Little-known fund fuels Mesa Council clash John Giles Chris Brady

Councilman Jeremy Whittaker, Mayor John Giles, City manager Chris Brady

Mesa City Council member Jeremy Whittaker wants a City Charter amendment to improve financial sustainability, but Mayor John Giles said Whittaker’s initiative would “burn the place down’’ instead.

Whittaker’s has filed his intention to try and get an initiative on the November 2020 ballot that would cap transfers from the city’s lucrative Enterprise Fund to the General Fund at 20 percent — which he says would force Mesa to invest more money in infrastructure and cut down on other spending.

His proposal — which sparked a tense discussion at a study session last Thursday — has put him at odds with the majority of his council colleagues and the city administration.

Whittaker claims the city isn’t spending enough money on replacing aging water pipes and misspends money from the Enterprise Fund — which is fueled mainly by profits from the city’s electric utility.

He is particularly critical of using $8.4 million from the Enterprise Fund to underwrite downtown redevelopment projects — especially those related to the downtown ASU campus, which he opposes.

But Giles, a staunch supporter of the ASU’s downtown campus and its ambitious plans for an Innovation District, said Whittaker’s initiative would have a devastating impact similar to the steep cutbacks during the Great Recession — forcing a reduction in city services and a series of layoffs.

Mesa has no property tax and relies on the Enterprise Fund as a substitute — along with annually fluctuating sales tax revenue and a cut of the state tax — to fund government spending.

Whittaker needs to collect nearly 8,000 signatures to get his initiative on the ballot.

That effort was the focus of the tense Council study session, where city officials unveiled an analysis predicting a dire impact if voters approved the initiative.

Whittaker said he is negotiating with Giles to establish a cap on Enterprise Fund transfers that would make his proposed charter amendment unnecessary.

He said he only turned to his initiative after his colleagues ignored his proposals to cap Enterprise Fund transfers last year.

Fewer cops, service cuts

The analysis — immediately criticized as inaccurate by Whittaker — predicted transfers from the Enterprise Fund to the General Fund would drop from $110 million to $72 million.

That would have a domino effect on city services, the analysis said, to the point where voter-approved improvements would be postponed.

For example, the analysis said, the city would have to defer hiring for 25 new public safety positions that is top be funded by the sales tax increase voters okayed last fall.

Mesa also would need to delay construction of a new northeast Mesa public safety facility and a southeast Mesa fire station, eliminate 12 other city jobs and postpone upgrades at the Dobson Ranch and downtown libraries, according to the analysis.

Weeks before Thursday’s meeting, Whittaker predicted his initiative would cut city revenues by 8 to 10 percent – which he dismissed as relatively minor.  

“It’s not a dramatic cut. It forces the reinvestment with the enterprise fund,’’ Whittaker said. “I am trying to achieve sustainability. My goal is always to achieve financial sustainability.’’

He said keeping more money in the Enterprise Fund would enable the city to replace neglected infrastructure, such as troublesome 1960s water pipes.

“I am forcing them to look down the road and make needed investments. If it passes, there will be cuts,’’ Whittaker said. “I am proposing a cut of 10 percent. I am not proposing a new source of revenue.’’

Whittaker also accused City Manager Chris Brady of making a misleading statement when he said a series of land sales will raise enough funds to cover the first two or three years of payments on excise bonds financing the $63.5-million ASU Mesa City Center.

Brady said no Enterprise Fund money is earmarked for that project in fiscal year 2019-20.

Whittaker and Kevin Thompson were the only council members to buck Giles and vote against the ASU project when it was approved about a year ago.

“It’s a lie to say it’s not coming out of the enterprise fund,’’ Whittaker said.

Whittaker cited city records show more than $8.4 million in transfers from the Enterprise Fund for a series of downtown projects over the past three years, including the ASU center.

The analysis said all of this spending would likely be eliminated if Whittaker’s initiative passes.

Clash of perspectives

Whittaker underscored his continuing opposition to the city’s financial management by casting the lone dissenting vote on the 2019-20 budget plan, the five-year capital improvement plan and the city 25-year plan on financing pension payments to retirees through the state pension system.

Before Thursday’s meeting, Giles said Whittaker’s charter amendment would have a catastrophic impact on Mesa.

