By Tammy Gray
A campaign is underway to rein in special tax districts that operate outside of state-mandated spending limits.
The Goldwater Institute, a conservative non-profit organization dedicated to “defending citizens’ liberties,” is pushing state legislators to re-examine the spending and taxing authority given to special districts, such as flood, fire, health, water and road improvement districts. The institute refers to these districts as a “form of shadow government” and cites concerns that the districts operate outside of parameters set for local governments, resulting in a lack of accountability and increased costs to taxpayers.
“A shadow government has been growing virtually unnoticed for the past 30 years, and its spending is rising even faster than burgeoning federal and state spending,” the institute notes. “Yet few taxpayers are aware of this layer of government that is substantially increasing their own tax bills and crowding out private enterprise.”
According to a report recently unveiled by the institute, the number of special tax districts in Arizona has increased from 34 in 1952 to 326 in 2012, with many of the new special districts in rural areas. Arizona ranks 42nd in the nation for the number of special districts per capita, with a total of 4.7 districts per 100,000 people. North Dakota is ranked number one with 120.5 districts per 100,000 people, followed by Wyoming with 105 and Montana with 79 per 100,000 people.
Arizona ranks highest in the nation, however, in the number of special districts that have the power to levy taxes, with 99.62 percent of all special districts in the state having taxing authority. North Dakota ranks second with 82.41 percent, and New York third with 81.94 percent. Districts without taxing authority are typically allowed to collect certain fees.
Goldwater Institute Senior Economist Steve Slivinski, who authored the report on special districts, pointed out that the amount of taxes collected through special districts represents a large portion of local tax dollars.
“If special district spending were a line-item in an average local government’s ledger, it would be the third largest spending item, right behind welfare and education,” he noted. “Conservatives concerned about the overall size and scope of government should turn their attention toward special districts and how they violate the spirit of the government tax and expenditure limits that have been on the books for three decades in many states.”
In Navajo County, secondary property taxes are nearly equal to primary property taxes. In fiscal year 2013, the county’s maximum allowable primary property tax levy was $6.4 million, however, the county planned to collect up to $12.2 million in property taxes. Of that total, $6.15 million is primary property tax and $6.13 million is secondary property tax. In fiscal year 2014, the county expects to collect $6.3 million in primary property taxes and $5.5 million in secondary property taxes, for a total of $11.8 million. Those totals include the fire district assistance tax, Navajo County Flood Control District, Little Colorado River Flood Control Zone, Navajo County Library District and the public health services district. They do not include special districts that are highly localized such as water and road improvement districts, and the amount does not include Northland Pioneer College or school equalization tax levies.
Despite the additional burden of the secondary property taxes, Navajo County has a low property tax rate compared to most other counties in the state. In fiscal year 2011, the county ranked 14th out of 15 counties for primary property taxes and 13th for secondary property taxes.
Navajo County government is responsible for collecting all types of property tax, but does not retain the money designated for special districts. That money is turned over to each district’s governing board once it has been collected.
The Goldwater Institute report claims that one of the major problems with special tax districts is that they often allow local governments to make an “end run” around state expenditure limits.
“Typically created to levy new taxes and issue debt, special districts are driving much of the growth of total government spending at the local level, in part because they are not subject to state spending limits,” the institute notes. “Many of the services offered by special districts are functions that could either remain within the purview of traditional municipal governments or services that can be best provided by the private sector.”
According to the institute’s report, special districts also cost more to operate than traditional government or private services, and are not routinely held accountable to taxpayers. The report notes that the special districts are often heavily influenced by special interest groups, and elections to create new districts, levy taxes or seat governing board members are often held separately from general elections, resulting in low voter awareness and turnout.
Goldwater Institute representatives are making several recommendations to lawmakers to try to make special tax districts accountable to taxpayers. The recommendations include subjecting the districts to the same taxing and spending limits as traditional government; increasing transparency by making financial reports readily available to the public, as well as requiring that the districts submit to regular audits; and holding districts accountable by requiring that elections be scheduled in conjunction with general elections.
The report notes, “Getting a handle on special districts is the missing piece of the state tax revolution that began in the 1970s. That period of history gave us many state tax and expenditure limits that were meant to finally put a leash on the spending appetites of Leviathan at the state level. Special districts have long enjoyed loopholes that allow them to exist and operate outside these limits. Policymakers should look toward the goal of eliminating those loopholes as a means of finally and effectively restraining the growth of government at the local level.”
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By Tammy Gray