The Silver Lining in November’s Election

Examining the results of the November elections, it was a mixed bag for Arizona taxpayers.

Specifically, there was a lot of debate surrounding the numerous bonds and override requests being pursued by school districts, the most controversial of which being spending requests that had failed previously at the ballot box.  Since Arizona law permits schools to “recycle” their bond or override request even if it had failed the previous year, many of those districts were back again asking for money.

Coupled with the use of the off-cycle (low turnout) election, most of the recycled overrides and bonds passed on November 3rd. The Arizona Free Enterprise Club will continue to look at reforms related to this issue, specifically addressing the issue of recycled spending requests that had failed the previous year and the consolidation of election dates to even numbered years.

But there were a few victories for taxpayers worth mentioning – in of all places Pima County.

This year Pima County decided they wanted to reach deep into the pockets of taxpayers, proposing a package of bonds totaling close to a billion dollars. By overwhelming majorities, voters rejected all 8 bond proposals, which included higher property taxes to fund economic development, tourism facilities, parks facilities, conservation projects and flood control.

It was a result that left supporters “shocked” that taxpayers didn’t acquiesce to their demands.

Also on the ballot of Tucson residents was the issue of photo radar vans.  Voters expressed their opposition to Proposition 201 with 66 percent of the vote.  Citizens were critical of the city using the radar vans as a growing revenue stream.

Additionally, voters in Sunnyside Unified School District in Tucson rejected the fourth request for bonds and overrides in the last four years.  Much of the $11.8 million in funding was designated for all-day kindergarten.  This saved the average tax payer with a home values at $100,000 nearly $300 on their property tax bill a year.

Pima County has been slow to recover from the recession, and the disconnect between struggling taxpayers and the spending appetite of government officials continues to widen.  With voters sending a clear message that they have had enough, it will be interesting to see if the spending lobby will accept the results from the election or continue to press on with their agenda. Unfortunately, if history is any guide, it will likely be the latter.

Tax Increment Financing is a Bad Deal for Taxpayers

Tax Increment Financing is a Bad Deal for Taxpayers

When it comes to providing targeted incentives to developers and picking winners and losers with our tax dollars, it’s hard to beat tax increment financing (TIF.)  Currently the usage of tax increment financing is prohibited in Arizona, but if city officials, planners, developers and politically connected landowners get their way, it may soon become a reality in our state.

What is a TIF? A TIF allows local government to create special “economic development” zones where they are able to take the tax generated by future growth (the increment) in the zone to finance bonds for development.  Public services such as schools, fire, sewer and police are financed at the original assessed value of the property while the additional tax revenue generated in the zone is used for land acquisition, infrastructure and developer subsidies.

It’s easy to see why local governments and insiders would love to have TIFs in Arizona. In the zero-sum game of “economic development” cities are clamoring to offer handouts to subsidize light rail, shopping malls, hotels, car dealerships, high density housing and multiuse “green” facilities.  The lure of city planners to treat urban areas like their personal sim-city accounts make TIFs a go-to funding mechanism open to rampant use and abuse.  The justification is the same as for all economic cronyism – development would not have occurred without the giveaway.  This is neither supported by data or common sense.

A study done in the City of Chicago of multiple TIF districts actually showed a slower job growth and subsequent losses in jobs in other areas of the region.  These facts demonstrate the jobs “created” by TIFs would have occurred anyway, just elsewhere.   In Fort Worth, Texas the city gave $40 million in property TIF dollars to a Cabelas.  A Big Bass Pro Shop already existed 10 miles away, without handouts.

Making matters worse, the additional demand for public services without additional revenues, leads to one of two inevitable conclusions – a decrease in the quality of those services or an increase in the tax rates.  This hardly creates the fertile ground for other developers to set up shop.  Additionally, other developers are less likely to build if they do not receive an incentive like their neighbor.  This is seen as an unfair competitive advantage and a general assault on equity.  Subsidizing one development has an opportunity cost that is rarely factored.

Some have attempted to defend the use of TIF districts as a tool to revitalize blighted areas, not fund economic development.  Of course, governments now exaggerate what is considered a blighted area by designating them as having a “potential for revitalization”, a “conservation zone,” or being “at risk for blight.”  In some cases, entire neighborhoods have been deemed “blighted” despite high valuations in homes, forcing savvier citizens to band together to fight blight designations and protect themselves from the inevitable squeeze of higher taxes or subpar public services.

All too often TIF districts are highly gerrymandered to hand pick properties that benefit a few select developers, as demonstrated by this TIF district in Portland, Oregon:

gerrymandered TIF

The bottom line is that TIF districts always end up pitting special interests against the majority of property owners in the community.  And given the track record in other states, taxpayers lose.

Arizona Commerce Authority exaggerates economic development claims

Everyone knows that when government gets into the economic development business and starts handing out targeted incentives, they will do everything they can to pad their statistics to justify the subsidies. One example of this type of gamesmanship occurred after the passage of the Obama stimulus plan in 2009.  Once it became evident that the stimulus was not meeting job growth expectations, it was no longer about jobs created but rather jobs “created or saved.”

Bogus economic development claims popped up again during the debate over the expansion of the light rail system in the City of Phoenix. For years, proponents of light rail boasted that it had generated over $7Billion in economic development, yet we proved in our analysis of the system that these claims were false. It turned out that most of the economic development either never occurred or was ‘planned’ development, not actual growth.

Now it appears that the Arizona Commerce Authority (ACA) is using the same playbook to justify their incentive schemes. In the most recent report released by the Auditor General, the ACA was caught exaggerating their numbers on new high wage job creation by taking credit for “committed” and “planned” investments by companies over the next three years, rather than accounting for actual jobs and investments made.

