1. State-Shared Revenues: Coping with the Reductions ACMA Luncheon February 19, 2003

2. The Role of State-Shared Revenues Arizona has one of the most generous revenue sharing systems in the nation Arizona has one of the most generous revenue sharing systems in the nation Cities rely heavily on state-shared revenues to provide on-going services Cities rely heavily on state-shared revenues to provide on-going services The laws that created shared revenues also pre-empt cities from certain revenues The laws that created shared revenues also pre-empt cities from certain revenues Forces the state and cities into a partnership of necessity Forces the state and cities into a partnership of necessity

3. The Advantages of the System Evens out tax base disparities among the cities Evens out tax base disparities among the cities Lessens the need for competition among the cities Lessens the need for competition among the cities Can smooth out economic cycles somewhat Can smooth out economic cycles somewhat Historically has produced a stable revenue source for local jurisdictions Historically has produced a stable revenue source for local jurisdictions

4. Disadvantages of the System Cities reliant on circumstances outside their control Cities reliant on circumstances outside their control State legislature controls our destiny year after year State legislature controls our destiny year after year Can produce a reluctance to raise required revenues locally Can produce a reluctance to raise required revenues locally Lag in recognizing population growth Lag in recognizing population growth

5. The Extent of Local Reliance on Shared Revenues Percentage of Total General Fund Revenues Avondale 27% Avondale 27% Glendale 40% Glendale 40% Phoenix 38% Phoenix 38% Tempe 27% Tempe 27% Gilbert 33% Gilbert 33%

6. Extent of the Problem Income Tax Reductions for FY04 Income Tax Reductions for FY04 Avondale - $626,259 Avondale - $626,259 Peoria - $1,891,256 Peoria - $1,891,256 Phoenix - $23,055,946 Phoenix - $23,055,946 Scottsdale - $3,537,772 Scottsdale - $3,537,772 Mesa - $6,917,857 Mesa - $6,917,857

7. Causes of the Problem Economic Recession Economic Recession Legislative Formula Changes Legislative Formula Changes Income Tax Pool reduced from 15% to 14.8% for FY 02-03 and 03-04 Income Tax Pool reduced from 15% to 14.8% for FY 02-03 and 03-04 Follows a reduction from 15.8% Follows a reduction from 15.8% Legislative Tax Cutting Legislative Tax Cutting

8. Coping with the Problem Short Term Fixes Short Term Fixes Delay or defer equipment purchases Delay or defer equipment purchases Slow down filling of vacant positions Slow down filling of vacant positions Push purchases into the next fiscal period Push purchases into the next fiscal period Spend down contingency reserves Spend down contingency reserves Use administratively designated funds Use administratively designated funds Spend locally campaigns Spend locally campaigns Hiring freezes Hiring freezes

9. Coping with the Problem On-going Expenditure Reductions On-going Expenditure Reductions Across the board cuts Across the board cuts Travel and training reductions Travel and training reductions Eliminate programs and services Eliminate programs and services Seek efficiencies, reorganize services Seek efficiencies, reorganize services Eliminate vacant positions Eliminate vacant positions Reassess policies on vehicles, cell phones, etc. Reassess policies on vehicles, cell phones, etc. Combine divisions or departments Combine divisions or departments

10. Coping with the Problem Increase Local Revenues Increase Local Revenues Local sales taxes Local sales taxes Fines Fines Permit fees Permit fees User charges User charges Employee contributions for benefits Employee contributions for benefits Property taxes Property taxes Non-resident taxes Non-resident taxes

11. What’s Different this Time Economy will eventually recover Economy will eventually recover Formula will return to 15% (MAYBE) Formula will return to 15% (MAYBE) The tax cuts of the 1990’s probably won’t ever fully come back The tax cuts of the 1990’s probably won’t ever fully come back Citizen service expectations will probably continue to grow Citizen service expectations will probably continue to grow

12. The Solution Long-term on-going expenditure reductions Long-term on-going expenditure reductions Finding better ways to do business Finding better ways to do business Keep investing in technology – but capture the savings Keep investing in technology – but capture the savings Explore local revenue options Explore local revenue options Maintain vigilance at the legislature Maintain vigilance at the legislature Keep faith in your ability to manage Keep faith in your ability to manage

13. State-Shared Revenues: Coping with the Reductions ACMA Luncheon February 19, 2003