ATRA: AG Audit Harshly Critical of GPLET

ATRA

By Jennifer Stielow

A recent audit by the Arizona Auditor General (AG) revealed many critical flaws surrounding the calculation, collection, distribution, and reporting of the Government Property Lease Excise Tax (GPLET).

According to the AG’s review of 268 leases, nearly half are currently under eight-year abatement; and therefore, no revenue is being collected. Forty-five percent of the leases examined are paying GPLET under the rate structure that existed prior to 2010 that imposes a dramatically lower tax burden than the current GPLET rates. Of all the leases audited, only 16 (6%) are subject to the new GPLET rates. As a result, the AG found that the 2010 GPLET revisions have not resulted in increased revenue as expected because so few leases pay tax under the new rate structure.

Additionally, the AG found many examples where the incorrect GPLET was calculated because either the wrong rates were used and/or not all of the property subject to GPLET was included. In fact, in certain instances lessees failed to remit GPLET payments altogether.

The audit also found that the distribution of GPLET revenues by county treasurers was done incorrectly by using the distribution percentages for property tax rather than GPLET, which are different. Furthermore, although county treasurers are required to assess penalties and interest on delinquent payments, none did so.

There are several reporting requirements under GPLET, one of which requires county assessors to annually report the value of all GPLET property, which includes properties under abatement, to the Arizona Department of Education (ADE). The AG found that only three of the seven counties that have GPLET deals reported the valuation of GPLET properties to ADE. This is a major cause for concern since underreporting GPLET values to ADE requires the state general fund to pay more in state aid payments to school districts than otherwise required. Overall, auditors’ interviews with city, town, and county officials indicated a general lack of understanding of GPLET requirements and recommended the Legislature modify statutes to address GPLET deficiencies.

This special audit was a requirement of the 2010 legislation that enacted several revisions to GPLET. The purpose of the audit was to determine if the revisions resulted in a viable revenue source in lieu of an ad valorem property tax on possessory interests for counties, cities and towns, community colleges, and school districts.

Originally enacted in 1996 as a successor to the possessory interest tax, GPLET allows government to enter into lease agreements with private entities to use government-owned property for private use and be subject to an excise tax in lieu of a property tax. By 2010, cities had dramatically expanded their use of the eight-year abatement. Additionally, the tax liability under the existing GPLET rate structure was not only considerably lower compared to the property tax, but the entire tax obligation disappeared at fifty years.

In an effort to address some of the inequities with GPLET, the 2010 legislation limited the size of Central Business District (CBD) boundaries for leases who qualify for the eight-year abatement. A new rate structure was implemented that nearly doubled the existing rates, and while rates under the old structure dropped 20% every ten years until reaching zero by the fiftieth year, the new rates are adjusted annually by the producer price index for new construction indefinitely. Finally, the legislation prospectively limited GPLET deals to a maximum of 25 years, including any abatement period, at which time the government lessor is required to convey the property to the prime lessee and the property is then placed on the property tax rolls.

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The Arizona Tax Research Association (ATRA) is the only statewide taxpayer organization representing a cross section of Arizona individuals and businesses. Organized in 1940, ATRA is the largest and most respected independent and accurate source of public finance and tax policy information. ATRA represents taxpayers before policy makers at the state and local level. ATRA’s fundamental belief is that every governmental expenditure is directly related to a tax. ATRA’s goal is efficient statewide government and the effective use of tax dollars through sound fiscal policies.

ICYMI: ATRA’s Kevin McCarthy – Why You Should Vote NO on Propostion 204

Kevin McCarthy, President of the Arizona Tax Research Association, explains why he and his organization is opposed to Arizona Proposition 204.

For more information, please visit www.VoteNoOn204.com.

