Shawn RaymundoArizona Republic
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Shoppers in Surprise will pay more at the register while homeowners lowered property bills, after the city's leaders approved tax reform measures this week.
Restructuring the city’s taxes is meant to blunt the effects of a $14.3 million shortfall in state-shared revenue that Surprise is bracing for next fiscal year. It’ll also give homeowners some relief, city officials have boasted.
The city will charge a 2.8% tax on retail, utility, commercial real estate, arts and entertainment and lodging sales, among other things, up from the 2.2% Surprise shoppers have paid for such services.
The 3.2% tax charged at restaurants and bars remains the same.
Property owners, on the other hand, will see their primary property tax rate cut by 25%, with the city charging roughly $0.57 per $100 of assessed value. That’s down from the initial price of nearly $0.76 per $100.
The most recent Census estimate shows Surprise's median home value at $455,200. That would come with a property tax bill of $2,591 with Surprise's new rate.
The changes come as Surprise is projected to miss out on $6.6 million in revenue starting in January when the state’s ban on the residential rental tax goes into effect. The city is also bracing for another $7.7 million loss now that Arizona’s income-tax rate is flat at 2.5%.
Along with the tax reform package, council members also approved the final version of Surprise’s Fiscal Year 2025 budget. It marked a $2.5-million reduction in general fund spending from a previous draft.
A general fund is a city’s discretionary pot of cash to cover operations for a fiscal year, from July 1 to June 30.
General fund spending in the coming fiscal year is budgeted at nearly $215.88 million, up 18% from the $182.4 million spent in Fiscal Year 2024. About 47% of those expenses, or $102.2 million will go toward public safety, like the police and fire departments and city court.
The city is projected to collect just shy of $236.7 million in general fund monies in the coming fiscal year, with sales tax revenue making up close to 43% of that cash.
The sales tax increase passed in a 6-1 vote with Councilmember Jack Hastings opposed. The property tax cut was passed unanimously.
City leaders met in April to consider the sales tax increase. At the time, the proposal was to hike it to 2.7%.
The council was also going to consider dropping the property tax rate by 50%.
Those proposals were amended to the latest reform measures after the state notified the city that Surprise’s share of the income tax revenue was dropping by $7.7 million.
To make up the rest of that shortfall, city officials proposed the 2.8% sales tax rate, and reducing property taxes by only 25%.
The sales-tax increase coupled with the property-tax drop covered about $11.8 million of the overall shortfall, meaning the city needed to find the remaining $2.5 million to cut from the budget.
A spate of city departments will have their budgets reduced in the coming year. Those spending cuts include:
- $1 million in Economic Development
- $750,000 in Transportation
- $600,000 in Public Works
- $50,000 from Finance
- $40,000 from Human Resources
- $25,000 from Human Services & Community Vitality
- $25,000 from Arts, Culture & Library
- $10,000 in Marketing & Communications
“Anything that was cut was determined not to greatly affect the current level of service to the community,” a city spokesperson said in an email Thursday.
With the council advocating to preserve Surprise’s “quality-of-life services,” any talks of reducing the public safety and parks and recreation budgets were non-starters.
The city can’t cut the police department’s budget, Councilmember Patrick Duffy said Tuesday night. Duffy, who’s running unopposed for his District 3 seat on July 30, added that he had no desire to cut from the parks department either.
“I’ve worked in that department, came from that department,” Duffy said, referring to his stint as a part-time recreation leader for Surprise. “I’ve seen kids grow in that department. I’ve coached kids who are now firefighters in that department.”
The parks department, Duffy continued, has played a role in altering the city’s image as a “bedroom community” — a small town or community with very little to do and few industries to attract workers.
The department is tasked with hosting recreational activities for the youth and family-friendly holiday events, some of which, Duffy teased, are “finally good.”
“We’re finally having these events, and if you take those things away, then we’re back to being that bedroom community that everyone called us anyway, that we’re trying not to be,” he said.
Continuing to defend the council’s decision to raise the sales tax, Councilmember Chris Judd and Vice Mayor Nick Haney, echoed Duffy’s comments.
“For me, it’s do we cut services, or do we preserve what we already have?” Haney said.
Police, fire, information technology, parks and road improvement represent “the quality-of-life services we have to maintain,” Judd said after noting that most people are against raising taxes. “The point of collecting any tax at all is to maintain our quality-of-life services.”
The benefit of raising the sales tax, Judd added, is that the city can collect revenue from visitors, not just residents, who can afford to spend their money at local shops.
After the meeting, Councilmember Jack Hastings reiterated his previous objections to raising the sales tax.
While staunchly supporting the property tax reduction, he said he would have preferred that the city find at least $7.5 million in spending cuts before discussing a tax hike.
“I feel like that would be more fair to our residents, so can they say ‘Hey the city is really trying, they’re trying to meet us halfway,’” Hastings said.
Shawn Raymundo covers the West Valley cities of Glendale, Peoria and Surprise. Reach him at sraymundo@gannett.com or follow him on X @ShawnzyTsunami.
