After spending the last 40 years asking voters to approve a spending increase for its budget, the Town of Oro Valley is analyzing different strategies for its future.
Oro Valley residents are familiar with a question called “home rule” that appears up on their ballots every four years. Approving the measure allows the town to set its own spending limit based on their adopted budget for that year, while denial restricts the town to a much smaller limit set by the state government.
Home rule allows for local control of funds, and must be approved by local voters every four years. For the past 40 years, a majority of Oro Valley voters have approved this crucial budget proposition.
The state-imposed expenditure limit is based on what each town or city was spending in fiscal year 1979-1980, and it is a fraction of what Oro Valley budget looks lie in 2020.
At a council study session on Jan. 22, Oro Valley’s Interim Chief Financial Officer Kevin Artz reported that in 1979-1980 the town spent $272,317. He said at that time Oro Valley was “primarily a residential community with little to no economic base.”
The State Economic Estimates Commission adjusts the expenditure limits each year, using a standard inflation rate and each jurisdiction’s population growth.
The Town of Oro Valley’s population has grown from 1,475 residents in 1979 to 45,184 residents in 2019. These factors resulted in Oro Valley’s current state-imposed expenditure limit of $25,711,875.
“That’s what the state tells the Town of Oro Valley that we are able to spend without one of the alternative options,” Artz said.
The state does allow cities and towns to exclude certain revenue sources from the limitation. These include bond proceeds, interest income, grants and intergovernmental revenues. Staff estimate that revenues from this fiscal year that are eligible for the exception equal about $14.3 million.
This means the town’s overall, state-imposed budget is about $40 million. But just last year, the town passed a budget of $111 million; a $71 million difference. This was possible because of home rule.
“If the voters did not approve the home rule or a permanent base adjustment, that would be our limitation and we would have to take a very difficult look at our budget going forward,” Artz said.
The state-imposed limit doesn’t work in Oro Valley in part because residents today demand more services from the town than they did in 1980, such as parks and recreation and the Oro Valley Water Utility, which was acquired in the 1990s and has a $22 million budget.
That limit also doesn’t account for new revenue sources the town has acquired since the baseline was set: impact fees, water revenues and sales tax rate increases.
“We’ve grown our economic base since that time, but those state adjustments don’t account for retail growth,” Artz said. “It doesn’t look at the fact that we had very little retail in 1980 and now we’ve become a regional shopping destination.”
The Arizona Constitution and Arizona Revised Statutes impose an expenditure limit on every city and town in the state, but also offers a few other options that jurisdictions can pursue and put the choice in the hands of voting residents.
One of those other options is called a “permanent base adjustment,” and Oro Valley town staff are proposing the council offer this option to the voters instead of home rule.
Artz said the town has to contribute money and staff hours toward the home rule election every four years. If Oro Valley passed a permanent base adjustment, it would modify the expenditure base from 1980. That $272,317 would be changed to a higher number by a one-time approval from local voters.
Artz said this would not only reduce election costs and staff time every four years, but would also provide stability to town service levels.
“Once you have that in place, you don’t have to have the concern about what’s going to happen at that next home rule election,” he said. “It’s a permanent increase.”
However, Artz said it is possible to adjust the base again in the future, if needed, but requires another majority vote of local citizens.
The town’s budget and finance commission recommended the permanent base adjustment option be presented to the council, and they support an adjustment of the original 1979-1980 base to $1.65 million, which is consistent with the staff’s recommendation of an adjustment range between $1.4 million and $1.8 million.
The $1.65 million base would give Oro Valley a $162 million expenditure limit. Town staff expect their actual budget to be $114 million in fiscal year 2021-2022, leaving capacity for more than $47 million worth of expenditures.
Both town staff and council members stressed the fact that any of the expenditure limit options do not increase the town’s revenues or the ability to tax citizens, it simply allows them the capacity to spend what they’re currently collecting.
“It’s hard to predict 20 years into the future,” said Town Manager Mary Jacobs. “If the council of 15 years from now were to decide to purchase another utility or do something that is outside of what we can imagine or visualize at this point, there won’t be a need to go back to the voters.”
Council member Melanie Barrett said the cost impact from switching to a permanent base adjustment would actually be neutral because this option has more intensive reporting requirements than home rule.
Artz agreed that it will take significantly more staff time to prepare the report, but he still believes it makes sense because they won’t have to go through an election. It costs the town about $15,000 every four years to put the home rule measure on the ballot.
“One of the things that I think is very hard to measure is the amount of political capital that it takes every year to unconfuse(sic) a citizenry about something,” Jacobs said. “We get a lot of people who move here, we have to go through the same process every year, and if there is an alternative to fixing this for some period of time, then I think it gives us the opportunity to focus on those things and ballot measures that are really more meaningful than perfunctory.”
Barrett recalled to when she, Mayor Joe Winfield and council members Josh Nicolson and Joyce Jones-Ivey ran for election in 2018, commenting that home rule was a prominent issue among voters. But she was concerned about the potential negative reaction of people who oppose government spending.
“There were a lot of people in our community who felt that they would like to vote against any government spending increases at all, and that that was sort of just a policy of theirs, that they would vote against those, and that’s probably the 30 to 35 percent who vote against the home rule, fall into that category,” Barrett said. “I do feel like if we overreach with the amount, that we run the risk of not seeming reasonable, and then putting the significant amount of time, effort, political capital into it, only to fail.”
Council member Bill Rodman said the excessive limit is for extra capacity, if needed. If the town council hypothetically did decide to spend a large amount of money that was unplanned for, that decision would have to go through its own public review process.
Agreeing with Barrett about the public’s perception of the issue, Rodman added that the town shouldn’t overreach if they don’t have to. He cited that Artz is confident a $1.4 million base would be sufficient.
In 2018, the home rule ballot question passed with 9,100 votes in favor, and 4,500 votes against, according to town clerk Michael Standish.
Council member Steve Solomon asked the staff what would happen if the town wasn’t able to convince a majority of its citizens that home rule is the best option.
“Ultimately, what it would mean is we would have to make significant cuts in one year, and there have been communities where that has happened,” Jacobs said. “And so what we are trying to avoid is that potential in the future. It’s in the general fund, that’s where most of our services are provided.”
Home rule will stay intact in Oro Valley until the four-year term expires in 2023. Jacobs said the staff decided to bring this issue to the council in 2020 because they are in the middle of the term.
“It gives us a little cushion just in case we’re not successful in explaining this to our voters,” she said. “If we were to do it on the four-year cycle, it’s an either-or. If it didn’t pass, we would have to go back to our (state) expenditure limitation.”
Jacobs said if the council is not comfortable making the switch now, they would try again in four years. She said over half of all communities in Arizona use the permanent base adjustment, and most have excessive capacity.
The town will decide whether to approve or reject this proposition at the March 4 council meeting. If passed, town staff would prepare informational pamphlets in June, and the new ballot question would be presented on the August 4 primary ballot.
“Should you decide to put this on a ballot, the only role that both the council and the staff have in the election process is education,” Jacobs added. “We cannot, by law, advocate for a vote. We cannot ask people to vote in favor of it. The only thing we can do is explain why it’s going on the ballot, what it will do, and the benefit of that.”