The East Valley is enjoying a much-needed economic boost, but experts say the upturn is too little, too late to offset budget shortfalls as municipalities plan for the coming fiscal year.
"If the economy is truly recovering, as reports suggest, within a year it should help in terms of relief for cities and towns," said Tom Rex, research manager of the Center for Business Research at Arizona State University’s W.P. Carey School of Business.
East Valley cities and towns have reported sales tax revenue push- ing ahead of projections in the past few months, in addition to job growth in service industries such as health care, an increase in building permits and higher hotel occupancy rates.
But even if the East Valley’s economy has turned a corner in 2004, Rex said, that doesn’t necessarily mean its residents will be spared from further municipal budget cuts and tax increases.
Some of the recent budget problems stem from tax cuts and new services implemented in the latter half of the 1990s, when Internet technology spurred a high-tech gold rush, which boosted the national economy to heights that won’t be reached again for decades, he said.
Rex said some cities and towns may have to raise taxes again or cut spending to get back in the black, even if the current modest upward trend continues.
"There may be an issue there even after the economy gets strong," he said.
Still, despite lingering municipal budget shortfalls and stagnant job growth in high-paying industries such as technology, Rex said the East Valley’s economic recovery appears to be outpacing the national average.
Not all cities and towns have access to complete financial data for the first quarter, but most have reported some type of encouraging development since the beginning of the year:
The Valley’s seasonally adjusted jobless rate for March was 4.2 percent, down from 5.3 percent in March 2003, according to the Arizona Department of Economic Security.
Queen Creek’s January sales tax revenue of $463,449 was more than triple the previous January’s numbers, thanks to robust home sales and several new stores and other businesses.
In Scottsdale, February sales tax revenue was up 11 percent from February 2003, and bed tax revenue was up 9 percent.
Cumulative sales tax revenue for June through February was up nearly 12 percent from a year earlier in Chandler, and up 4 percent in Tempe.
In Mesa, January sales activity was up 8 percent from the previous January.
February was even better, with an increase of 15 percent from February 2003.
Mesa’s projected sales tax revenue for the first nine months of the 2003-04 fiscal year was $74 million, considerably less than the actual generated revenue of $78.4 million.
"Our sales tax is running about 5.2 percent ahead of budget," Mesa budget director Jamie Warner said. "The last two months have been very, very good for us."
In Scottsdale, general manager of economic vitality Dave Roderique described the city’s outlook as "cautiously optimistic."
There have been several positive indicators already this year, he said, such as increases in sales tax revenue, building permits and hotel occupancy rates.
However, the city has a long road ahead to recovery.
"This has probably been one of the most difficult and the longest downturns for us," he said.
Still, investors appear more confident, and some development projects that languished for the past few years are now back on track.
"Because the economy has improved, the (Scottsdale) Waterfront has been able to move forward," Roderique said.
Revenue increases alone will not solve all the East Valley’s financial problems. Each municipality faces unique challenges that stem from history and geography as well as the economy.
In Tempe, a city-initiated economic forecast predicted that Arizona’s continued growth actually may work against the landlocked city, incrementally reducing its allotment of state-shared revenue, doled out based on population.
The report, released in late March, states that Tempe faces "significant financial challenges that will need to be addressed through enhancement of existing or identification of new revenue sources, further reduction in expenditures, or a combination of both."
However, Tempe City Councilman Mark Mitchell said the report doesn’t account for additional sales tax revenue that will be created by new businesses such as an auto mall and several large retail stores.
Growth also has taken a toll on fast-growing Gilbert’s economy, but in a different way.
The town’s biggest financial burden remains providing adequate public services to the teeming masses while the buildup of revenue-generating commercial enterprises lags considerably behind.
"It’s always been a challenge," Gilbert economic development director Greg Tilque said, adding that several large retail operations are scheduled to open within the next two years, which will help offset the town’s costs.
Gilbert officials said it will cost $52.7 million in the next five years to correct police and fire staffing deficiencies, which may require new and higher taxes and a monthly utility surcharge to fund the minimum level of services needed in the town.
In Mesa, a financial forecast in September predicted huge increases in debt payments and operating costs over the next seven years, due in part to the cost of city services and new infrastructure.
The situation is being driven by a relatively low ratio of jobs to residents and the burden of providing services to Mesa’s vast residential communities.
The report indicates Mesa would have to cut $286 million in expenses over seven years to circumnavigate dire financial straits.
"We don’t have enough money to do everything we’re doing," said Mark Killian, a Mesa financial advisory committee member.
Killian said despite the recent upward economic trend, municipalities will have to continue cutting unnecessary spending while working to attract high-paying jobs to the area.
Even if the East Valley continues on its economic ascent, Rex said, it will likely be a slow crawl compared with the leaps and bounds of the Internet boom.
"It’s not a surprise that we’re not back to the level we were at three or four years ago, because that level was not sustainable," he said.