City Council Meeting - FINAL

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Meeting Date: 07/06/2021  
From: Brandi Suda, Finance Director

Consideration and Adoption of Ordinance No. 2021-14: An ordinance levying upon the assessed valuation of the property within the City of Flagstaff, Arizona, subject to taxation a certain sum upon each one hundred dollars ($100.00) of valuation sufficient to raise the amount estimated to be required in the Annual Budget, less the amount estimated to be received from other sources of revenue; providing funds for various bond redemptions, for the purpose of paying interest upon bonded indebtedness and providing funds for general municipal expenses, all for the Fiscal Year ending the 30th day of June 2022.  (Primary and secondary property tax levies for FY 2021-2022)
1) Read Ordinance No. 2021-14 by title only for the final time
2) City Clerk reads Ordinance No. 2021-14 by title only (if approved above)
3) Adopt Ordinance No. 2021-14
Executive Summary:
The City Council is required to fix and levy the amount to be raised from property taxation after the adoption of the final budget, per A.R.S. Section 42-17151.  The final budget is anticipated to be adopted on June 15, 2021.
Financial Impact:
The City is proposing a flat primary property tax levy of $6,952,496 on existing properties, plus a levy of $86,167 on new construction, for a total primary property tax levy in Fiscal Year (FY) 2021-2022 of $7,038,663.  The primary property tax rate to support this levy is $0.7186 per $100 of assessed valuation (lower than the prior fiscal year). The proposed levy is less than the maximum allowable primary property tax levy allowed for FY 2021-2022, which is $7,322,717. 

The City is proposing a secondary property tax levy of $7,739,745 on existing properties, plus a levy of $96,229 on new construction, for a total secondary property tax levy in FY 2021-2022 of $7,835,974.  The proposed secondary property tax rate is $0.8000 per $100 of assessed valuation (same as the prior fiscal year).
Policy Impact:
Adoption of the proposed property tax levies will generate revenues to help fund the community needs as identified in the FY 2021-2022 Final Budget and policies reflected therein.
Connection to PBB Key Community Priorities/Objectives & Regional Plan:
The FY 2021-2022 budget is the guiding document for the financial plan of the City.  The property tax adoption is part of the overall City budget adoption.
Has There Been Previous Council Decision on This:
Property tax information has been discussed or presented at the following public meetings:
  • Council Retreat on December 17, 2020
  • Budget Retreat on February 1, 2021
  • Discussion on posting 60 day notice for potential property tax increase on April 13, 2021
  • Council Budget Work Session on April 22, 2021 and April 23, 2021
  • Tentative Budget Adoption on June 1, 2021
Options and Alternatives:
1) Adopt the primary and secondary property tax rates as proposed.
2) Adopt lower primary and secondary property tax rates than proposed. 
3) Adopt higher tax rates than proposed, however, this action may be barred by Truth in Taxation Notice publication deadlines or other legal considerations.
Primary property tax revenues may be used for all purposes.  Primary property tax levies are limited, per A.R.S. Section 42-17051.  The City has the ability to increase the amount received from the primary property tax levy by a maximum of 2% each year excluding new construction. The maximum allowable increase for FY 2021-2022 is 4.0%.  FY 2021-2022 proposed primary property tax levy is set at $7,038,663, which is less than the maximum allowable levy of $7,322,717.

Primary property tax levies are also subject to "Truth in Taxation" notice and hearing requirements, per A.R.S. Section 42-17107.  On or before February 10 of each year, the county assessor must transmit to each city and town an estimate of the total net assessed valuation of the city, including new property added to the tax roll. If the proposed primary tax levy amount, excluding amounts attributable to new construction, is greater than the levy amount in the previous year, the city must follow the "Truth in Taxation" procedures. It is important to note that it is the levy amount and not the rate which triggers the "Truth in Taxation" procedures. The proposed FY2021-2022 primary tax levy amount did not trigger the "Truth in Taxation" procedures. 

Secondary property tax revenues may only be used by cities and towns to retire the principal and interest or redemption charges on general obligation bonds issued to pay for capital projects. Secondary property tax levies are not limited.  

The adoption of the property tax levy is the final step in the entire budget approval process.
Key Considerations:
The key dates for budget and property tax levy adoption have been determined and have been followed throughout this process.  The County will adopt the property tax levy as approved by the City in August 2021.
Expanded Financial Considerations:

The City is budgeting primary property tax revenues of $6,996,000 in its FY 2021-2022 Budget.  This budgeted amount is less than the levy amount because the City is allowing for approximately 1.2% in bad debt (taxes not able to be collected). The City anticipates an overall 1.3% increase in primary property tax revenues in FY 2021-2022, due to the increase from new construction (properties added to tax roll).  Primary property tax revenues may be used for any general purpose use of the City government.  Statutorily, the maximum allowable primary property levy for FY 2021-2022 is $7,322,717.

The City has budgeted a total of $7,835,974 in FY 2020-2021 secondary property tax, an approximate 2% increase over the FY 2020-2021 budget ($7,406,121).  The increase is directly related to the increased assessed valuation (increase in property values) and new construction.   Secondary property tax revenues are used to pay general obligation debt issued for City capital projects. 

Five years of historical data is shown below:

Property Tax Rates FY 2017-2018 FY 2018-2019 FY 2019-2020 FY 2020-2021
FY 2021-2022
Primary 0.8233 0.8334 0.7933 0.7510 0.7186
Secondary 0.8366 0.8366 0.8366 0.8000 0.8000
Total 1.6599 1.6700 1.6299 1.5510 1.5186

Primary property taxes account for XX% of the General Fund revenues budgeted for FY 2021-2022.
Community Benefits and Considerations:
Primary property taxes help support a number of City services including public safety, parks and recreation, other public works services, and general administrative and management functions within the City.

Secondary property taxes support the debt service payment on numerous city capital projects including Aquaplex, Fire Stations, Open Space, numerous street/utility projects, Forest Restoration, Core Services Facility, and the Courthouse.
Community Involvement:
Inform & Involve: Budget legal schedules were published in the June 3, 2021, and June 10, 2021, Arizona Daily Sun to allow for additional community review.  In addition, the legal and other budget schedules were made available at City Hall, and on the official city website or by request. At a public hearing on June 15, 2021, the final budget adoption and the property tax levy is open for public comment and allows citizens to provide input. The final opportunity for public input on the tax levy will be at the July 6, 2021, Council Meeting.
Ord. 2021-14


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