A Pending 1% Payson Sales Tax/TPT Increase?

Transparent Payson has sometimes been labeled “conjecture,” “speculation,” and other choice things.   The fiscal issues facing our community are coming into focus every day.   The current issue?   A potential 1% sales tax increase.   The sales tax (TPT) rate for Payson is 9.48%.   That comprises 5.6% State Tax, 1% Gila County Tax, and 2.88% Town of Payson Tax.   If approved by the Town Council, the rate will be 10.48%.   Let’s call it 10.5%.   Remember, unlike many places, Payson taxes food, which will be 3.88% on a head of lettuce or a gallon of milk.   Let’s call that 4%.  Feed your family, and the Town of Payson will take a bigger nibble off your plates at the table.  We suspect any sales tax increase will impact local businesses.

The last sales tax/TPT increase of 0.88% six years ago was double the amount required for the stated objective.  The objective was to pay down a debt/underfunding of the Public Safety Personnel Retirement System (PSPRS).  The infamous April Fool’s Day meeting to discuss the tax implementation was a side show of how to spend the money before the tax was even approved.  That tax was effectively a done deal before it was even discussed by the citizens.  The 0.88% tax did not seem to be used for the stated purpose and is scheduled to sunset in 2027.  The debt to the pension fund is no lower now than it was six years ago.  The sunset provision on the 0.88%?  We have little hope.  Now, the Town will apparently implement another sales tax increase.  Will the stated objectives be adhered to this time?  Like the sunset provision, we have little hope.

Before we get into the pending tax increase, as outlined in this post, we had a few topics to cover.  We still have to update the Varxity v. Town of Payson case.  This information and discussion places that update on the back burner.

So, where do the current “conjecture” and “speculation” come from?   The Town of Payson has a Capital Improvement Project Citizen Advisory Committee (CIPCAC),  as discussed here.  The TOP also had a thirty-one percent (31%) budget increase.  We stated:

To our knowledge, there has been little revealed about the $18M funding gap between years and how it will be resolved.

That budget was passed in July.   The current budget is $59 million.   Next year’s budget is over $77 million the budget increase is discussed here.  Curiously, a 1% sales tax/TPT increase, and the $20M anticipated total, $5.2M new, will help to cover the $18M shortfall between the two budgets.  Coincidence?

The CIPCAC has concluded its work.   The committee will propose to the Council during a September 27th presentation a proposed 1% Payson sales tax/TPT increase.  The funding priorities for that Payson sales tax/TPT increase include the following:

  • Police & Fire Deferred Maintenance
  • Aquatic & Rec Center
  • Event Center
  • Rumsey Park drainage
  • American Gulch

It seems odd to suggest new assets when there is a track record of not maintaining current assets to the point of requiring replacement.   A General obligation bond (property tax) would address the other priorities of the CIPCAC as listed in this presentation.   That bond vote is scheduled for a 2025 off-year vote.   We wish them well on an off-year election for a property tax increase after an anticipated 1% sales tax increase.

 

Once/if the Town Council approves the tax rate increase, the TOP can secure a bond set against the anticipated revenue.   That is the reason 402 was purportedly repealed.  The backstop/shotgun feature triggered by 402 would place the issue before the voters.  If 402 is reinstated, and the voters disagree on the backstop, it limits funding options to the TOP.  With some funding options removed, the Council may reconsider, or limit, a Payson sales tax/TPT increase.

The TOP was advised, in February 2023, to repeal 401 and 402 by a bond attorney to remove questions investors might have on post-issuance litigation.   Instead of proactively addressing the matter in the courts, the Town Council purportedly repealed the Propositions using an emergency ordinance.   Remember, they have an obligation to defend the legislation passed by voters, as discussed here.  The discussion on an emergency ordinance may be found here.  The only recourse by the voters was via the courts.  The Transparent Payson v. Town of Payson suit must be settled before the issuance of a bond set against any increased sales tax/TPT revenue.