In fact, the auditor concluded in their findings that the numbers provided by the ACA were so vague that there’s really no way to determine the actual impact of their incentive and subsidy programs. Staffers admitted during interviews that they prefer focusing on commitments rather than actual results because, in their mind, it “more promptly and directly measures the Authority’s work to add jobs and investments to Arizona.” Very few workers or businesses in the private sector would last very long if their accomplishments were based on ‘plans’ instead of results, but that is the current practice at the ACA.

Of course, part of the problem that has been known for years is the lack of basic transparency requirements at the ACA. And rightfully so – a semi-private body with the unilateral control of millions in corporate incentives, sheltered from direct taxpayer accountability, ought to exist under a microscope.  And so month after month, critics continue to point out the opacity with little to no improvement.

Other states such as Utah have similar entities and have much more transparent and detailed information available to the public, yet the ACA continues to resist similar standards. For instance, the “deal closing fund,” which grants the ACA’s Executive Director sole discretion on who receives funds, handed out $4.3 million from the deal closing fund to four companies in 2014.

The generosity didn’t end there.  The ACA entered into $25 million dollars’ worth of grant agreements over several years to be paid to corporations and governments alike.  The ACA is also in the loan business now.  Two years ago the legislature approved $2 million in ACA funds to build a railroad spur in Navajo County.

And while transparency would allow for the public to better analyze how the ACA is dispersing our tax dollars to private industry, it wouldn’t fully fix the problem. Policymakers from both parties have bought into the misconception that they can “create” jobs in their community by outbidding their neighbors for them.    As a result states spend billions of dollars  on “economic development” with little evidence that their efforts directly lead to sustainable job growth.  Arizona too has been romanced by the zero-sum incentive game.

Instead of creating an environment that organically spurs innovation and business start-ups, states cannibalize other states and cities cannibalize other cities, falling over themselves for the big whale.  It’s a vicious cycle of robbing the wealth of existing businesses to fund the relocation of others, and stealing the resources from services that create long term economic vitality for the quick job today.

When the ACA was formed, Governor Brewer wanted an organization that was flexible, “competitive”, could react quickly without a lot of hoops to jump through and strike creative deals.  These kinds of entities already existed however – they are called private businesses and organizations.  It is neither the government’s right nor role to act and behave like the businesses that operate within the free market.  Because businesses that make poor decisions get direct and immediate feedback through loss of profits, governments just sink more tax dollars.

Cities Use Taxpayer Money to Lobby for More Taxpayer Money

Cities Use Taxpayer Money to Lobby for More Taxpayer Money

Tens of millions of dollars are spent each year by local governments to lobby other governments.  A good portion of these efforts are focused on The Hill, where “K Street” firms grease wheels to bring home millions in pork.  Cities also employ lobbyists to roost at the state capitol; where they often rail against good reforms or attempts to bridle their authorities.   At the end of the day – taxpayers lose – whether the cities’ lobbying labors prove “successful” or not.

Every legislative session it’s the same scene; scores of lobbyists representing cities and counties flock to the capitol, ready to fight state leadership.  It is a war between governments, with the taxpayers forced to fund both sides.  These local lobbyists are trained to identify any bills that would have a fiscal impact or wrestle powers away.  The most popular argument used – “local control.”  On its face, local control is heralded as the closer-to-the-people government, and therefore better.  Yet many of these cities more closely resemeble hardened fiefdoms, than oases of freedom.

Take for example the recent battle over Transaction Privlege Tax (TPT) reform in 2013.  For years the business community begged policy makers to do something to simplify the cumbersome process of remitting TPT.  Specifically, contractors who provided services in any of the 19 charter cities, were required to file monthly in every jurisdiction they had transaction, in addition to the Department of Revenue.  For many businesses this created a mountain of paperwork every month and cost tons of time and money to comply.  The major opposition to any reforms was the Arizona League of Cities and Towns.  They lobbied hard against their business taxpayers, using those same tax payer’s dollars to do so.  In the end it passed, but not before the cities negotiated a clause to delay the launch of the reforms until the cities had deemed the new processes perfect.  This seeminly innocuous provision at the time has shifted the intended deadline of January 2015 – to no where in the foreseeable future.  Whether it’s private property rights, ridiculous regulations, or additional taxing authority, the cities are on the wrong side of their own constituents.

Most municipalities employ one or two in-house “governmental affairs” representatives who are paid handsomely to be in the ears of state representatives.  In the City of Buckeye they spend just over $119,000 dollars on their employee lobbyist – and that’s just one person.  In addition to in-house lobbyists, many cities contract lobbying firms up and above.  The City of Goodyear paid contract lobbyists $168,000 last year alone.  And of course there are the organizations paid by local governments to engage in lobbying activities.  Many of these organizations have in-house lobbyists and contract lobbyists.  The Town of Gilbert spent over $330,000 with these organizations and the City of Surprise $152,000.  The Arizona League of Cities and Towns, Local Chambers of Commerce, Maricopa Association of Governments…the hydra of city lobbyists has a thousand heads.

At the end of the day voices of actual individual and business taxpayers are stifled by the ubiquity of the hired guns of local governments.  These legions of lobbyists have replaced the very tenets of our democratic republic.  Instead of elected officials being the conduit of the people, unelected lobbyists represent “The City” at the expense of the “the people.”  As a result we have bureaucrats (not the legislative branch) shaping policy, instead of executing it.  The solution is simple.  Prohibit the misuse of public funds for lobbying.  Taxpayers deserve direct and transparent representation, accountability of their tax dollars, and a fighting chance to to be heard by their representatives.

lobbyists graph