Arizona Tax Research Association: Proposition 204 – Earmarking at its Worst

Vote No On 204

Vote No On 204

The Arizona Tax Research Association ( ATRA ) encourages a NO vote on Proposition 204 (1-16-2012). ATRA has long opposed ballot-box budgeting , where special interests use the initiative process to earmark revenues outside the state’s budgeting process. This initiative is arguably the most egregious earmarking effort ever placed before Arizona voters and it should be rejected.

This permanent sales tax increase locks in place an estimated $25 billion in spending over the next 17 years that can never be changed. Regardless of one’s perspective on the adequacy of education or transportation funding, putting spending for 12 different earmarks on auto-pilot is simply irresponsible. The Great Recession taught us a number of lessons regarding budgeting mistakes that aggravated Arizona’s chronic budget deficits. The biggest lesson was to avoid making permanent budget decisions that tie up billions of taxpayer dollars on the belief that neither the economy nor the state’s priorities will ever change.

In addition to a permanent sales tax rate increase in a state with the second highest combined rates in the nation, the initiative also takes the extraordinary step of freezing the current sales tax base. Freezing the sales tax base will undermine the growing momentum to reform Arizona’s antiquated state and local sales tax code and demonstrates not even a modicum of consideration for the taxpayers saddled with complying with this tax increase.

Lastly, funding for K-12 schools has always been the largest state expenditure. K-12 appropriations are driven by many complicated formulas that account for differences across Arizona schools. Prop 204 (1-16-2012) handcuffs policymakers’ ability to change these funding formulas. Presuming there will never be a legitimate reason to modify these statutes is shortsighted and an abuse of the initiative process.

Kevin J. McCarthy, President, Arizona Tax Research Association, Gilbert

Lori Daniels, Board Member, Arizona Tax Research Association, Chandler

Arizona sales-tax hike gets shiv on shady iPad contest promoted on Facebook, Twitter

Below is the complaint letter submitted to Arizona Secretary of State Ken Bennett earlier this week by Tom Jenney of Americans for Prosperity Arizona challenging the legality of initiative petitions turned in by the “Quality Education & Jobs” campaign based on signatures gathered by ‘volunteers’ with the promise of winning an iPad — thereby calling into question any and all of these petitions not disclosing that they were collected by a paid circulator. In the grand scheme of things this complaint likely reveals a small violation that will probably not invalidate enough petitions to drop their signature tally below the number required to earn a spot on November’s ballot.  However, this pattern and practice also reveals another instance where the troubled “Quality Education & Jobs” campaign has played fast-and-loose with the rules regarding gathering signatures… all in service to “The Children”… and government unions and brazen special interests who stand to reap hundreds of millions in government contracts. No wonder it has been thrown off the ballot. Let’s hope an activist judge doesn’t disregard the black-letter of the law and force this massive tax increase onto November’s ballot.  

BONUS: Click here to listen to the initial reaction from top “Quality Education & Jobs” campaign officials (Chairwoman Ann-Eve Petersen, Associated General Contractors honcho David Martin, consultant Joe Yuhas and others) upon learning their campaign’s 290,000 petition signatures are invalid.

June 25, 2012

The Honorable Ken Bennett
Arizona Secretary of State
1700 West Washington Street
Phoenix, Arizona 85007-2888

Dear Secretary Bennett,

On behalf of the 70,000 taxpayers in this state who are members of our organization, the Arizona chapter of Americans for Prosperity wishes to bring to your prompt attention an important matter regarding the potential failure by one or more ballot initiative organizers to fully and properly disclose their use of paid signature petition circulators. 

I-16-2012 has filed for inclusion on the November ballot and signature petitions have been circulated by its initiative supporters for qualification.  This initiative, commonly referred to as “Quality Education and Jobs,” has already submitted petitions to your office for certification.

Based upon the enclosed information, we believe that circulators have been compensated and incentivized with the promise of future compensation for collecting a specific number of signatures on behalf of the initiative.  We believe that repeated solicitations over Facebook and Twitter accounts maintained by initiative organizers, as well as at least one email sent by organizers or on their behalf, clearly demonstrate that the collection of fifteen (15) petition signatures were directly exchanged for “a brand new iPad 3” by at least two individuals.

