Attachment A Expenditure Limit Task Force Report.pdf

City of Phoenix — Formal (2020-04-15)

Extracted text (via pymupdf) 31572 characters

City Council Report
Recommended Ballot Proposition for Fall 2020 Election
The 2020 Expenditure Limit Task Force recommends a Local Alternative Spending
Limit (also known as a Home Rule Option) be presented to voters on the Nov. 3, 2020
ballot.
Summary
Our recommended Home Rule Option would ask Phoenix voters to continue setting
the annual spending limit equal to the annual budget. This alternative has been in
place since 1999. This would allow Phoenix residents to continue to control local
expenditures through the annual budget process, rather than default to a state-
imposed formula.
Members of the 2020 Expenditure Limit Task Force included: Chairperson Monica
Villalobos, President and CEO Arizona Hispanic Chamber of Commerce; Rachel Aja,
Government and Regulatory Affairs Manager Cox Communications; Bert Coleman,
President Coleman Dahm Layeux, Inc.; Todd Sanders, CEO Greater Phoenix
Chamber of Commerce; and Kelli Williams, Senior Litigation Counsel with CNA
Insurance Companies. Our recommended ballot language options are provided in this
report and additional information is also attached. This report provides brief
information on our process and deliberations resulting in this recommendation.
THE ISSUE
The City of Phoenix, like most Arizona cities and towns, has had an alternative
expenditure limit in place for many years. This limit, most recently approved by voters
in 2015, allows the City to locally control expenditures by deciding what programs,
services and facilities will be provided in our community through the annual budget
process. Without this alternative expenditure limit, our services would be controlled by
a formula that limits annual spending to 1979-80 levels, adjusted only for population
and national inflation.
Phoenix residents have approved nine Home Rule Options since 1981. Our current
ATTACHMENT A
1

Home Rule Option provides for the Mayor and Council to set the limit at the adopted
budget following community input on the proposed spending plan. This Home Rule
expires on June 30, 2021. On Nov. 20, 2019, the Mayor and Council appointed the
2020 Expenditure Limit Task Force to study the provisions of the constitutional
spending limit and to make a recommendation on our future approach to an alternative
expenditure limit.
The consequence of not establishing some form of an alternative expenditure limit
would require the City to drastically cut services and potentially incur the cost of issuing
new debt.
Additional background information on the State Expenditure Limit is included on page
14 of this report.
TASK FORCE PROCESS
During a series of four meetings, the Task Force reviewed and discussed the history of
the Arizona Expenditure Limitation, previous spending limits for the City of Phoenix
and expenditure and service demand forecasts for all major City funds. The Task Force
considered other forms of modifying the limit, reviewed information on factors affecting
expenditures since 1979-80 (page16), and a comparison of the Phoenix limit per capita
to other Arizona cities and towns with populations greater than 100,000
(page 18).
The forecasts assume moderate economic growth over the next several years, with no
further period of recession. Our analysis indicates that in 2020-21 the city’s financial
forecast for services to city residents will exceed the spending limit formula by over
$1.4 billion. Conservatively, that gap will be approximately $1.6 billion by 2024-25.
These amounts are based on existing revenue sources and do not assume any new
revenue sources, or the addition of new City services.
Our review of the factors impacting expenditures since 1979-80 identifies voter-
approved enhancements for programs such as police, fire, transit and parks and
preserves that are clearly desired by the community but that are not incorporated via
the formula. Also evident is the impact of environmental and other mandates and
regional services such as airports that are fully funded from airline and passenger fees
having grown disproportionately faster than the state formula supports. Finally,
Phoenix’s limit per capita is one of the lowest of all Arizona cities and towns with
populations of more than 100,000 yet the City provides many essential programs and
services that benefit other communities in the region and state.
2

