By Jim Derouin
In terms of emphasizing the importance of tourism to Scottsdale, it can be simplified as follows: In fiscal year 2019-20, the city expected to get 47 percent of its budget revenues from the city sales tax and another 22 percent from the state shared tax revenue pool made up of proceeds from state sales tax and income tax collections.
In other words, basically 70 percent of the city’s budget was projected to be from state and local sales taxes and from state income tax sources.
In contrast, revenue from the city’s primary property tax was projected to be 10 percent. This means that, of our total residential property tax bill, only five cents of each dollar of property taxes we pay goes to the city’s budget. Our property taxes are low because we generate lots of sales tax revenue.
And that leads to the importance of tourism.
Although tourism is not one of the economic sectors for which data is routinely kept by the state, the impact from tourism can be seen based on sheer numbers; and a 2019 study fills in lots of details. Source: Scottsdale Tourism Study, October 2019
In 2018, Arizona hosted 45 million visitors; of those, Scottsdale hosted 4.6 million overnight visitors (of which a whopping 1.7 million were international guests) and an additional 4.5 million “day visitors.” Tourism, however, is a “great multiplier” because visitors not only stay here at our 50 resorts and hotels, but they also shop at our retail stores and dine at our 825 restaurants. Visitor spending patterns in 2018 showed that 41 percent of visitor spending was for lodging, 27 percent for food and beverage, 12 percent for retail purchases and 11 percent for recreation and entertainment.
In total, the hotel/motel, retail and restaurant sectors contributed 42 percent of the city’s sales tax revenue (over and above their contribution to the state shared tax pool). In 2018, Scottsdale visitors created an annual economic impact of $3.1 billion. The top 10 activities for visitors were: shopping, upscale dining, night clubs, visiting historic sites and landmarks, swimming, visiting state parks, museums, casinos, hiking and golf.
Economic impact data was kept for “domestic tourism” and “international tourism.” Domestic tourists were credited with spending $1.65 billion, generating $2.47 billion in total economic impact and creating 27,000 jobs. International tourists spent $443 million, generated $664 million in total economic impact and created 7,900 jobs.
In addition to sales tax revenue, hotel/motel users contributed an additional $22 million in bed tax revenue in 2018. Bed tax revenue funds a variety of events such as the annual Parada del Sol parade and a variety of capital projects at WestWorld (including the Tony Nelssen Equestrian Center), the Scottsdale Stadium, Museum of the West and the Tournament Players Club which hosts the Waste Management Phoenix Open — all of which, in turn, generate tax revenue for the city.
Every state has its own mix of taxes. Arizona cannot, for example, rely on oil tax revenue, thus it has created its own mix of taxes that disproportionately relies on the sales tax. When considering what Arizona has done, it is interesting to compare the tax mixes of a few other states
State Overall Tax
Rank Property Income Sales
Arizona 27 32 40 12
Texas 33 11 44 10
Florida 47 27 44 17
Alaska 50 12 44 46
(Source: Wallet Hub):
Note: Florida, Texas and Alaska are tied for 44th in income tax burden because they have none. Their tax mix is reliant on other means of raising tax revenue. Overall, however, Arizona has a good balance and clearly has attractive property tax rates. If Scottsdale were to try to replace the revenue it raises by sales taxes with revenue raised by property taxes, its rates would go up many fold.
A pair of current issues being discussed in Scottdale, in light of COVID-19 restrictions that have largely killed tourism, retail sales and restaurant demand, are “how do we rebuild economic activity” and “can we diversify our economy.”
It is easy to note some of the immediate impacts of the crisis. One is that online sales, in competition with brick-and-mortar retailers, have increased by 60 percent. We know that, as compared to March 2019, sales tax revenue was down 56 percent for the hospitality industry and 40 percent for restaurants. Overall, sales tax revenue was down 26 percent. At the same time, the city’s actual expenditures in this fiscal year are below projected expenditures; and the level of staffing is the lowest per capita in the last 15 years.
As stated in a prior article, Scottsdale is neither a retirement nor a bedroom community. Every day, 150,000 people enter Scottsdale to work here while 75,000 others leave to work elsewhere. In addition, 30,000 Scottsdale residents work in Scottsdale. Every dollar of income paid to a person employed in Scottsdale is thought to be a multiplier in its own right because they spend money at Scottsdale’s 18,000 businesses, including hospitals, restaurants, resorts and retail establishments.
In effect, while diversification is good, it is hard to do. But Scottsdale has a significant degree of diversification already even though, in tough times, we might wish that there would be more. Remember, however, that the buildings in the Airpark, along the 101 and in the downtown are generating tax revenue that keeps our property taxes down, too.
We are a beautiful residential community, but we are far more; we are a vibrant, diverse community in which close to 200,000 people work — people who help pay our freight. Next time there is a debate about issues over growth and development, that reality should be kept in mind.
Jim Derouin is a long-time Scottsdale resident, attorney, and member of the city of Scottsdale’s Districting and Charter review task forces.
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