Local Government Tax & Fee Moratorium Policy Brief

Mar 24
6 min read

Updated: Mar 30

Assessing the Fiscal and Operational Realities of a One-Size-Fits-All Moratorium

The Impacts of HCR 2016 S/E on County Service Delivery to Arizonans

These policies replace locally informed fiscal decision-making with a “one size fits all” mandate that does not account for diverse economic conditions, service demands, and statutory obligations facing counties. Moreover, they further restrict limited county revenue authorities without addressing existing and proposed state mandates that drive costs at the local level.

The measures appear to assume county governments have expansive operational and revenue authority. They do not. Arizona’s Constitution and laws establish county governments to implement state-mandated policies at the local level, overseen by locally elected officials. County supervisors do this within a restricted revenue environment and are directly accountable to the people for both service delivery and the tax burden.

Like state policy makers, county supervisors care about the public they serve, and they take very seriously their role in balancing important state mandates and residents’ expectations with the associated tax and fee burden -- they do this transparently and they stand accountable.

It is untenable to see additional restrictions on revenues when there is no consideration of the cost pressures created by state mandates.

Key Facts:

Counties Lack Financial Flexibility: Counties operate within a heavily restricted financial environment governed by statutory restrictions, constitutional levy limits, and expenditure limits. The primary revenue source for general operations—the property tax—is strictly capped at 2% annual growth plus new construction and counties do not have a flexible sales tax authority.
State Revenue Outpaces Counties: Between FY 2016 and FY 2025, the major state general fund revenues grew by 75%, outpacing the 63% growth in total major county revenues. This is even after the state's substantial income tax cuts and is even more pronounced for the primary property tax—the bedrock of county funding and the only one directly set by the county board of supervisors —which grew by 42% over this 10 year period - even slower than inflation.
State Mandates Drive Local Costs: Counties are not independent actors but creatures of the state. State-mandated support for the judiciary and healthcare systems consumes approximately 80% of county property tax rates, leaving little room for local discretion.

Fees are Limited to Cost Recovery: By statute, county fees cannot be transferred to the general fund; they are strictly limited to the cost of providing a specific service. Most fee-based functions, such as food inspections or septic permits, are already subsidized by the general fund.
Counties Generally Do Not Run Utilities: With rare, court-ordered or grant-funded exceptions like Pima County’s wastewater system or Navajo County’s broadband middle mile, counties are not in the utility business.
Imposes Supermajority Thresholds on Jail Taxes: The bill imposes a 60% supermajority requirement for voter-approved tax increases. This may directly impact upcoming critical elections, including jail tax renewals in Maricopa and Yavapai counties this fall, by disproportionately empowering a minority of voters to determine the local communities’ ability to fund public safety.

Operational Realities of County Finance

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Counties operate in a highly restricted revenue environment.	Counties revenues have grown less than the state.
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County fees are limited to cost recovery.	Counties generally do not run utilities.
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State mandates drive county costs.

Operational Reality 1: Counties operate in a highly restricted revenue environment.

The measures imply that counties can easily raise revenue, but counties are property tax reliant and lack flexible sales tax authority.

The Reality:
- Statute permits 14 counties to implement a fixed 0.5% sales tax only upon unanimous approval of the board. Mohave and Pima counties currently do not levy it. Maricopa County, who does not have a general sales tax authority, must obtain legislative approval to refer its jail facilities tax to the voters. Counties also may not add new tax classifications.
- The proposed policy may further limit county property tax authority by precluding additional revenues due to new construction. Adding new construction helps compensate for increased demand for infrastructure and services, broadens the tax base, and relieves pressure on existing taxpayers.
- Please remember, statute makes county governments property tax reliant, and this tax base is already subject to constitutional and statutory restrictions, along with political accountability. Upward pressure on property tax rates is heavily influenced by mandated county support for the state’s judiciary and healthcare system, which consumes about 80 percent of county property tax rates, and annual efforts by various interests who ask lawmakers to erode certain local revenues or raise certain local costs, among other things.

Operational Reality 2: Counties revenues have grown less than the state.

The measures suggest that tax growth is unchecked at the county level and is causing Arizona to become unaffordable, but county revenues have been outpaced by state revenues and make up very little of an Arizonan's tax burden.

The Reality:
- Although the state has made substantial tax cuts over the last decade, state revenue growth has outpaced major county revenues. Additionally, the primary source of funding for county essential services -- the property tax -- has barely kept pace with inflation.
- That slower growth in county revenues is the result of prudent local policy choices and reflects the heavily restricted financial environment that counties operate within.
- Since only rural counties currently levy a local sales tax -- county sales tax collections only made up 3.5% of total sales tax collections in FY 2025.
- Counties have very low sales tax rates - typically less than 1% -- that means that county sales tax rates are only a penny for every dollar an Arizonan spends at retail.
- County property tax levies only made up 20% of property tax collections in FY 2025.

Operational Reality 3: County Fees are Limited to Cost Recovery

Proponents suggest that a moratorium is needed to curb frequent fee hikes, but county fees are statutorily limited to only cost recovery -- they cannot subsidize the county general fund.

The Reality: Counties often hold fees flat for extended periods and are judicious in adjustments, involving affected parties in transparent public hearings. Many fees are already subsidized by the county general fund -- restricting adjustments may force counties to divert even more general tax dollars to cover the cost of mandate regulatory functions the county is required to provide.
Some fees support state-mandated regulatory functions, like inspecting food establishments or waste haulers, or collecting and disposing of tires. Other fees support services to residents using a waste dump, needing a septic system permitted, ensuring that properties are accurately divided, or seeking to establish a new subdivision.

Operational Reality 4: Counties Generally Do Not Run Utilities

The bill suggests that counties operate utilities, with limited exceptions, counties do not.

The Reality: Only one county manages what Arizonans would think of as a utility -- Pima County manages the regional wastewater system, a responsibility ordered by the court in the 1950s. Fees collected support the service provided and may not be transferred for general operations. The measure also may undermine specific regional projects, such as a middle mile project that expands broadband in Navajo County, developed with grants and federal funds but requiring leased access to provide this critical service.

Operational Reality 5: State Mandates Drive County Costs

This policy assumes that counties have unilateral discretion over their expenditure increases, but state mandates increase by millions of dollars each year, demanding additional local resources to fund.

The Reality: As the administrative arms of the state, counties are in the must do business, not the nice to do business. State mandates to fund the Arizona Long Term Care System (ALTCS) and the state’s court system consume over 80% of a county’s primary property tax, on average. County ALTCS costs alone have increased by $150M in less than a decade and are projected to increase by another $40M under the FY 2027 January Baseline.
Additionally, there are a number of pending policies that state lawmakers are considering which would increase county costs by tens of millions of dollars – and a moratorium on raising revenues would require counties to implement these policies without any resources to fund them.