A permanent base adjustment was reviewed as an option to the Home Rule. Though
there was some consideration and discussion, there are concerns with the permanent
base adjustment. One reason is the permanent change would not be truly permanent
because, similar to the original limit, it would grow by inflation and population and not
other factors. Another reason is that the periodic review and reconsideration by the
community and tie to the annual, public budget process is lost with such an approach.
Also, as demonstrated by the Great Recession, the City’s revenue is less predictable,
making it more difficult to estimate the base amount.
After reviewing the issues related to the state-mandated spending limit and its potential
impact on the City of Phoenix, the 2020 Expenditure Limit Task Force supported an
Alternative Expenditure Limit (Home Rule Option), which sets the annual limit equal to
the annual balanced budget and requires the Mayor and Council to continue to obtain
community input on the budget before adoption. The budget, and therefore the
expenditure limit, would be constrained to the resources available and approved
through the annual process. The Task Force agreed this is the most appropriate form
of a local alternative expenditure limitation for the City of Phoenix today.
In all, 78 of 91 cities and towns throughout the state were reported by the League of
Arizona Cities and Towns to have some type of relief from the state-imposed
expenditure limits to meet community needs. Home Rule Options are utilized by 44 of
those cities.
Continuing the current Home Rule Option recognizes the City’s long-standing practice
of seeking and providing opportunities for resident comment on an annual basis
through hearings and/or other means of City input. This also allows our residents and
their locally elected representatives to decide what services will be provided. This
commitment to transparency and involvement of the community in decision making by
the City of Phoenix is further demonstrated by the formation of this Citizens’ Task
Force. State law does not require such an approach to develop and place an
alternative expenditure limit before the voters.
RECOMMENDATION
The 2020 Expenditure Limit Task Force recommends referral to the Nov. 3, 2020
ballot of a local alternative expenditure limitation that sets the limit equal to the
annually adopted balanced budget after the Mayor and Council have publicly reviewed
the budget. This limit will be in effect for four fiscal years beginning in 2021-22 through
2024-25. This limit recognizes:
·
The Mayor and City Council, after receiving input from residents, will have the ability
3

to spend already available funds for services such as police, fire, parks and
recreation, libraries, neighborhood services, solid waste collection, transit services,
a safe and adequate water supply, and a modern, convenient airport that are
deemed important by the local community.
·
A locally established expenditure limit allows the City to implement previous voter-
approved mandates for enhanced services such as improved public safety,
improved transit services and the expansion of parks and desert preserves.
·
The City of Phoenix has a proven track record of making needed reductions to
balance its annual budget relying upon its long-established open budget process
with many opportunities for residents to communicate their budget priorities to the
Mayor, City Council and City Management.
·
Unlike seeking a permanent adjustment to the base limit, this local alternative limit
will continue the process of review and voter approval on a four year cycle.
This recommended alternative limit will allow Phoenix residents and their locally
elected representatives to continue to locally control expenditures to achieve the
community’s priorities.
With the Mayor and Council’s approval, staff will prepare the necessary items to place
this local alternative expenditure limitation on the Nov. 3, 2020 ballot.
Additionally, request to authorize the City Manager to set the dates of two public
hearings required prior to placing a Local Alternative Expenditure Limitation on the
Nov. 3, 2020 ballot. The two hearings would be set at the following dates and times:
1.
Wednesday, May 6, 2020 at 2:30 p.m.
2.
Wednesday, May 20, 2020 at 2:30 p.m.
Immediately following the second public hearing on May 20, 2020, the Council will
convene in a special session to consider adoption of the proposition for the ballot.
Attached to this report are copies of the ballot and publicity pamphlet language
recommended by the Task Force. This item will be placed on the Maricopa
County ballot on Nov. 3, 2020. Two options of the ballot language are provided for
consideration. The first option provides more information on the Expenditure Limit
item and the second option is condensed in the event the City is notified by the
County of space limitations on the ballot. Final City Council adoption of the ballot
language options recommended by the Task Force is scheduled for June 17, 2020
4

after the two legally required public hearings and publication of the vote to refer the
proposition to voters.
Concurrence/Previous Council Action
The 2020 Expenditure Limit Task Force approved recommending to City Council a
Local Alternative Spending Limit also known as a Home Rule Option on Feb. 20,
2020.
Responsible Department
This item is submitted by Jeff Barton, Budget & Research Director and Ed Zuercher,
City Manager.
5

