"Thomas Jefferson said a democracy is dependent on an informed citizenry. I don't care whether it sounds corny or not.  It's the truth." -Jim Lehrer

Carefree Truth
Issue #1015, April 25, 2022

Gary Neiss noted that this was the second budget workshop.  The third and final one will be held on 4/26 at 3 PM and will combine the topics of the first two workshops to present a draft of the program based budget.  A digital copy of the draft program based budget was sent to each Council member after the meeting and can be accessed by the residents by clicking this link: https://www.carefree.org/DocumentCenter/View/3962/Updated-FY-22-23
 
 
The first workshop covered the various Town staff departments, their roles, workloads, accomplishments, and needs.  This second meeting covered the forecasted operational revenue, the planned operational expenses, and the planned capital expenses.  The third workshop will allow the Council and the residents to ask questions.  The bottom line expenditure limit will be adopted at the May Council meeting and in June the overall budget will be adopted.  The new fiscal year (FY) begins July 1st.

 
 
Carefree has always been conservatively managed.  The 4 attributes of solvency are: 1.Cash-the ability to pay the bills; 2. Budget-the ability to balance the budget; 3. Long range- the ability to pay future costs, taking into account inflation and potential additional services, which is why economic development is crucial to diversify the "portfolio" with Carefree's sales tax-centric business model; 4. Service-the ability to provide the needed and desired level of services for current and future residents.  This needs to be reviewed and reconciled annually to balance sometimes conflicting needs.

 
The standard municipal revenue model includes three sources.  The first is State Shared Revenue (SSR)-1. Income tax; 2. State Sales tax; 3. Highway User Revenue Fund (HURF); 4. Vehicle License Tax (VLT).  The second is Local Fees-1. Local sales tax revenue (STR); 2. User fees, which are cost recovery fees.  The third is a Primary and Secondary local property tax.  The Primary tax is used for operational expenses and the secondary tax is used for General Obligation Bonds for one time investments into infrastructure.  Carefree does not impose a local municipal property tax, so is dependent on the first two sources.

 
Carefree's revenue is derived 24% from SSR, 16% from User fees such as building permits, and 60% from local STR.  SSR is measured on a per capita basis.  The communities all around Carefree are growing, but Carefree is landlocked and is reaching build-out, so the SSR will be decreasing in the future.  "That pie is fixed, so we will not be getting a larger percentage of it in the future.  We will essentially get a lower percentage of the pie."

The projected revenue includes: 1. Municipal sales tax- $4,250,000; 2. User fees- $1,162,000; 3. SSR-$1,708,000. for a total of $7,120,000.  The average STR in the period from 2012-2021 was $3.36 million.  This was influenced by the 2008 financial crash and the Covid shutdowns.  In the last FY, Carefree collected about $4.7 million, as the country and the state began to recover from the effects of the Covid restrictions.  The conservative projection for the next FY is about $4.25 million.  33% of that is from retail.

 
3,700 residents cannot supply enough STR revenue for the town to operate.  This is why Carefree needs to import STR and why economic development is a critical strategy to the Town's solvency and the ability to provide services to the citizens of Carefree.  Carefree's STR rose 10% due to the anchor stores like Bashas, Ace, and Lowes that people sought during the pandemic.  In 2021, more people started buying online and the retail STR jumped to 45%.
 
Mayor Les Peterson interjected that there has been extraordinary inflation in the past year that decreased  purchasing power but increased STR.  The skewing of that line will be a factor to consider as well.  Mr. Neiss agreed that was a point well taken.

 
Due to the opening of the Hampton Inn by Hilton in the downtown core, new businesses such as the Grinds and Gears bike and coffee shop have opened in town.  Athens, the Greek restaurant, is expanding.  Carefree is beginning to see the fruits of that hotel.
 
Councilman Vince D'Aliesio asked about the possibility of increasing the 3% local sales tax, which would provide an additional projected $1.4 million.  Mr. Neiss replied that it could be increased but the danger of doing that is business migrates outside the community.  It could become a detriment if Carefree had one of the highest sales tax rates in the metropolitan area and higher than any of the surrounding municipalities.  Cave Creek has the same tax rate as Carefree, but taxes food 1% higher, and has higher taxes on construction and some other elements.  But he would caution the Council on raising STR because there is a reduction due to migration if the tax goes above 3%.
 
Councilman Mike Johnson asked if there is a way to capture the online sales tax if people who live in Carefree have Scottsdale or Cave Creek mailing addresses.  Mr. Neiss said he as asked that question and hasn't gotten a firm answer from the League of Cities and Towns.  It is a concern if you have a mailing zip code that is not the zip code of the community in which you live, and it is a concern not only in Carefree, but throughout the state.
 
Construction sales tax is also a concern.  Mr. Neiss is not sure why it was averaging 19% but is now down to 9%, even though Carefree is at an all time high for building permit activity, but supply chain issues are delaying building.  The Hampton Inn is taking over 2 years to complete.  It's hard to get trades, equipment and materials.  "You have to wait and wait and wait.  And so that delays the payment of construction sales tax."  That is most likely affecting these numbers.  He suspected this was a barometer of the impact of Covid and the supply chain issues faced across the nation and the world.

https://vimeo.com/702291751
 
 
Lyn Hitchon
 
 
Prepared by Carefree Truth
Copyrighted
Visit our website at www.carefreetruth2.com  If you know anyone who would like to be added to the Carefree Truth email list, please have them contact me.  Feel free to share Carefree Truth with others on your list.
Visit www.carefreeazbusinesses.com to see more info about businesses in Carefree.  Please support our merchants.