A.R.S. § 19-118 defines a paid circulator as “…a person who receives monetary or other compensation that is based on the number of signatures obtained on a petition or on the number of petitions circulated that contain signatures.”  Those who satisfy the criteria of paid circulators are required to disclose their paid circulator status by noting the same on the petition.     

Organizers of I-16-2012 have apparently twice awarded an iPad 3, valued at $499, to certain individuals on or about May 11 and June 1.  Although the solicitations characterize the circulators as “volunteers,” the nature of those awards qualifies them as paid circulators by law.

We therefore request that your office immediately investigate this matter to determine whether the actions of the “Quality Education and Jobs” initiative organizers constitute a violation of A.R.S. § 19-118 and to take any and all necessary action. 

Furthermore, please accept this letter as a formal complaint with regard to the possibility that the “Quality Education and Jobs” initiative organizers may have circulated petitions using ballot language that differed from the official initiative language.  Given the discrepancies uncovered by the Arizona Tax Research Association (please refer to the attached article from the June 22, 2012 issue of the Arizona Capitol Times), we believe that the organizers of the “Quality Education and Jobs” initiative acted in violation of A.R.S. § 19-112, which requires that petition signature sheets be attached “at all times during circulation to a full and correct copy of the title and text of the measure or constitutional amendment proposed or referred by the petition.”

Thank you very much for your consideration of these matters, and for taking the time and effort to provide written responses to these complaints.

For Liberty,

Tom Jenney
Arizona Director
Americans for Prosperity

Arizona Tax Research Association Opposes Proposition 200

Taxpayers in the City of Tucson, courtesy of Proposition 200, are being asked to amend the city charter to strip the current and future city councils of their authority to establish budgets for the police and fire departments. The Arizona Tax Research Association (ATRA) strongly urges Tucson taxpayers to reject this effort at ballot-box-budgeting.

From local school districts to the state of Arizona, clearly the most important duty of our elected representatives is to establish an annual budget. Once adopted, those budgets reflect months of planning where elected officials are challenged with managing changing spending priorities against the budget decisions of previous elected officials.

The State of Arizona has become the poster child for the negative policy implications of ballot-box-budgeting. For the last two decades, a steady stream of special interest groups used the initiative process to either permanently earmark funds to their causes or establish guaranteed funding levels outside of legislative oversight and control. Collectively these initiatives have undermined the state’s budgeting process by handcuffing state lawmakers ability to react to changes in the economy or spending priorities. Today, the state of Arizona faces a $3 billion budget deficit. It would be an understatement to say that the challenge of closing the deficit is complicated by the fact that some major budgets units are “voter protected” and cannot be reduced.

The inherent flaw with ballot-box-budgeting is that citizens vote to mandate a spending obligation without understanding the long term budget impacts of the proposals and clearly the proponents prefer it that way. Side-stepping the cities budgeting process allows the proponents of Proposition 200 to have an isolated budget debate regarding police and fire protection without the unpleasantness of a tax increase to fund it. Make no mistake; in the end, this process always poorly serves taxpayers who are left questioning why citizens were not properly informed that these services are not free.

In fact, in order to force a more informed debate regarding the true costs of mandated spending initiatives, Arizona voters amended the state’s constitution in 2004 to require that such initiatives “also provide for an increased source of revenues sufficient to cover the entire immediate and future costs of the proposal.”

By any measure, Proposition 200 will force increased spending that will either drive future tax increases or impact other city services. With the current economic crisis facing Arizona serving as a painful reminder, Tucson taxpayers can be assured that, if approved, Proposition 200 will certainly force a tax increase at some future date.

Kevin McCarthy, President
Arizona Tax Research Association (ATRA)

ATRA is a sixty-nine year old statewide, non-profit, non-partisan taxpayer association