Farmington, Aztec officials still exploring tax increase options
AZTEC — City officials in Aztec and Farmington are considering ways to raise revenue as various challenges, including the need to replace vehicles, catch up with those cities.
“We’re using glue and rubber bands and such to hold stuff together,” Aztec finance director Kathy Lamb said Tuesday during a City Commission work session.
Both the Aztec City Commission and the Farmington City Council discussed finances during their Tuesday meetings. The Farmington council meeting can be viewed online at fmtn.org.
There are some realities catching up with the city of Farmington that will cause problems with sustainability in the future, City Manager Rob Mayes said.
“We either need to reduce the scope of our services and the people who provide those or we need to enhance revenue,” Mayes said. “There’s really only two ways to enhance revenue. There’s either taxes or fees for services, or some combination of both of those two.”
Farmington and Aztec are looking at gross receipts taxes as potential ways to raise revenue, but neither city has committed to raising those taxes.
In addition, the two cities are also looking at the fees they charge for services. The Aztec City Commission also discussed raising Motor Vehicle Division and community development fees.
What is the gross receipts tax and how does it impact people?
Gross receipts taxes are similar to sales taxes. They are levied on the seller of products or services, but they are often passed on to the consumer. Gross receipts tax revenue makes up most of the cities’ general fund revenue.
While property tax revenue would impact only residents in the cities, the gross receipts taxes are paid by everyone who shops within city limits. In Farmington, that means a much larger group of people pays into the city’s general fund than the number of people who live within the city limits. Farmington estimates 300,000 people shop in the city.
Neither the Farmington council nor the Aztec commission has voted on raising gross receipts tax rates, but the options were discussed in both recent meetings.
People who shop in Aztec currently pay an 8 percent gross receipts tax rate while people shopping in Farmington pay a 7.625 percent gross receipts tax rate. The cities only receive a portion of that tax because the county and state also receive funds from those purchases.
What did the cities decide?
Farmington chose to publish notices of intent to adopt new increments while Aztec will likely vote on publishing notices of intent to adopt new increments during its next meeting.
Mayes said the reason behind the notices is to preserve the option for the Farmington City Council to implement the new tax increments if it chooses to do so in August. He emphasized that publishing the notices does not mean the city will choose to implement additional tax increments.
How much of a gross receipts tax increase could the cities approve?
Aztec is considering implementing up to two 1/8th of 1 percent increments, each of which could generate $126,000 for the city’s general fund, Lamb estimates. Lamb told the commission that the $126,000 is a conservative estimate.
Aztec City Commissioner Austin Randall said implementing one increment would mean people shopping in Aztec would pay an extra penny for every $8 they spent.
The Farmington City Council approved publishing notices about two separate increments. The first increment would be 1/2 of 1 percent. Of that amount, 1/8 of 1 percent would go to public safety, and 1/8 of 1 percent would go to streets and public works. The final 1/4 of 1 percent would go to general services.
Mayes had proposed the notice of intent to adopt for a 1/4 of 1 percent gross receipts tax increment, but Mayor Nate Duckett suggested amending that to a 1/2 of 1 percent increment. He said he does not know if he would vote in favor of it, but he wanted the option to be available.
“I’m asking for us to put something in our tool box that gives us the ability to strategically plan,” Duckett said.
The City Council also approved publishing a notice of intent to adopt a 1/8th of 1 percent increment that would go into the general fund.
When was the last time the cities raised their gross receipts taxes?
Farmington raised the gross receipts tax in 2015 by 1/4 of 1 percent. Aztec has not raised its gross receipts tax rate since 2003.
What prompted Aztec to look at raising its gross receipts taxes?
While discussing the budget for fiscal year 2019, the commission briefly discussed the potential of raising gross receipts tax.
On Tuesday, she said the budget situation is not looking quite as dire, but the city could still use additional revenue. She said the city needs to build its reserves.
“I just think of it in very simple terms,” Mayor Victor Snover said. “We are struggling financially. This is a way to conservatively put another quarter-million dollars into our budget for our general fund.”
How did Farmington get here?
Farmington is not in a financial crisis right now, Mayes said several times throughout the meeting. But he said the city must cut spending or increase revenue to avoid a crisis in the future.
In the years leading up to 2009, Farmington saw double-digit growth in gross receipts tax revenue, Mayes said. Following the city’s high point in 2009, Farmington saw more than a 17 percent drop in revenue. Mayes said the city has never recovered.
“The expectations of the public are still determined by a pre-2009 world,” Mayes said.
In addition to lost revenue, Mayes said the money does not go as far now as it did in 2009.
“Not only do we have less dollars to spend, as you are well aware, each of those dollars will buy less,” he said. “Precisely 20 percent less. These aren’t made-up numbers. These are real issues that we face. Each dollar that we spend will buy 20 percent less than it would in 2009.”
The city has also seen a 13.5 percent reduction in the tax base, according to Mayes. The biggest threat to Farmington’s tax base, Mayes said, is online sales. He said about 51 percent of all purchases are done online, which has further reduced Farmington’s revenue.
Another challenge the city is facing is the loss of so-called "hold harmless" funding from the state. The state decided to end taxes on food and medicine in 2004 and agreed to pay local governments hold harmless money to offset the loss of revenue. It raised gross receipts tax rates about 1/2 of 1 percent to fund that payment, Mayes said.
The state began a 15-year phase-out of the payments in 2015, which ultimately will mean a loss of millions of dollars to the city’s budget, Mayes said.
“They are phasing out the reimbursement that they pledged to cities and counties when they raised taxes a half percent,” Mayes said.
Hannah Grover covers government for The Daily Times. She can be reached at 505-564-4652 or via email at email@example.com.