Life, Death, And Tax Increases

It’s time to modify the old trope, because Phoenix is going to raise your taxes, again. The current twelve percent increase on water rates being considered by the City Council is just the start. There will be more to come. The only question being asked right now is “how much?” The question people should be asking, though, is why?

In 2015, Phoenix’s budget was $3.14 billion. That grew in 2016 to $3.96 billion, and in 2017 to $4.06 billion. That massive increase in spending – almost a third in just a few years – has been possible only because Phoenix has record revenues: property tax collections are up, sales tax collections are skyrocketing, and developer impact fees are pouring into City Hall. So why do the politicians still say they need more of your money? And likely a lot more? Bad budgeting, bad planning, and a whole recycling yard worth of cans kicked down the road.

Or, you know, what Democrats call “leadership.”

Of course, unless you have access to the printing machines at the Federal Reserve, this type of leadership has predictable results. Results we’ve seen in Detroit and Chicago. The type of results spreading throughout California where Democrats have turned the Golden State into the Go Broke State. And without a real turnaround, that’s where we’re heading. In 2007, Phoenix spent 5.1 percent of our general fund budget on our pension obligations. This year, that number was 16.7 percent (of a much bigger number to begin with). And it’s going to get worse. Much worse.

Currently, Phoenix is shelling out $147 million to cover our past due pension obligations. Next year that number goes up to $153 million. By 2025, the cost will be over $200 million per year, and still rising. By 2045, these past due bills – the check for dinners eaten by Phoenix politicians decade ago – will cost taxpayers over $420 million per year. All told, that’s going to be something in excess of $3.2 billion that taxpayers will have to fork over, without seeing any increase in services as a result.

If a bunch of past due bills requiring a temporary 5-10 percent across the board increase in taxes were the whole enchilada, taxpayers could probably choke it down. But that’s not dinner. It’s just one appetizer in a 7-course meal. Next up on the plate is $1.5 billion in water infrastructure. After that, the chefs will be serving out $1 billion to $1.5 billion for public safety infrastructure. For mains, we have the $1.7 billion needed to bring our roads and streets up to even an adequate condition. After that, we’ll be moving on to the extra $300 to $500 million per year being demanded by our unions in the current round of contract negotiations before we finally arrive at dessert where – government surprise – we learn that every one of those expenditures is going to cost far more than we’re being told.

Our pension debt, for instance, is based on the current fund balance earning an annual average return of 7.3 percent. Historically, returns have been closer to half that. Further, current debt estimates also assume our retirees will only live to be about 79, when the truth is that they live a lot longer, almost a decade longer, on average. Add up all those extra years and the difference between the projected rate of return and the actual rate of return on the fund, and it’s likely our pension deficit balloons from somewhere around $3.2 billion, to $7 or $8 billion.

Add it all up, and Phoenix is looking at needing to spend an extra $17 to $23 billion over the next few decades, or somewhere between $560 and $767 million per year. That means that whether or not the politicians will admit it, yet, they’re going to be coming to you for something like a 12 to 15 percent increase in taxes across the board. And that’s just to maintain our current service levels, which aren’t acceptable to most citizens. Police and fire response times are up. Phoenix is short almost a thousand officers. Crime, especially violent crime, is rising in Phoenix while declining everywhere else in the Valley. That $1.7 billion for roads would bring them up to par now, but in five or ten years we’ll be back to the same crumbling streets unless we also increase our annual pavement maintenance budget as well. So that 12 to 15 percent increase is likely far, far short of what citizens will eventually be asked to provide.

Does it have to be this way? No. But without replacing at least two or three Council Democrats with reliable fiscal conservatives, it’s what’s going to happen. Is there money that could be cut? Yes. Should a government worker make 30 percent more in pay and benefits to do the same job you do? No. Should Phoenix have spent money on everything from a plant to make the most expensive fertilizer on earth (yes, we really do that), to $10 million studying garbage while ignoring the most basic core functions of local government? Heck no. But that’s where we are, with only three absolute certainties in front of us.

4 Comments

  1. Its called “Nepotism”. I bet if you go through the personnel roster, you will find a lot of friends and family in high paying do nothing jobs.

  2. I retired with two small pensions — one private, one public that I paid into– plus social security; it keeps me afloat but not wealthy. My wife, who worked all her life, has no pension. This article is part of an ongoing attack on pensions. Many millions of private industry workers have lost theirs to speculative investments (by others who control the money) called 401(k)s and the like. Public employees are seeing their future retirements way less than they were promised. With Wall Street jumping up and down 500 points a day, there are no guarantees that there will actually be any kind of pension at the end of a work life. It’s part of the ongoing campaign called “privatization,” and it penalizes the workers while enriching the stock brokers and speculators. If taxes need to be raised to fulfill the pledges made that working men and women can live out their retirement years in dignity, so be it. Those recent permanent tax cuts for the wealthy, with temporary cuts for the rest of us, have not “trickled down” and should be reversed so that our obligations can be met. Unless you believe, like Gordon Gecko in the film Wall Street, that “Greed is good!”

    • Albert, you are wrong on many, many fronts. This is not talking about any type of cut to pensions, it is talking about how the City is going to pay for massively underfunding our pension obligations for decades, and likely continuing to do so. Second, your public pension is entirely dependent on the stock market. A total stock market collapse would also collapse your pension, and the public wouldn’t be able to cover it. Worrying about simple swings in the market, on the other hand, is a good indicator that you don’t know enough about it. Swings included, the market has generated positive net returns in every single decade. And stockbrokers make just as much trading stocks for pension funds as they do any other stocks.

      Also, the recent tax cuts have increased federal tax collections by stimulating economic growth, and were made permanent for everyone.

      • I was wrong about the tax cuts — I’ll blame “chemo brain” — but I’ll stick by the rest of it. “Fiduciary responsibility” requires pension fund managers to avoid speculative and other unsafe investments, so bonds are popular along with blue chip stocks. Whether the current Wall Street roller-coaster counts as “simple swings” in the stock market remains to be seen. But you are also right that I don’t know enough about it — I’ve never been a gambling man.

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