We suspect a Payson sales tax/TPT may negatively impact local business.   A drive to Mesa will get an 8.3% rate and no food tax.   Are you in the market for a $50,000.00 car?   Save money, up to 4% or $2,000.00, depending on where you go, by leaving town.   If you live outside of Payson but shop in Payson, save even more by shipping to the home with online purchases.  Many states use destination-based sourcing for sales tax collection so that the seller charges tax based on the ship-to address.  Sometimes, that includes the state rate and local jurisdiction rates, such as at the city or county level.  Sometimes only the state tax.  The requirement for online sellers is triggered at $100,000.00 in Arizona.  The application of tax depends on how savvy/sophisticated the retailer or transaction facilitator is.  If the seller uses ship-to calculations, and you are outside of Payson, but in Gila County, the taxes are a combined 6.6% for the state and Gila.  The minimum tax on online sales in Arizona is 5.6%.  Confused yet?  It can be a complex equation.  The takeaway is it will impact local retailers as there are other purchasing options.  Shopping/buying habits may change.   Tax collections may fall.  Local businesses may fail.

Town of Payson funding is a complex issue.  Taxes and tax rates are not the sole consideration in this equation.  We have to consider services and facilities.  Some things are no doubt required.  Can the general fund address them all?  Not very likely, even if everything else was cut to a minimum.  So why the crumbling facilities and lack of maintenance?  Good Great question.  What have they done with the money in the last twenty years?  It appears not much.  Do you think the Payson sales tax/TPT is a done deal before the first public reading?  We could be wrong.  Our track record suggests otherwise.

Your pocketbooks will be lighter.  Your spending power will be reduced.

We are going to show the math below.   We will connect the dots on the timeline.  It may get a bit boring.  If you want to check out, now is the time.  Want to see the numbers in action?  Keep reading below the donation picture.

 

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If the Payson sales tax/TPT is increased by 1%, the TOP can secure a bond set against the anticipated revenue to have access to the current cash value as a lump sum.  How much does a 1% tax generate? The total Payson sales tax/TPT at 2.88% in FY 21/22 was $15,003,182.00 ($15M).  That suggests $520,943,819.44 ($520M) in taxable goods/products.  If that sales total is subject to 3.88%, it works out to be $20,212,620.19 ($20M).  So the difference, or the amount expected from a 1% Payson sales tax/TPT increase, is $5,209,438.19 ($5.2M) per year, or $434,119.84 per month, that could be pledged to a revenue bond.  A straight bond, with nothing deferred, no gimmicks, etc., would be a maximum loan value of $68,619,209.00 ($68M) at a 4.5% rate for twenty years.  If the bond does not have a backstop, and the 1% pledge does not generate $5.2M per year due to an economic downturn, a highway bypass in the next twenty years, a wildfire, or impact from the development plans of the Tonto Apache Tribe/Nation (An excellent neighbor to Payson), the bond would not be paid and could be subject to default.  Hence the backstop/shotgun to ensure the note is made.  Enter Proposition 402.

If Proposition 402 is reinstated, and the voters DO NOT AGREE to a backstop, it will cost the TOP more, maybe jump from the 4.5% 20-year scenario above to a 5.5% rate.   The cushion might be calculated at .75% of the sales tax/TPT to account for a potential downturn in tax collections.  We suspect the Payson sales tax/TPT increase is still a done deal.  The only question is whether the interest rate of the total available immediate cash on hand is established via a straight revenue bond or a hybrid bond with a backstop feature.

The new math of a straight revenue bond would be:

  • $5.2M per year *.75 = $3.9M per year or $325,589.88 per month
  • At 20 years, 5.5%, a total bond value of $47,331,863.27 ($47M).
  • Again, nothing quirky on terms, just straight money.

Recognize this is a twenty-year scenario.  A tax rate increase, if approved by the Council, is here to stay.  No sunset, no end in sight.  One thing investors hate more than ambiguity or non-guaranteed/backstopped returns is unsettled litigation.  If 402 is reinstated, and the voters disagree on the backstop, it impacts about $21M+- in funding potential via long-term debt to the TOP.  That decrease in potential current value might give pause to a 1% Payson sales tax/TPT and have the Council address deferred maintenance only.  Perhaps a more modest tax increase?

So, a suggestion to remove Propositions 401 and 402 in February, the Propositions were purportedly repealed in April, a budget increase was proposed and adopted by July, in August an RFP/RFQ was sent out for a pool design and in September a presentation of a 1% sales tax/TPT is proposed.  Are citizens paying attention yet?  Do you see why we suspect it is a done deal?  Likely not “conjecture” or “speculation.”

Again, what have they been doing with the money for the last twenty years?  Where did it all go?

We seem to have found the motivation for the purported repeal of Proposition 402.

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