am writing on behalf of the Citizens Tax Committee. This letter relates to Prescott’s recruitment of a City Manager. I understand that this topic was discussedand voted on at the August 9th City Council meeting. I further understand that there was anextensive discussion relating to whether there should be (1) an immediatenational search for the city manager, or (2) if the search should begin byopening the position to current city staff members and other local qualifiedinterested parties in order to give the Council an opportunity to see if one ormore qualified current city employees or other local residents apply for theposition. I also understand that the City Council chose the latter alternative(that of initially conducting a local recruitment).
The Citizens Tax Committee Board discussed this subject at arecent meeting and we wish to commend the Council on its decision to first searchlocally for our next city manager.
Why do we think that this is the best decision at this time? We considered a number of important factors in reaching ourdecision. First, we think that there isat least one (and possibly more) current employees who are highly qualified toperform the job of city manager. If so, they should be given consideration ifone or more of them apply for the position.
Second, the City Council and others will already have had anopportunity to see these people in action. Thus, they should know their strengths and weaknesses.
Third, consideration was given to the learning curve of a new city manager who is not familiar with Prescott’s (and thesouthwest’s) complex and specific challenges. The selection of a current employee should minimize the time required tolearn how to handle local issues, such as those related to water. If a local employee is selected for theposition he/she should hit the ground running.
Fourth, we considered the tight money situation for nextyear’s budget. As a result, we evaluated the cost of a national recruitment. In preparing for that discussion some of our board members searched the web to get an idea concerning what was happening at other cities whoare in the process of recruiting city managers. Among other things, we discovered that, in order to remain competitivein a national search, some cities were finding that they had to pay salaries of$170,000 to $200,000, plus benefits and other costs. At least one of the cities decided that itcould not compete nationally for a new city manager due to the costs of doing so.
Some of the one-time expected major costs of a national recruitment include:
the cost of hiring a consultant to conduct a national recruitment (approximately $20,000); the cost of bringing a number of final candidates to Prescott for initial interviews; the cost of again paying travel expenses for one or two final candidates and their families to come to Prescott for final interviews; the cost of moving the person selected, and their families, to Prescott; the cost of the time required of the city Council members involved inthe recruitment, and; the cost of the learning curve required for someone new to the city to learn the ins and outs of Prescott’s city government.
In a nutshell, we would estimatethat one-time costs for a national recruitment for city manager approximates$100,000.
There would also be an additional expected increase in annual costs relating to a nationally recruited city manager. As mentioned, our web review disclosed newbeginning salaries from $170,000 to $200,000. Our last city manager received a salary of approximately $150,000. We estimate that a nationally recruited citymanager might require a salary of between $170,000 and $200,000, orapproximately $185,000. If this is true,we would have a permanent annual budgetary increase of approximately $35,000for this position.
There is at least one additional consideration to a national recruitment. That is the risk of bringing in someone new to our environment who doesnot fit. No matter how careful therecruiters and others involved in the selection process are in checkingbackgrounds, etc., there is always the risk that the individual selected willnot be happy after accepting the position and will decide to leave after ashort tenure because he/she does not feel comfortable in his/her new environment.
Because of the lower costs and thelower risks associated with a local selection, we recommend that the city not undertakea national search for Prescott’s new city manager until the local search isexhausted and it is apparent that no current city employee is capable of beingPrescott’s city manager .
Thank you for your considerationof our recommendation. Should you have anyquestions please contact me.
Sincerely,
William Warren
Chairman,Citizens Tax Committee
Some folks have suggested that the decision to increase the assessed value of Yavapai Downs was ill conceived and was the primary cause of the failure of that venture. In the following open letter to Yavapai County citizens, County Assessor Pam Pearsall takes issue with that view.
CTC Chairman Bill Warren thanks County Assessor Pam Pearsall for August 17 Presentation
On August 3rd, several bloggers responded to an article [in the Daily Courier] titled “Yavapai County Fair canceled.” The blogs accused the Yavapai County Assessor’s Office for the recent closure of the Yavapai Downs race track and ultimate closure of the Fair. These accusation are not only unfair, they are also untrue.
