PROPOSITION NUMBER 3 – LOCAL HOME RULE
OPTION
Frequently Asked Questions
What is a "Local Home Rule Option"?
A Local Home Rule Option is one of the ways the
State Constitution provides for local voters to make
changes to the limits the State constitution places on
spending by the City. (These constitutional limits are
also referred to as the "State Expenditure Limit" and
Home Rule Options are also referred to as "Alternative
Expenditure Limits.")
Home Rule Options can take any form and remain in
effect for only four years at which time the voters must
reconsider them. Also, Home Rule Options can only be
considered at elections at which council members are
also being considered. According to the League of
Arizona Cities and Towns, 56 cities, including Mesa,
currently have voter-approved home rule options in
place. Mesa voters originally approved the home rule
option in the 1980s and more recently in 2000 and again
in 2004. Our current Home Rule Option will expire in
2008. So, the March 11, 2008 ballot provides our
opportunity to have a new one in place by July 1, 2008.
What is the State expenditure limit?
In 1980, Arizona voters approved an amendment to the
Arizona Constitution limiting spending by local
governments. This expenditure limit is just that. It
limits local government expenditures regardless of
revenues received. The limit is derived by a formula:
1979-80 actual expenditures adjusted for population
growth and inflation as measured by the gross domestic
product implicit price deflator. (The gross domestic
product implicit price deflator (GDPIPD) is a national
measure of inflation.) The State Economic Estimates
Commission provides the population and inflation factors
each year.
Some expenditures are exempt from the limit. By being
exempt they are not subject to the formula described
above. The most significant exemptions for the City of
Mesa are all federal funds; all bond proceeds, all debt
service payments, all state-shared Arizona Highway User
Revenues (gas taxes that can only be used for Street
purposes), and lottery funds.
Finally, as explained earlier, the amendment also
included a provision for City voters to consider home
rule options or alternative expenditure limits.
How does the City decide to refer a Home Rule Option
to the ballot?
Every four years, the Mayor and City Council directs
City staff to study the potential effects of the
spending limit and to recommend a solution.
City staff recommended that a Home Rule Option be
presented to Mesa voters on the March 11, 2008 ballot.
Their recommended Home Rule Option asks Mesa voters to
set the annual spending limit equal to the annual budget
following budget hearings.
In recommending this Home Rule Option City staff
first reviewed detailed expenditure forecasts for all
city funds. The forecasts showed that City spending for
current general fund operations would exceed the State
expenditure limit by an estimated $100 Million.
Why do City expenditures grow at a faster rate than
population and inflation?
First, the two ingredients in the formula itself
present problems: population and inflation. Many of
our facilities serve the region, not just the City
of Mesa. Basing a spending formula on City of Mesa
population growth does not allow adequately for
important regional assets like: Phoenix Mesa Gateway
Airport, Falcon Field Airport, Public Safety
Training facility, and Water and Wastewater
treatment facilities. Our Parks, Libraries,
Community Centers and Streets also serve non-Mesa
residents. These operations need to respond to the
region’s population growth. Then, as explained
earlier, the GDPIPD is a national measure of
inflation. Our revenue base grows as our local
economy grows. Mesa economic growth outpaces such a
national measure of price changes. So, the revenues
available to provide City services grow faster than
the national inflation provided for in the formula.
Mesa voters have approved earmarked revenues
since 1979-80 that are not included in the formula:
the Quality of Life and Local Streets sales tax
programs and Proposition 400 regional transportation
improvements.
Other significant service delivery changes have
been implemented since 1979-80 including recycling
citywide and household hazardous waste collection.
Environmental mandates such as the Clean Water
Act, the National Pollution Discharge Elimination
System, the Safe Drinking Water Act, the Groundwater
Management Act, the Clean Air Act, the Federal Solid
Waste Disposal Act and Wastewater Reuse Regulations
provide important community safeguards. These
mandates cause costs to rise faster than a simple
inflation-based formula. Similarly, increased
security costs are mandated since the events of
9-11.
Finally, as mentioned earlier, debt service and
bond proceeds are exempt from the limit. So, the
Spending Limit "favors" the use of bonds and the
resulting debt service. Bonds are a valuable
financial tool and one used judiciously by the City
of Mesa. However, the more efficient and cost
effective way to build and/or renovate major capital
facilities is to use a combination of bonds and
pay-as-you-go capital. The population and inflation
based spending limit formula does not adequately
provide for pay-as-you-go capital.
What is the effect if we exceed the State expenditure
limitation?
The City would be required to reduce its budget by
$100 million from our budget. We would have to follow
the law and come into compliance with the spending
limit.
How would we cut spending in order to comply?
The Mayor and City Council would ultimately determine
what should be cut and we would want to involve the
community in making those decisions. The options for
making a cut of this magnitude are endless.
But, for illustrative purposes, the simplest example
is that nearly one-third of the City’s general fund
operations would have to be cut. That is, one-third of
City departments such as Police, Fire, Parks, Libraries,
and Code Compliance. More than 1,000 city workers could
no longer be delivering city services.
If we were asked to avoid making cuts to the Police
and Fire departments due to their high community
priority, then remaining City general fund operations
would have to be cut by more than fifty percent (50%).
What is the penalty if we do not comply?
The State will withhold state-shared revenues based
on a formula detailed in state statute. Following the
formula, the state would withhold 1/3 of our state
income tax distribution and instead distribute it to
other Arizona cities and towns. Based on current
distributions of state income tax to Mesa, this would
result in a $22.2 million penalty.
Also, bond rating agencies and auditors consider Mesa
to be a financially well-managed City. (Our general
obligation bond ratings are AA and A1 and we have always
received unqualified opinions from our independent
auditors.) An important part of those financial ratings
is our compliance with applicable laws and regulations.
Non-compliance with the spending limit could jeopardize
those ratings.
