Scot Mussi

There has been a flurry of bills this session aimed at increasing funds for transportation – all have involved increasing taxes:

SB 1146 might be the worst of all.

The amended SB 1146, which was supported by all Democratic members and three Republicans in the Senate, gave carte blanche fee authority to the Director of the Arizona Department of Transportation (ADOT) to charge any Vehicle License Tax rate they desired.  For example, if the ADOT director decided to double the VLT tax or to assess a $10,000 VLT on gas-guzzling pick-up trucks to combat climate change, it would be lawful under SB 1146.

Why would anyone support giving unelected bureaucrats the power to charge whatever tax or fee they want with no legislative oversight? The answer is that this is an attempt to circumvent Proposition 108, a constitutional taxpayer protection that requires a 2/3 affirmative vote by the legislature to raise taxes.  By handing their taxing authority to the ADOT Director, the legislature can claim that this is an “administratively set fee” that is not subject to Prop 108.

This end-run on our constitutional requirement of a 2/3 vote is currently being litigated in court by the Goldwater Institute over Medicaid expansion. Under scrutiny is two parts – whether the Legislature voted to increase NEW revenues, and whether the Hospital Fee assessed by the Director of Arizona’s Medicaid system was indeed a “fee” or a “tax.”

If the courts side with allowing for this administrative tax increase loophole, lawmakers will have discovered a way to raise taxes that erodes separation of powers inherent to our system.  The legislature is supposed to be the purse strings; elected to do one job – pass a budget.  This means the levers to extract money from taxpayers lies at their feet.

Not only does SB1146 allow an unelected bureaucrat to unilaterally set tax rates for Arizona residents – but it allows politicians to dodge accountability for the tax hike.  It is almost difficult to comprehend why our elected representatives would even consider such a dangerous proposal except as a way to avoid any accountability for supporting a tax increase.

Fortunately for taxpayers, it appears that SB 1146 is no longer moving this session. But given the uncertainty of the Medicaid lawsuit and politicians insatiable appetite to capture as much money as possible without anyone noticing, we fully expect similar efforts to appear in the future.

After getting railroaded in the late 19th century and losing large sums of public money, the founding fathers of Arizona’s constitution included specific language to prevent State and local governments from handing out special deals to taxpayers that serve no legitimate government purpose.

Unfortunately, constitutional concerns have not stopped municipalities and politically connected developers over the last two decades from exploiting a property tax scheme to avoid paying taxes while everyone else is forced to make up the difference.

Government Property Lease Excise Tax (GPLET, pronounced jeep-let) allows local cities who own property to turn around and lease that property to a private entity.   Because government property is not eligible for property taxes, the private entity instead pays a GPLET, or a lease tax, at a significantly lower rate than everyone else.

The GPLET, unlike a property tax, is not based upon objective standards of assessed market value, but on other factors such as square footage and primary use.  This means the lessee (i.e. politically connected developer) basically gets to determine what they pay.

Effectively this has created a swiss cheese tax environment where a commercial project on one side of the street pays the full 18 percent commercial property tax rate while their neighbor pays zilch.  Because local school districts, hospital districts, and counties rely on property taxes for revenues, GPLETs leave gaping holes in the general fund which must then be back-filled by state government and/or higher property tax rates paid by surrounding businesses and residents.  In the case of the City of Phoenix, $1.5 billion worth of development is not on the tax rolls.

The constitutionality of these sweetheart deals have always been questioned, which is why the Goldwater institute has filed suit to finally bring GPLET to an end.

The challenge cites four different violations of Arizona’s Constitution.  One provision, passed by voters in the 1980s, clarifies that no property shall by exempt from property taxes and prohibits the conveyance of property for the purpose of evading property taxes.

The second provision GPLET violates is the Gift Clause, which bans state and local government from lending or giving money to private enterprises when the government does not receive something of adequate value in return.

Thirdly, Arizona has a “Uniformity Clause” which is meant to ensure an equitable tax environment for all its tax payers.  Under the Uniformity Clause, properties within the same classification should be taxed at similar rates.  Under the GPLET system, similar office buildings could be paying no property taxes, the GPLET rate, or full property tax value.

Lastly, the “Special Law Clause” within the Arizona Constitution limits the government’s ability to pass laws that “grant special or exclusive privileges, immunities, or franchises.”  When laws are made, they must apply to a classification that is legitimate in nature and allows for members to move in and out of the classification.  GPLETs are hand selected by government bureaucrats; and are so exclusive they apply to singular developments (essentially classifications of one,) excluding members who should be a part of the same classification.

Supporters of GPLET have railed against reforms at the legislature for years and practically dared someone to take them to court. Now Goldwater has taken them up on their challenge, and given their track record and the courts increasing skepticism of taxpayer subsidies, we predict a quick death for the GPLET program.

The Club has long been a proponent of consolidated elections, by which all elections are held in August or November of even numbered years. The purpose of consolidating election dates is to increase voter participation and to end the practice by some local governments of holding elections in March or May in order to avoid much needed scrutiny.

The first step toward this goal occurred in 2012 when the legislature passed HB2826 that required municipalities to hold candidate elections on the same dates as statewide elections. The increase in voter turnout was immediate:

  • In the three election cycles prior to candidate election consolidation, voter turnout in Maricopa County never exceeded 26%, with average turnout around 20%.
  • After consolidation in 2014 and 2016, Maricopa County turnout was never below 26% and was as high as 74% in the most recent election.

Increased voter turnout is one benefit of reform.  Consolidated elections save tax payers money.  When cities hold theirs separate from the state they incur significant additional expenses in printing, voter education, notifications, facilities and staff costs, and postage.  The City of Scottsdale moved to consolidate their elections two years prior to the state enacting its legislation.  For them it was dollars that made sense – after amending their charter to consolidate their election in 2008 – the city saved their residents $110,000 in their 2010 election.

Given the proven success of higher voter participation and lower costs with the 2012 reforms, Representative Kevin Payne (D21) introduced HB2495, which would require that any proposed sales tax increase be voted on consolidated election dates as well.  In other words, if a city desires to increase their local sales tax, the vote would have to occur in November of even numbered years.

Opponents to reform (local government and various special interests) cite the same arguments against consolidation that they have used for years. Moving elections mean local issues will compete for time, attention, resources, and ballot real estate with state and national races and matters.  That somehow voters are better served when they can study these issues in isolation and are not “fatigued” by a long ballot, perhaps abandoning the “local issues” at the bottom of the ballot.

They are now using the bizarre claim that HB 2495 would imperil local government if there is an emergency and a new tax hike is needed.  Aside from the general absurdity of an “emergency tax,” cities already have the authority to pass a tax increase without voter approval by a majority vote of their elected body.  Mayors and Councilmembers, if they truly believe a tax increase is necessary, are free to vote for one, devoid of the political cover of “the will of the voters.”

Consolidated elections have been studied by historians, scholars and policymakers across the political and ideological spectrum, all reaching the same conclusion.  Off-cycle elections in practice (and by design) reduce voter turnout and benefit organized special interest groups.  No matter the political bent, organizations who stand to benefit most, are strategically served by low voter turnout.  Organized groups are more likely to know about an off-cycle election that enriches themselves and their turnout has a much greater general impact on the overall election.

HB2495 is good public policy and deserves a YES vote.  Consolidated elections have proven time and again to increase voter turnout, reduce costs and provides predictability and consistency to voters.

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The Arizona Free Enterprise Club is a free market policy and advocacy group dedicated to promoting a strong and vibrant Arizona economy.