In the past, this property was classified as mixed-used and had a tax bill of $30,000 +/- per year because the property consisted of both Yavapai Downs and Achieve Academy, a charter school that had 100% property tax exemption.
Achieve Academy subsequently closed down and, therefore, no longer provided charter school services on this property. As the Assessor for Yavapai County, I had no alternative, per state statute, but to remove the property’s exemption and change the classification of this property, as charter school services were no longer being provided. This is what ultimately resulted in an increase of property taxes from $30,000 +/- to $90,000 +/-.
In August 2010, Gary Spiker, general manager of the property, was alerted by certified letter as to this reclassification.
Recently several situational challenges affecting Yavapai Downs have been reported by many media outlets, including over $500,000 of outstanding debt due to approximately 114 unpaid creditors; an appearance that a racing permit was never issued by the Department of Racing to the Agricultural Society to conduct horse races on the property this year; a USDA loan of $14.5 million +/- that hasn’t received a payment since December 2008; the inability to pay $3,100 a week for betting machines; $47,337 owed to Coconino County for off track betting; $250,000 owed to Yavapai County since 2001; $2.24 million dollars owed for a development agreement which purchased infrastructure to Yavapai Downs and the list goes on and on.
I am hopeful that the audit recently conducted on this property will be released to the taxpayers, as the taxpayers will ultimately be the losers if this property defaults on Coconino County, Yavapai County, Prescott Valley and the USDA.
It is my hope that those who truly are responsible for the demise of horse racing in 2011 in Prescott Valley, as well as in causing the stranding of horses, jockeys and their trainers at the Yavapai Downs racetrack, the loss of a fair for 2011 the closure of Prescott Valley Raceway are ultimately held accountable.
Pamela J. Pearsall
Yavapai County Assessor
It appears City of Prescott taxpayers will be funding another expensive trip to the courthouse. (See: ACLU Sues City of Prescott for Violating Free Speech Rights of Fired Employee)
We sure hope the allegations of misconduct by Prescott Mayor Marlin Kuykendall, prior City Manager Steve Norwood and assorted other local residents contained in the suit filed by the ACLU of Arizona earlier today will not hold up in court. It would be distressing to learn that Prescott City officials violated the rights of a local citizen. Further, a guilty verdict would likely prove expensive for Prescott’s taxpayers. Unfortunately, however, given its propensity to involve highly paid outside counsel in these matters, the City is likely to spend a bundle on litigation costs even if it prevails in court.
The CTC has just learned that staff of the City of Prescott has been spending time helping Mayoral and City Council candidates to answer questions for an upcoming candidate forum. A five page memorandum containing responses to questions provided to forum participants in advance of the upcoming Citizens Water Advocacy Group candidate forum (August 13, 10 a.m. to 12 noon at the Granite Peak Unitarian Universalist Congregation, 882 Sunset in Prescott) has been distributed to candidates using official City of Prescott letterhead. Evidently someone in Prescott City Hall doesn’t trust candidates to think for themselves and to form their own opinions, and instead has decided to divert staff resources from other City business to play ventriloquist.
Some might conclude that this use of City resources is prohibited by Arizona Revised Statutes section 9-500.14 paragraph A, which provides “A city or town shall not use its personnel, equipment, materials, buildings or other resources for the purpose of influencing the outcomes of elections.” Some candidates doubtless need help formulating thoughtful answers to the questions posed by this citizens group focused on local water issues, but others probably don’t. It’s hard to imagine the purpose of using City of Prescott resources to provide answers to these forum questions was to help candidates that didn’t need help. Rather, it seems reasonable to conclude this effort was undertaken to assist the candidates who did need help. That sounds like an attempt to improve the performance of some candidates relative to others, which in turn sounds like “influencing the outcome of the election”.
But even if there were no violation of law, the City Manager’s office is saying loud and clear that having City staff prepare crib sheets for political candidates is a better use of their time than what they otherwise would be doing. This is a sorry state of affairs and is compelling evidence of mismanagement and/or too many folks on the City’s payroll.