But at the meeting, City Attorney Jim Smith warned council members they would be violating state law if they advocated for or against the initiative and could only discuss the proposal in a “neutral’’ manner.

“I think it’s trying to burn the place down. It’s a huge over-reaction,’’ Giles said previously. “It will cause shuttering of the libraries and parks and lay off police and firefighters.’’

For instance, the cut envisioned by Whittaker would completely negate the $25 million that the .25 percent increase in the sales tax would raise to hire additional police and firefighters, Giles said.

“His initiative is far worse than unnecessary,’’ Giles said. “It will have a crippling effect on the city.’’

Giles said he intends to move forward in the hiring of additional public safety employees and acquire land for new facilities authorized by last year’s bond issue. “I remain committed to honoring the intent of our voters in the fall election,’’ he said.

Whittaker has carved out a niche as a fiscal hawk, often clashing with Giles and Brady while questioning many city expenditures and citing accounting principles and bond ratings.

“I grew up in poverty and turned myself into a millionaire,’’ said Whittaker, who describes himself as an investor who carefully scrutinizes corporate financial reports. “I am trying to take sound financial decisions to the city.’’

Brady said the initiative runs contrary to 73 years of government funding practices that were first adopted in 1945, when the City Council abolished the property tax and immediately turned to its five square-mile electric utility for funding.

Attempts to pass a property tax have failed, showing residents have no desire to tax themselves.

But Mesa also has a unique financial asset in its electric utility, Brady said.

Historically, he said, city officials for decades have used the utility-driven Enterprise Fund as a substitute for the property tax.

“Mesa does it differently than a lot of other cities and it has since 1945,’’ Brady said. “It’s unique for our city.’’

Internally, he said the yearly $110 million diversion of Enterprise Fund revenue to the general fund is referred to as “the public safety transfer,’’ because public safety accounts for about 70 percent of city spending.

He said that if Whittaker wants to limit fund transfers, he should start considering a property tax as a substitute.

“The residents, for 70 years, have been paying this way. We don’t hear a big outcry. They don’t have much of a desire for a property tax,’’ Brady said. “If you remove that transfer, it will affect public safety.’’

Brady said he does not view the Enterprise Fund as a certified public accountant might view it.

Instead, he uses it as a way to leverage major improvements to the city, including the construction of Sloan Park, the spring home of the Chicago Cubs, which has been setting attendance records since it opened.

While parts of the enterprise fund might show a deficit, the money has been used to leverage millions of dollars in sales tax and bed tax revenues, fueling the city’s tourism industry, he said.

“I don’t look at it with a narrow focus,’’ he said. “I’m using that fund to make the City of Mesa much better.’’

Brady noted at Thursday’s meeting that an upgrade in Mesa’s bond rating recently saved the city $17 million.

“This is a milestone for the city of Mesa. We felt that Mesa, financially, was at its strongest point in decades.’’

‘They can scale back’

Whittaker dismisses Brady’s argument that the cut forced by his initiative would damage public safety as scare tactics, saying it would be spread throughout city departments.

“As far as I’m concerned, they can scale back,’’ Whittaker said.

To prove his point about the lack of infrastructure investment, Whittaker noted comments by Mesa water officials at an April 18 study session.

They said the city invested $3.6 million in each of the last three years to replace water pipes, when it would take $26 million a year in infrastructure spending to keep pace with a realistic 50-year life cycle.

“I want to make sure we are investing enough money in our infrastructure to make sure it is reliable and sustainable,’’ Whittaker said.

But Brady said that during the last five years, the priority has been on building the Signal Butte Water Treatment Plant and improving the Val Vista Plant, to serve more customers in east Mesa and attract more industry.

Jake West, water services director, said the bad pipes are from the 1960s and tend to rupture, while old cast iron pipes downtown tend to leak with time.

“Sometimes, things change,’’ West said, noting there are plans for pipes being replaced and they are altered to deal with emergencies.

“We know where these pipes are, and we try to program them in’’ for replacement, he said.

Brady said the focus should shift back toward replacing more pipes in coming years and that would be included in a planned 2020 bond issue.

“We are investing in utilities like no other time in the city’s history,’’ Brady said. “To suggest there is a gap or we are falling behind is an inaccurate statement.’’

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