Ballot Language Option #1
2020
BALLOT PROPOSITION
PROPOSITION NUMBER XXX
LOCALLY CONTROLLED ALTERNATIVE EXPENDITURE LIMITATION
OFFICIAL TITLE: Resolution No. XXX
Descriptive Title
Continue the existing locally controlled alternative expenditure limitation allowed by
Article IX, Section 20 (9) of the Arizona Constitution. If approved, it would keep the
annual expenditure limitation equal to the City Council adopted budget for the next four
years. Constitutional and previously authorized voter exclusions shall continue to
apply.
Effect
A “Yes” vote shall have the effect of continuing local control by allowing the Mayor and
City Council, by a majority vote, and after obtaining community input on the proposed
spending plan to establish a local expenditure limitation.
A “No” vote shall have the effect of the city operating under the state-imposed
expenditure limitation formula based on 1979-80 expenditures adjusted for inflation
and population. This will result in an estimated $1.3 billion reduction in the fiscal year
2021-22 budgeted expenditures and reductions in or eliminations across all City
services.
Question
Shall the Alternative Expenditure Limitation set forth in Phoenix City Council
Resolution No. XXXXX be adopted as part of the local expenditure control program of
the City of Phoenix?
YES
NO
6
A RESOLUTION OF THE COUNCIL OF THE CITY OF PHOENIX
PROPOSING THE CONTINUANCE OF A LOCALLY CONTROLLED
ALTERNATIVE EXPENDITURE LIMITATION. THIS ALTERNATIVE
EXPENDITURE LIMITATION WOULD SET THE LIMIT EQUAL TO
THE BUDGET ADOPTED BY THE CITY COUNCIL.

Ballot Language Option # 2
Question
Shall the Alternative Expenditure Limitation set forth in Phoenix City Council Resolution
No. XXXXX be adopted as part of the local expenditure control program of the City of
Phoenix?
A “Yes” vote shall have the effect of continuing local control by allowing the Mayor and
City Council, by majority vote, and after obtaining community input on the proposed
spending plan to establish a local expenditure limitation. Constitutional and previously
authorized voter exclusions shall continue to apply.
A “No” vote shall have the effect of the city operating under the state-imposed
expenditure limitation formula based on 1979-80 expenditures adjusted for inflation
and population. This will result in an estimated $1.3 billion reduction in the fiscal year
2021-22 budgeted expenditures and reductions in or eliminations across all City
services.
YES
NO
2020
BALLOT PROPOSITION
PROPOSITION NUMBER XXX
LOCALLY CONTROLLED ALTERNATIVE EXPENDITURE LIMITATION
7

Option #1
2020
PUBLICITY PAMPHLET
LOCALLY CONTROLLED ALTERNATIVE EXPENDITURE LIMITATION
Descriptive Title
Continue the existing locally controlled alternative expenditure limitation allowed by
Article IX, Section 20 (9) of the Arizona Constitution. If approved, it would keep the
annual expenditure limitation equal to the City Council adopted budget for the next four
years. Constitutional and previously authorized voter exclusions shall continue to apply.
Effect
A “Yes” vote shall have the effect of continuing local control by allowing the Mayor and
City Council, by a majority vote, and after obtaining community input on the proposed
spending plan to establish a local expenditure limitation.
A “No” vote shall have the effect of the city operating under the state-imposed
expenditure limitation formula based on 1979-80 expenditures adjusted for inflation and
population. This will result in an estimated $1.3 billion reduction in the fiscal year
2021-22 budgeted expenditures and reductions in or eliminations across all City
services.
Question
Shall the Alternative Expenditure Limitation set forth in Phoenix City Council Resolution
No. XXXXX be adopted as part of the local expenditure control program of the City of
Phoenix?
YES
NO
OFFICIAL TITLE: Resolution No. XXX
A RESOLUTION OF THE COUNCIL OF THE CITY OF PHOENIX
PROPOSING THE CONTINUANCE OF A LOCALLY CONTROLLED
ALTERNATIVE EXPENDITURE LIMITATION. THIS ALTERNATIVE
EXPENDITURE LIMITATION WOULD SET THE LIMIT EQUAL TO THE
BUDGET ADOPTED BY THE CITY COUNCIL.
8

