Feb 072014

By Tammy Gray
Local government officials received rare positive financial news from state and federal legislators recently. A small amount of state Highway User Revenue Funds (HURF) is expected to make its way back to cities and counties, while federal payment in lieu of taxes (PILT) will be received this fiscal year.
For the last several years, the State of Arizona has diverted HURF funding from cities and counties to the Arizona Department of Public Safety (DPS) to help make up for budget shortfalls. Cities and counties have been lobbying for the return of the funding, but the efforts have been largely unsuccessful until now.
In the 2014-15 fiscal year budget plan unveiled by Governor Jan Brewer, some HURF funding will be returned to local governments. The total, $31 million, will be divided among cities and counties throughout the state. It is not a complete restoration of funding, but as Navajo County Manager Jimmy Jayne previously noted, it is a step in the right direction and is an improvement over the state’s habit of taking funding from local government over the last four years. It is a small drop in the bucket, however, compared to the $238 million the state still plans to sweep from the fund to balance its own budget.
The HURF monies are used by local governments, such as Navajo County and the City of Holbrook, to repair and maintain roads. Many projects have been scaled back or curtailed as a result of the state budget sweeps. Counties and cities continue to press for HURF distributions to be restored to former levels in upcoming budget years. The League of Arizona Cities and Towns notes, “…it was disappointing to see that although the perennial HURF shift is acknowledged, at this time the executive fiscal year 2015 budget does not recommend funding HURF according to the statutory formula.”
A federal PILT payment anticipated in Navajo County’s current budget was in danger of not being received after the Congress failed to authorize the funding. Without the money, the county faced a shortfall of $1.4 million in June.
After the funding was omitted from the federal budget, it was added to the farm bill, which was passed by both the House and Senate. The addition to the farm bill authorizes PILT payments for this year only, and the fight is already underway to have it included as a mandatory budget item in future years.
Federal PILT funds are intended to make up for the inability of local governments to generate revenue through property taxes from federally owned lands. In Arizona, 42 percent of non-tribal land is owned by the federal government, while in Navajo County that total is 9.5 percent.
District III Navajo County Supervisor Sylvia Allen previously noted that PILT payments are substantially less than potential economic development.
“It is pennies on the dollar in what Arizona could do in developing these lands,” she said.
Lack of PILT funding, however, would have left a significant gap in the county’s general fund, with only five months remaining in the fiscal year to make adjustments. Authorization of the funding ensures that the county’s budget remains balanced for this year, and gives officials time to plan for the worst case scenario if it is not approved for the following fiscal year.