December 6, 2006 - The Oro Valley Town Council will consider at its Dec. 6 meeting implementing a utility sales tax despite having twice rejected the tax, this year and last. But even if the council rejects the tax again, another proposed tax hike looms on the horizon that could generate just as much cash.
At the request of Councilman Al Kunisch, the council will consider on Dec. 20 a .5 percent sales tax increase, bringing the Oro Valley retail sales tax rate to 2.5 percent. The proposed increase should generate at least $2.1 million annually - exactly the same amount the utility tax would produce.
The utility tax would tax water, power and gas usage, the sales tax would tax retail purchases in the town.
The council is considering both consumption taxes to meet the town staff's demand for more employees, council members said.
The council debated the utility tax this summer after it could not find room in the budget for 18 and one-half new town positions, mostly within the police department. But the council voted the tax down on Sept. 20, just as a previous council did in October 2005.
Now, Vice Mayor Terry Parish, who said he's frustrated by the council's inability to come up with solutions to solve the town's financial woes, requested that the council re-discuss the tax. The council will not hold public hearings on the matter and may opt to take action at the meeting.
"The citizens agree we need the police," Parish said after the utility tax failed on Sept. 20. "I think the council failed the town by demonstrating the lack of courage that it takes to point the way we need to be."
But Parish said Kunisch's call for a sales tax increase shows him that the council may be coming around.
"The council is realizing the gravity of the financial difficulties," Parish said on Dec. 1. "These issues should've been addressed before we got on the council. We're playing catch up."
Kunisch agreed, saying that's why he wants the council to consider an increase in sales tax. He voted against the utility tax in September.
"The town needs money," he said. "And over the years we've relied on building permits. But our needs are becoming bigger and bigger."
Oro Valley Finance Director Stacey Lemos has said repeatedly that the town cannot operate on construction impact fees alone.
She announced this past week that residential building permits are down this year. The town had predicted to issue about 500 permits, but Lemos said the number would probably be closer to 300. The difference could cost the town about $500,000 in revenue.
The increased sales tax will put Oro Valley on par with South Tucson, tying for the highest retail sales tax rates in Pima County. Oro Valley's total tax, including the state sales tax at 5.6 percent and the county tax at .5 percent, would be 8.6 percent. Marana's and Tucson's total sales tax rate is 8.1 percent, the county's is 6.1.
Several cities in Maricopa and Pinal counties have tax rates at or more than 8.6 percent.
San Luis in Yuma County has the highest retail sales tax rate in the state at 10.70 percent. Winkelman follows in a close second with 10.10 percent. Both are small, isolated rural towns.
Lemos said a retail sales tax increase is often "more palatable" for the voters because it doesn't target just citizens of the town, but also people who use the roads and town services when they shop in Oro Valley.
But Parish said retail sales taxes can be volatile, and the council should consider the effect the tax can have on businesses.
Tim Booth, chairman of the Northern Pima County Chamber of Commerce and general manager of the Hilton El Conquistador, said he understands that as the town approaches build out, the council needs to examine new funding sources. But he said currently the town seems able to balance the needs of the community with the current levels of income.
"Business needs to understand the council's proposal before we can voice a true opinion," Booth said.
The sales tax increase will not affect the bed tax rate, which is 6 percent, but it will increase the construction sales tax rate from 4 percent to 4.5 percent.
Jeff Jones, owner of Interior Expressions in Oro Valley, said a sales tax has the potential to drive business away from the town to other communities or to the Internet.
It also could also hurt the town's chances of annexing the Foothills Mall, part of the Southwest Planning Area, designed to bring more revenue into the town.
Kunisch said he hopes some of the extra sales tax funding could be earmarked for replacement expenses for town equipment. To replace worn out police cars or town vehicles, the department must wait to receive funding through capital improvement plan projects, which can take years.
"An asset replacement program should be in the budget," Kunisch said.
But Parish said even if the council agrees to pass both tax proposals, the council would still have financial difficulties.
Buzz around the council is that the day for the citizens to vote on a property tax may not be far away.
"We're getting to that point where to operate, we really have to look at everything," Kunisch said. "Down the road this town is going to have to have a property tax."
Councilman Barry Gillaspie, who voted against the utility tax in September, said he did so because he was tired for what he called short-term solutions to the town's long-term financial problems. He also mentioned that soon the council would have to start talking about a property tax.
Parish said he wouldn't vote in favor of a property tax, but agreed that the day is coming "very soon" that Oro Valley residents are going to be asked if they want one.
"Discussing all the possibilities is healthy," Parish said. "We can't continue to close our eyes to the challenges."