SUMMARY ANALYSIS
City of Phoenix, Arizona
Locally Controlled Alternative Expenditure Limitation
The voters of Phoenix have previously approved locally controlled alternative
expenditure limitations in 1981, 1985, 1991, 1995, 1999, 2003, 2007, 2011 and 2015.
The purpose of this election is for the continued use of a locally controlled alternative
expenditure limitation.
Pursuant to the Arizona Constitution, the City of Phoenix will seek voter approval to
continue a Locally Controlled Alternative Expenditure Limitation for the next four fiscal
years, beginning in 2021-22. Any and all dollar figures presented in the following
summary are estimates only and are based on the best information available at the time
of the analysis.
Under a locally controlled alternative expenditure limitation, if approved by the voters, the
City estimates it will be allowed to expend the following approximate amounts (in
thousands): $5,515,059 in 2021-22, $5,338,638 in 2022-23, $5,424,842 in 2023-24, and
$5,429,540 in 2024-25.
The amount of revenue estimated to be available to fund the operation of your City
government (in thousands) is $5,515,059 in 2021-22, $5,338,638 in 2022-23, $5,424,842
in 2023-24, and $5,429,540 in 2024-25. Revenue received from federal, state, and local
sources will continue to fund the increased expenditure authority associated with the
Locally Controlled Alternative Expenditure Limitation Plan. Expenditures will not exceed
revenue. The revenue estimates are the same under the locally controlled alternative
expenditure limitation and the State limitation. The City property tax levy shall remain
limited to the amount prescribed by the Arizona State Constitution.
With voter approval, the City of Phoenix will utilize additional expenditure authority under
this plan for all local budgetary purposes, including criminal justice, public safety,
transportation, community development, community enrichment, environmental services,
capital improvements, debt service, and general government. This additional
expenditure authority shall be in effect only for fiscal years 2021-22, 2022-23, 2023-24,
and 2024-25.
Under the State-imposed limitation, after considering the constitutionally allowed
exclusions, the City estimates it will be allowed to expend the following approximate
amounts (in thousands): $4,171,385 in 2021-22, $3,961,188 in 2022-23, $3,981,646 in
2023-24, and $3,871,403 in 2024-25 for the operation of your local government. If no
alternative expenditure limitation is approved, the state-imposed expenditure limitation
will apply to the City of Phoenix. This would result in a combination of service cuts and
new debt estimated at (in thousands): $1,343,674 in 2021-22, $1,377,450 in 2022-23,
$1,443,196 in 2023-24 and $1,558,137 in 2024-25.
9

All dollar figures presented in this summary are estimates only and are based on the
best information available at the time of the analysis. The budget and actual
expenditures in any of the four years may be more or less than the expenditures noted
above depending on available revenue.
10

Option #2
2020
PUBLICITY PAMPHLET
LOCALLY CONTROLLED ALTERNATIVE EXPENDITURE LIMITATION
YES
NO
OFFICIAL TITLE: Resolution No. XXX
A RESOLUTION OF THE COUNCIL OF THE CITY OF PHOENIX
PROPOSING THE CONTINUANCE OF A LOCALLY CONTROLLED
ALTERNATIVE EXPENDITURE LIMITATION. THIS ALTERNATIVE
EXPENDITURE LIMITATION WOULD SET THE LIMIT EQUAL TO
THE BUDGET ADOPTED BY THE CITY COUNCIL.
Descriptive Title
Continue the existing locally controlled alternative expenditure limitation allowed by Article
IX, Section 20 (9) of the Arizona Constitution. If approved, it would keep the annual
expenditure limitation equal to the City Council adopted budget for the next four years.
Constitutional and previously authorized voter exclusions shall continue to apply.
Question
Shall the Alternative Expenditure Limitation set forth in Phoenix City Council Resolution
No. XXXXX be adopted as part of the local expenditure control program of the City of
Phoenix?
A “Yes” vote shall have the effect of continuing local control by allowing the Mayor and
City Council, by majority vote, and after obtaining community input on the proposed
spending plan to establish a local expenditure limitation. Constitutional and previously
authorized voter exclusions shall continue to apply.
A “No” vote shall have the effect of the city operating under the state-imposed
expenditure limitation formula based on 1979-80 expenditures adjusted for inflation and
population. This will result in an estimated $1.3 billion reduction in the fiscal year 2021-22
budgeted expenditures and reductions in or eliminations across all City services.
11

