Representative Neal Carter: Understanding Taxes, Governance, and Community Costs

Background & Context

• Speaker: Neal Carter, State Representative for District 15 (one of two representatives per district)
• Residence: Purchased a home in San Tan Heights in 2010 and now lives on a two-acre parcel behind Walmart; first state representative from San Tan Valley
• Position: Officially agnostic on incorporation question; lives outside incorporation boundaries and cannot vote

Current Fire Coverage Situation

• Current System: Rural Metro provides fire coverage as optional subscription service
• Cost Structure: Would be lower if everyone purchased it
• Incorporation Benefit: Fire district would spread costs over broader base, lowering individual costs
• Drawbacks: Those not currently paying would face new costs

Zoning Decision Authority

• Current System: County Planning and Zoning Commission makes decisions
  • Volunteers from across county (Oracle, Casa Grande, etc.)
  • Decisions made at higher county level
• With Incorporation: City/town would make own zoning decisions locally

Tax Implications – Sales Tax

• Current Rates:
  • State sales tax: 5.5%
  • At local Walmart (Gary & Hunt): 6.7% total (5.5% state + 1.2% county)
• Incorporation Risk: City/town could enact additional sales tax
• Example: Queen Creek Walmart on Rittenhouse has almost 9% due to municipal tax

Tax Implications – Property Tax

• Current System:
  • State eliminated its portion of property tax (Carter voted for this 3 years ago)
  • Current property taxes go to county and mostly to schools
• With Incorporation: Cities/towns have authority to enact property taxes
  • Carter stated it is his understanding that most cities do not levy a separate municipal property tax, but it remains a possibility

Minimum Legal Requirements for Incorporation

• Only Two Requirements by State Law:
  1. Provide police coverage (which could be through contract with the sheriff)
  2. Town clerk
• Not Required: Fire coverage, town hall, parks, or other services
• Police Service Reality:
  • Currently provided by Pinal County Sheriff (funded through county taxes, including the 1.2% county sales tax portion and property taxes)
  • New city/town would likely contract with Sheriff initially rather than create own department

County Tax Continuation

• Important Point: Residents would still pay county taxes after incorporation
• County Responsibilities: Sheriff, courthouse, jail, county roads (Hunt Highway is a county road)
• Property Tax Nature: Ad valorem (based on property value)
  • Board of Supervisors has lowered rates every single year for last 5 years
  • However, bills may still increase due to rising property values despite lower rates
  • Carter’s personal example: about $100 annual increase
• County Windfall: County would receive a windfall because it wouldn’t pay for police service in San Tan Valley anymore, but would have more money for county roads and to lower taxes further

State Shared Revenue System

• Historical Context:
  • Arizona became state in 1912 with cities/towns having significant taxation powers
  • Compromise reached in 1970s or 80s (Carter thinks 1980) because nobody wanted to submit sales tax forms to every little city
• Current Agreement:
  • Cities gave up independent tax collection authority to state
  • State collects and redistributes to cities/towns
  • Currently 18% of state income and sales tax revenue, taken off the top and pays cities proportionate to their populations, increased from 15% to offset the impact of the flat tax

Arizona Flat Tax Context

• Current Rate: 2.5% flat income tax
• Carter’s Pride: States he’s proud that the state legislature has the lowest flat tax in the nation among states with income tax (noting some states have no income tax, which is lower still)
• Revenue Adjustment: State shared revenue increased from 15% to 18% to compensate cities for lower income tax collections

Financial Balance Analysis

• Costs: Must provide police services (current county responsibility)
• Revenue: Would receive state shared revenue
• Carter’s Estimate: Believes San Tan Valley would probably receive about $35 million in state-shared revenue at current population levels, but noted he could be wrong on that estimate, emphasizing he’s not qualified to do detailed cost-benefit analysis at the city level
• Complexity: Carter works at state level and feels unqualified to assess municipal finances

Political Accountability

• Tax Authority: City council could vote to increase OR decrease/eliminate taxes
• Democratic Controls:
  • Regular elections to replace council members
  • Recall options available (though Carter notes you can recall people, which is too infrequent – meaning recalls don’t happen often enough)
• Carter’s Philosophy: States “I really believe that people should keep a short leash on us,” supports term limits (he’s eligible for one more term then done), and emphasizes need for citizen oversight and accountability

Final Assessment

• Pros: Better/uniform fire coverage, local zoning control, ability to direct money to road projects as local priorities dictate
• Cons: Risk of increased municipal taxes to fund services
• Overall: Complex issue requiring detailed cost-benefit analysis comparing new municipal expenses (primarily police services) against new revenue streams (state-shared revenue), with final determination dependent on municipal-level financial analysis