The secondary property tax that South Tucson has collected since fiscal year 2012 is illegal because it was never submitted to a citywide vote, City Manager Luis Gonzales said Thursday.
The City Council is expected to vote to eliminate the tax when it approves next fiscal year’s budget in June. Gonzales received a legal opinion from attorney Michael Cafiso saying the tax was illegal on May 22.
The change would leave a $600,000 hole in the city’s discretionary budget that must be made up with either other tax increases or cuts. This fiscal year’s discretionary spending was about $4.6 million. That includes the costs of providing fire and police services.
On Thursday, the council considered options that included raising the hotel-motel occupancy tax from 4.5 percent to 8 percent and increasing taxes in other categories by as much as 2 percentage points. The budget must be balanced by June 30.
Former Finance Director Ruben Villa said the secondary property tax was levied without the approval of city voters because he had received two legal opinions saying the vote was not required. Gonzales said the opinions were not on file, but Villa provided a 1990 letter from the Arizona League of Cities and Towns to the Star.
As Villa describes it, the idea was to cover the cost of servicing a debt incurred in the 1980s after a South Tucson police officer shot a Tucson officer in the spine, bringing the square-mile city to the verge of disincorporation.
The debt has lingered, being refinanced twice since 2003, and then the recession put further pressure of the budget, he said.
“The only option the city had to pay its debt was secondary property taxes,” Villa said.
The payment is more than $600,000 a year, he said. “The challenge now is for the council and city staff to figure out how to pay that.”
The bond was reported to the Arizona Department of Revenue as a revenue bond, but secondary property taxes are to be used only for general-obligation bonds.
Instead of going into a special account used to pay back the debt, the tax money collected instead went directly into the general fund, the pool used for all discretionary spending, Gonzales said.
The current administration is investigating possible criminal charges.
Councilwoman Anita Romero, the only current council member present at the time of the secondary property tax’s approval, was relieved that the tax would likely soon be lifted. She voted against it in 2011 and recalled no discussion of whether to ask for voter approval.
“I felt we shouldn’t have another property tax,” she said. “I live day by day. I was thinking about me and the people around me.”
Eddie Fass Badilla, a Republican and longtime South Tucson resident who attended Thursday’s meeting, thinks raising property taxes is what’s needed.
“Our streets are ridiculous,” he said. “If we want to attract businesses to South Tucson, we need to fix our problems. We may be a poor city, but we can do better.”
It was not immediately clear whether South Tucson voters would be refunded or otherwise compensated for the approximately $1.8 million collected through the secondary property tax.
Officials estimated the savings to the owner of an $89,000 home next fiscal year at $242.
Another controversial item on Thursday’s agenda was set aside for another meeting: Councilman Ildefonso Green asked whether it was legal to name municipal buildings after people.