Media Contact:

Tom Belshe, Executive Director

League of Arizona Cities & Towns
602-258-5786
tbelshe@azleague.org

For Immediate Release

May 20, 2021

ROUNDS CONSULTING ECONOMIC ANALYSIS HIGHLIGHTS

NEED TO HOLD LOCAL GOVERNMENTS HARMLESS FROM TAX CUTS

Phoenix – The League of Arizona Cities & Towns (the League) commissioned Rounds Consulting Group,
preeminent economists in Arizona, to analyze the impacts of a flat state income tax on local governments.
The findings of the analysis confirm that failure to hold cities and towns harmless will hamstring
municipalities’ potential for future growth.

As lawmakers discuss and negotiate the FY 2022 state budget, it is imperative the Legislature consider the
ramifications of a $1.9 billion tax cut on cities and towns statewide. As part of a 1972 voter approved
initiative, cities and towns receive 15% of the state’s collection of income tax. The proposed cut would
result in $285 million in annual losses to Arizona cities and towns – the single largest cut to local
governments in Arizona’s history.

A key finding from the Rounds Consulting dynamic analysis is that a reduction of this magnitude to local tax
revenues will hinder local government’s ability to deliver quality essential services to residents, including
the potential for cuts to public safety. These losses will negatively impact infrastructure investments and
quality of life, further hindering municipalities’ ability to attract residents, businesses and job growth.

The Rounds analysis additionally addresses the misguided opinion that cities and towns will make up these
losses through Prop 207 and Wayfair revenues. While Wayfair modernized the tax code as it relates to
online sales, most remote transactions were already taxable because of the physical nexus of retailers in
the state and do not represent net-new revenue. Regarding Prop 207, the initiative’s language is definitive
in stipulating that monies from the excise tax on adult-use marijuana cannot be used to supplant or reduce
existing allocations.

During a time in which cities are only now gaining a sense of stability following the uncertainty of the
COVID-19 pandemic, safeguarding longstanding voter approved local revenues is at the forefront of our
priorities. To hold cities and towns harmless, the League requests that municipalities’ share of income tax
collections be permanently increased to 18.9%. Doing so will allow cities and towns to maintain the quality
of life their constituents expect and meet infrastructure commitments necessary to maintain and grow the
state’s economic viability.