1.
What is the State expenditure limit?
It is a State Constitutional limit approved by voters in 1980 which restricts annual
spending limits of cities and towns. The limit applies to all local revenues.
•
Limits spending to 1979-80 levels adjusted for:
o
Population; including annexations
o
Inflation; gross domestic product and inflation price deflator
o
Population and inflation factors are provided by the State
•
Exempts certain expenditures:
o
Federal funds
o
Bond proceeds
o
Debt service
o
Arizona Highway User Revenue (AHUR)
o
Local Transportation Assistance (LTA)
o
Other jurisdictions’ contributions (e.g. the Sub-Regional Operating
Group for the 91st Avenue wastewater treatment plant)
2.
What happens if we exceed the spending limitation?
The State will withhold state-shared income tax revenues in a formula-based
amount set by statute. For Phoenix, this would result in the General Fund losing
about $72 million per year which would be redistributed to all other cities and
towns in Arizona.
3.
What options do cities have to change the limits?
There are four methods for obtaining approval to change the limits.
Alternative Expenditure Limitation (Home Rule Option)
•
Only in effect for four years, then must be reapproved by voters.
•
Any and all expenditures can be exempted from the limit.
•
Must be voted on in the year preceding the first fiscal year to which the
alternative expenditure limit will apply.
•
Can only be voted on at a regularly scheduled election of the local
governing board (city council).
•
If the voters do not approve the alternative expenditure limitation, the city
must wait two years before putting it on the ballot again.
14
State Expenditure Limit

Permanent Base Adjustment
•
Permanently increases the base from which future spending limits are
calculated.
•
Does not provide for any increase in exemptions other than those
constitutionally allowed.
•
Can only be voted on at a regularly scheduled election of the local
governing board (city council).
One-Time Override
•
Applies in the following circumstances:
o
In the event of a natural or man-made disaster and approval by
council – may exceed limit for expenditures directly necessitated by
the disaster.
o
Upon affirmative vote of two-thirds of the council and approval by a
majority of voters – may exceed limit by the specific amount
approved.
•
Can be voted on at either a regular or special election.
•
Only good for the following fiscal year.
Capital Accumulation Exclusion
•
Authorizes a permanent exclusion of a fixed level of operating funds for
pay-as-you-go capital. Limited exclusions for Aviation, Water, Wastewater
and Streets were authorized in 1981.
4.
Can Phoenix go to another approach besides the Home Rule Option?
Phoenix could go to a permanent base adjustment. Concerns identified through
prior citizen discussions include:
•
This approach does not require periodic review by a citizens’ group.
•
A permanent base adjustment may not be truly permanent. Each year the
expenditure limit will be calculated based on inflation and local population.
At some point, it is possible that expenditures would again exceed the
limit. All spending is subject to pressures not addressed by population
and inflation factors such as environmental mandates and regional issues.
This is especially true of Enterprise Departments, particularly the airport.
Additionally, the ability to improve services in accordance with regional
economic conditions and residents’ wishes would be limited.
•
Phoenix’ previous attempts at permanent base adjustments have all failed.
Permanent base adjustments for replacement of Federal Transit
Assistance and Federal Revenue Sharing funds were defeated in 1985. A
permanent base adjustment for transit expenditures was defeated in 1997.
15

