Youngtown, Arizona Would Sooner Die Than Levy Property Taxes

In Youngtown, Ariz., city officials are contemplating the legal equivalent of shutting down.

The city of about 6,500 people 30 minutes northwest of Phoenix is, for all practical purposes, a small-government, low-taxes, no-compromise kind of place. Youngtown sold its water authority to a private company nearly two decades ago. It's been nearly three years since city crews, instead of private contractors, mowed the lawn outside town hall. And trash pick-up has never been a city-run operation.

Youngtown was founded almost 50 years ago as the nation’s first all-senior citizen city, where part of the attraction was the absence of a property tax. A 1998 court order forced Youngtown to welcome younger residents. But as the city expanded its police force and other services to meet its changing needs, it never instituted a property tax, the single most important revenue ingredient in most municipal budgets.

Now, faced with a $183,000 deficit that will force the city to drain more than 10 percent of its rainy day fund, officials are considering everything from the historic to the nearly unthinkable, The Arizona Republic reported Tuesday.

Youngtown officials are considering which of the few remaining city services to cut. They're discussing levying a property tax for the first time in history. And they're exploring allowing the city to be annexed by a nearby municipality or simply giving up Youngtown’s status as a city and becoming an unincorporated piece of the surrounding county.

“We certainly looked at the ostrich option. You know, stick your head in the sand and let the next guy deal with it," said Mayor Michael LeVault, the chief elected official for almost five years.“But this council and I think we came here to help citizens solve problems and make life better. So, we’re going to look at everything.”

Youngtown joins other cities and counties contemplating dire steps to deal with high unemployment, rising demand for social services and flagging state and federal support. Jefferson County, Ala., has so few employees left after its bankruptcy that workers who usually repair streets will have to perform election duty in next week's Republican primary. Stockton, Calif., announced plans last week to stop paying some of its long-term debt and enter negotiations with creditors. And Colorado Springs in January turned off about a third of its streetlights and put the police helicopters up for sale, the Denver Post reported.

Youngtown, evenly divided among Republicans, Democrats and independents, has few residents who publicly support a property tax. And it can no longer depend on the state and federal governments to round out its balance sheet. The city’s savings account includes enough money to last the budget year, which ends in June. So officials won’t move to give up the city's legal status or any of the other options for a few months, said LeVault.

Meanwhile, officials are building what LeVault called a “financial firewall” that allows him to review every invoice and check that leaves city hall. A committee of citizens will unveil tax recommendations later this month. And officials are aggressively pursuing federal grants. Bankruptcy, LeVault said, won't work because Youngtown has no long-term debt and no unencumbered income stream against which it could borrow.

But until one or more of these fixes takes effect, Youngtown has a problem. Youngtown derives most of its budget from state and federal funds. Its only other source of revenue is a 3 percent sales tax. All three sources of revenue declined during the recession and since.

For most cities, property taxes are the essential money that pays for government and public services, said Andrew Reschovsky, a public affairs and applied economics professor at the University of Wisconsin's Institute for Research on Poverty. Reschovsky, who studies municipal finance, said the average local government collects 38 percent of its budget from state and federal contributions. More than half the budget comes from local tax revenue and fees. And of these locally-generated funds, nearly 70 percent typically comes from property taxes, Reschovsky said.

For Youngtown to have operated for almost a half-century without a property tax, expanding city services to meet the growing population, is "highly unusual," and difficult to sustain, Reschovsky said.

In 2010, a ballot initiative that would have instituted a property tax just large enough to fund the police department failed miserably. More than 70 percent of the town voted against the measure. But at the December meeting where Youngtown city officials debated abolishing the police force, a large number of residents turned out to complain, the Arizona Republic reported.

“When you get 73 percent of people voting one way, that’s not just a no. That’s a hell no,” said LeVault. “Of course, one of the problems that we do have is it seems that most of the people who show up to vote are our senior citizens. But we have a lot of young people, young families that live in this town. We have to find ways to get them to really participate.”

Last year, the city hired a company to survey Youngtown residents. The answers were clear. People want a Youngtown. But they don’t want to pay for it, LaVault said.