This is part four of a series of articles The Times is doing related to Town of Fountain Hills finances as residents prepare to go to the polls May 20 to consider a primary property tax.

Part 1: Series begins on property tax vote
Part 2: Here is an overview of the Town's financial picture
Part 3: Here’s an overview of town’s financial picture

In 2005 the town’s strategic planning process began with a fairly broad brush with a discussion that included more than $100 million in potential long-term projects for the town.

As the discussions moved through the process of setting priorities most of the projects fell aside as too ambitious, unnecessary or too costly, however, a general consensus was that citizens wanted to strive to maintain the quality of life in the community. There was also the indication that citizens are willing to pay to achieve that goal.

Generally the Strategic Plan proposed that the town focus on maintaining quality parks and recreation facilities and programs, sponsor and encourage activities that promote a small town and community atmosphere and take steps to maintain clean and environmentally sensitive surroundings.

Interestingly, at the onset of the planning process council members asked that services such as law enforcement and fire and emergency services be off limits to the discussion. It was suggested this be done because such public safety services should be a given for the community, and to avoid any political overtones that might inhibit the process.

In conjunction with the strategic planning process, town staff prepared a 25-year financial plan to provide participants with a snapshot of the financial picture.

At the time, the financial forecast indicated the expenses to maintain the desired town services would begin to outpace incoming revenue in 10 to 12 years. Since 2005 changes in economic conditions have resulted in a forecast of revenue shortfalls within three to five years.

The key concern of the council is the lack of control the town has over the consistency of its revenue. Town officials have long been aware that one of the most attractive features of Fountain Hills is also a drawback when it comes to maintaining revenue.

The town is virtually landlocked at around 20 square miles. The regional park to the north and the Indian communities to the east and south leave the town surrounded by a lot of view enhancing open space. But it also means there is nowhere to keep growing to capitalize on the revenue that comes from growth.

A 2007 report from the Lincoln Institute of Land Policy written by Carol E. Heim, PhD. a professor of economics at the University of Massachusetts specifically addresses the fiscal challenges of communities facing build out in the Phoenix area. The report is entitled “Municipal Fiscal Structures and Land-Based Growth in the Phoenix Metropolitan Area.”

“Forward looking financial planning, and other policies can be adopted by municipalities before build-out and two such policies were highlighted,” Heim writes. “(One is) limiting the use of one-time revenues for operating expenses, and addressing the problem of rising land prices by acquiring land and protecting rights-of-way in advance of need.”

The Town of Fountain Hills has addressed both of these by setting policy that 85-percent of construction revenues will be earmarked for the capital improvement fund. The town also worked aggressively with the Arizona State Land Department to annex 1,276 acres of State Trust Land prior to its sale to a developer.

“When they no longer are able to annex land, municipalities can pursue a variety of strategies to sustain their tax revenues,” Hiem states, “Including redevelopment and infill, building up rather than out, and finding new revenue sources, such as a primary property tax in municipalities that lack one.”

Heim’s report cites Fountain Hills’ specific case in taking the primary property tax approach and outlines how the town came to that conclusion through its strategic planning process.

The town collects permit and development fees as well as sales tax from home construction in the community. Both anticipated and unanticipated declines in this revenue are part of what the town needs to make up going forward.

All sales tax revenues for the town account for 42 percent of the town’s general fund budget. With limited ability to expand its retail base, the town also anticipates this revenue will also flatten out in the coming years.

Another 42 percent of the General Fund budget comes from revenues the state divides with all communities. Each municipality’s share is based on its growth compared to other communities. Fountain Hills is no longer growing as it was in the 90s and its share of that income will not continue to increase.

To an extent those revenues are also contingent on the state’s ability to share the wealth. Each year the legislature has the ability to determine to what extent the shared revenues are allocated.

Town officials concluded steps should be taken to give the town more control over where its revenues come from.

At the time the Strategic Plan was approved it included a stipulation that the town take steps to address the projected long-term revenue shortage. The original goal was to propose a solution for the issue by the end of December 2006.

The Strategic Planning Advisory Commission (SPAC) was assigned the task of recommending a solution and in December 2006 asked for additional time to research the funding issue. The deadline was re-established for Dec. 31, 2007, and its recommendation was to ask voters for a $4.5 million primary property tax levy. The council followed through on that by calling for the question to be placed on the May 20 ballot.

Next week The Times will be look at the SPAC and revenue solutions subcommittee and how they reached the conclusion that led to its recommendations.