•
Many of our services and facilities are regional and serve more than just Phoenix
residents. As an example, there were 6.5 million airport passengers in 1979-80
but 46 million are projected for 2019-20, which greatly exceeds the rate of
Phoenix population increase over that period.
•
The airport has experienced significant facility expansion including the opening of
new Terminals 3 (1980) and 4 (1990). Terminal 4 was further expanded in 2004
and 2005 including a new 14-gate concourse, additional parking facilities and a
third runway as a result of growth. The consolidated Rental Car Center opened in
2005-06 and the first segment and second segments of the PHX Sky Train
opened in 2013.
•
A new passenger facility charge allows more cost-effective pay-as-you-go
financing rather than the use of debt for airport projects such as taxiway and
runway improvements, PHX Sky Train design and implementation, voluntary land
acquisition and noise mitigation efforts (first PFC program was in 1996).
•
Many City facilities, including the airport and water facilities, have experienced
significant increases in security costs since 9/11.
•
Water and Wastewater have experienced increased capital improvement costs
for aging and deteriorating infrastructure. Using pay-as-you-go financing, rather
than debt, for some of these projects has kept overall costs to ratepayers down.
•
Water and Wastewater’s costs for electricity and chemical costs are impacted by
usage, source, quality of water and regulatory demands.
•
Infrastructure must expand ahead of growth to be sure services are available
when needed.
•
Solid Waste has added citywide recycling (1998), improvements to uncontained
trash pick-up, two recycling facilities (1998 and 2007), the SR85 landfill (2006),
and two transfer stations (1995 and 2006) have been added.
16
Factors Impacting City Expenditures
The list below identifies several examples of changes experienced by the City of
Phoenix since 1979-80. These changes are the result of many factors that are not
accounted for in the state-imposed formulaic spending limit. The factors generally
include growth in regional services provided to residents outside Phoenix boundaries,
environmental mandates, additional security requirements, and additional services
adopted by Phoenix voters and City Council including public safety, parks and
preserves, transit, and improved infrastructure.

•
Environmental mandates such as the Clean Water Act (1987), the National
Pollution Discharge Elimination System (2000), the Safe Drinking Water Act
(1992), the Groundwater Management Act (2006), the Clean Air Act (1998), the
Federal Solid Waste Disposal Act and Wastewater Reuse Regulation have all
increased costs.
•
The Phoenix Convention Center was expanded in the early 1980s and again in
2009 benefiting the entire region. The Herberger and Orpheum Theatres were
added in the 1990s.
•
Voters approved a new Transit tax in 2000 mandating additional services
including new routes, route extensions, additional hours of operation, weekend
and holiday service and enhancements to dial-a-ride.
•
Operating costs associated with Light Rail began in December 2008.
•
Voters approved a new Parks and Preserves Initiative tax in 1999 and
reauthorized the tax for a 30-year period in 2008 mandating improved and
expanded parks and open space.
•
The Fire Department began providing ambulance service in 1985.
•
Previously exempt Federal Revenue Sharing Funds and Federal Transit
Assistance Funds were replaced with an increase in the sales tax that is subject
to the limit in the mid-80s.
•
Voters passed the Public Safety Enhancement tax (2005) on utilities with
franchise agreements and increased sales tax for Public Safety Expansion
(2007) to be used to hire and support Police and Fire.
•
Funding from the telecommunications industry (1998) now exists to repay
residents for use of the right-of-way.
•
New Sports Facilities funding (1989) pays for arena and other sports-related
costs.
17

Final
FY 2019/20
1979/80
2018
FY 1979/80
Expenditure
Limitation
Limitation
City
2018
1978
Base Limit
Limitation
per Resident per Resident
Apache Junction
40,611

9,500

1,581,484
$
20,837,769
$
166
$
513
$
Avondale
82,605

6,900

1,525,417

56,287,527

221

681

Tolleson
7,017

4,190

966,494

4,988,879

231

711

Chandler
262,322

23,500

7,245,951

249,303,623

308

950

Phoenix
1,597,741

717,000

229,200,625

1,574,234,282

320

985

Queen Creek
49,261

2,525

818,277

49,204,905

324

999

Mesa
488,925

130,000

54,090,640

627,028,608

416

1,282

Gilbert
253,043

4,250

2,346,450

430,608,944

552

1,702

Tucson
543,505

311,400

188,097,586

1,011,892,790

604

1,862

Scottsdale
245,417

83,000

55,861,444

509,102,292

673

2,074

Glendale
241,852

84,000

67,955,628

603,062,288

809

2,494

Tempe
185,301

102,000

95,579,379

535,190,184

937

2,888

Paradise Valley
14,011

10,425

10,185,794

42,194,350

977

3,012

Buckeye
76,145

3,175

5,000,000

369,601,742

1,575

4,854

Goodyear
84,659

2,500

4,125,000

430,549,830

1,650

5,086

Peoria
176,118

10,500

18,247,857

943,393,020

1,738

5,357

Surprise
132,852

3,550

9,500,000

1,095,795,955

2,676

8,248

Average
834
$
2,570
$
Expenditure Limit Comparison by City
Cities over 100,000 in Population
Population
18