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Sedona Tax Revenue Continues to Slide

Opinion by Peter J. Fagan

Much like the waters of Oak Creek flowing down over Slide Rock, the city’s fiscal strength is following that same downhill path.

Peter J Fagan

Peter J Fagan

During the council retreat on November 20, tax revenue results for the first quarter of the 2010 fiscal year were reviewed. With the majority of the city revenue derived from excise taxes, sales tax revenue is down from budgeted revenue by $259,306, or 8.4 percent, for the first quarter of the fiscal year. If this trend continues, projected excise tax revenue for the fiscal year will be down $1,157,000.

If you look deeper into the numbers, the picture is even bleaker. Compared with fiscal 2009, which wasn’t a great income year for the city, retail sales tax revenue is down 13 percent, restaurant and bar revenue is down 8 percent and accommodations revenue is down 28 percent. The only bright category is construction revenue which is up by 36 percent.

This increase is due to sales tax revenue on the Route 179 project and the construction on two schools located in Sedona. However, the Route 179 project will be finished next spring and school construction will continue to slow down through the fiscal year. Thus, the sales tax revenue from these sources will eventually dry up.  As of this writing, there are no other major funded construction projects to take its place.

Adding to these revenue concerns are the decrease in revenue sharing that the state of Arizona is projecting. Originally due to the state revenue shortfalls, the state was going to cut its revenue sharing with the counties and municipalities by 15 percent. Now that cut is projected to be in the 25-percent range. This loss of funds will have a further negative impact on city revenue.

At the retreat, the council decided on three major priorities for staff:
• Continued Financial Stability as Highest
• Provide Enhanced Communications Plan
• Focus on Infrastructure Needs

Let’s look at what was decided upon for the fiscal sustainability priority:

1) Pursue local collection of sales tax

The city currently contracts with the Arizona Department of Revenue to collect and audit sales tax receipts. The city staff feels that ADOR is understaffed and not able to conduct proper audits of Sedona businesses. By implication it seems that they believe that some businesses are not correctly reporting their sales tax receipts; thus the city is not collecting all it should. It has been suggested that the city itself, or with a private contractor, take over the sales tax and audit process. These possibilities will be explored and most likely one will be adopted.
2) Implement mandatory business licensing and audit program for sales tax collection

Sedona currently has a business registration program, which requires every business in the city to register and pay a fee. There is no enforcement of this registration issue. The staff has recommended a mandatory city business licensing program, with enforceable provisions.

3) Create a citizen advisory committee

When Mayor Rob Adams set up a citizen advisory committee to look at city finances, it was disbanded by the city council. Now it is the council’s idea to set one up. Maybe we wouldn’t be in the fiscal situation we are if the first advisory committee had been allowed to continue.
4) Finalize Wastewater Rate Study, including possible reduction in sales tax contribution to wastewater fund and increases to user fees

Any business or individual who is on the city sewer system saw this coming. User fees will be increasing. The only question is: How much?
5) Provide increased and simplified reporting available to council and public

This is certainly a good idea. Reports should be timely and easily understood.

Do you see anything missing from the priority list? The financial priorities are designed to raise revenue but do not address the systemic problem: that the city spends more than it takes in.

Nowhere in these priorities is the issue of balancing the budget, cutting expenditures and living within our means mentioned as a priority. Must that not be the most important priority? It was in the retreat packet each councilor received but it never made it to the priority list.

So, what happened? The city has to address the budget crisis. Putting Band-Aids on the problem will not solve it. Surgery is required.
Contact: 928-204-1101
E-mail: creativefin@aol.com

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