Mesa, Az.: Where Population Has Boomed Without a Property Tax
by Sandy Ikeda
Thu, 29 May 2008 at 5:39 PM
I'm visiting my hometown of Mesa, Arizona. When I was born here in 1957, Mesa's population was around 35,000. Today it's approaching 450,000, making it the 41st largest city in America — larger than Atlanta, Oakland, Honolulu, Pittsburgh, or St. Louis. Despite this incredible population boom, however, like many American cities, its downtown today is much less lively than in the past. Even more so than nearby Phoenix, Mesa could be a poster child for urban sprawl, fueled by a pleasant climate, a relatively laissez-faire government, a surge in highway construction, and low taxes. In fact, Mesa is one of the few top-100 cities without a property tax. It relies heavily on its sales tax to fund its operations.
It also has the reputation, pretty much deserved, of being a conservative, family-oriented, and rather sleepy town, compared its neighbors, hip Tempe, yuppy Gilbert, or tony Scottsdale. A slowing economy has meant sales-tax revenues haven't been able to keep up with expenditures, resulting in cut-backs in arts funding, public-library hours, and other important services. Against this hard financial constraint they say it's been a struggle to attract wealthier residents and high-income-generating industries.
A couple of years ago, the citizens of here voted down a property tax, which some claim would have averted these cuts. One argument I've heard goes like this. First, adding a property tax would mean a net increase in municipal revenues that could then fund the kind of services (especially cultural ones) needed to compete with nearby cities. Second, a property tax is much less subject to changing economic conditions than a sales tax and would thus provide a more stable source of income over the business cycle, making city planning easier. Third, instituting a property tax would raise real-estate prices and thereby discourage low-income residents from moving in, resulting in more spending and more sales-tax revenues.
Sounds reasonable, but not a slam dunk.
First, adding a property tax might or might not increase net tax revenues. It would discourage some potential tax-payers from moving here or chase some away, while those who do stay would pay more in taxes. Only if the fall in tax revenues from the former is less than the increase in the tax revenues from the latter would net revenues rise. So, if a large percentage of Mesa tax-payers are tax sensitive, which is evidently the case right now, the plan could backfire.
What about the second part of the argument? It may be that in the short run property-tax revenue is more stable than sales-tax revenue, but it doesn't follow that this is true in the long run. Arizona real-estate prices are subject to wide fluctuations, with appraisals eventually reflecting these vicissitudes. If the city government is counting on this for long-term revenue stability, they may be disappointed.
Also, because property taxes directly affect a smaller portion of voters than sales taxes, it'll be politically easier to raise them over time than sales taxes. For similar reasons, taxes on business property tend to be higher than on residential property, which weakens the third part of the argument: "Undesirable" residents will be discouraged less than desirable businesses will be encouraged. The argument also assumes that low-income residents are disproportionately likely to use municipal services, such as police, emergency rooms, and the like, which conflates low-income with "undesirable" — a position I find unsavory.
But more than that, I'm reminded of Jane Jacobs's dictum, which I've mentioned in previous posts, that "new ideas need old buildings," or, in other words, that people with fresh ideas tend to be young and poor, so that cheap working space — whether in old buildings or in older areas in Mesa where property is cheap — can foster long-term development. Downtown Mesa may look today like a sleepy district — think of Silicon Valley in the 1950s — but it could be an economic dynamo tomorrow. There are no guarantees, of course, but it's something to consider in the property-tax debate.
Many here feel that Mesa has "outgrown" its no-property-tax days. Perhaps. But if population growth is a good index of economic vitality, and I think it is, the evidence certainly weighs against such feelings.
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