Cities, school districts and counties have to cough up their portion of a $40 million settlement reached between Arizona, its counties and Qwest by the end of the month. The agreement comes as the state and local governments are already grappling with tight fiscal budgets in a sluggish economy, with a bleak future in sight.
Qwest was pursuing several lawsuits in disputes over its property tax bills that date back to 2002 that could have reached more than $320 million in claims, said Frank Boucek, litigation manager for the Arizona Department of Revenue.
The settlement was agreed to by the state and the boards of supervisors in all 15 Arizona counties shortly before the case was scheduled to go to trial in March.
Some of the local governments that have to come up with the bulk of the money were caught off guard. The counties - which collect property taxes for local governments - were kept apprised throughout the nearly seven-year suit as Qwest continually added claims, Boucek said.
"We were notified about a month ago," said Scottsdale Unified School District's David Peterson. "We didn't expect it, but we have to pay it obviously. It will come from the taxpayers."
The district owes just more than $1 million. Because the district had a cash balance from last year, it was able to pay the settlement without collecting additional money from its taxpayers.
But without the settlement, Scottsdale schools could have given homeowners a $16 break next year on taxes, Peterson said.
Because most of a homeowner's property tax bill is tied to schools, Arizona school districts are being hit the hardest.
According to a state statute, those school districts may be able to reclaim some of those funds from the state's General Fund, said Mesa Unified School District's George Zeigler. The districts will have to make written request to the state, he said.
"They have to get that letter in soon," Zeigler said. "The important thing for a district is to get it (the settlement) in their budget. If they don't, they would have to pay it from the money they use to pay teachers and supplies."
The Mesa district owes $1.6 million toward the settlement.
"If we don't submit the letter, it could go back to local property tax rates," which would add about 4 cents per $100 of assessed value to a Mesa homeowner's tax bill, Zeigler said.
"Any city that has a property tax, they're going to have to pay some of this settlement. The more Qwest property you have in your district or within the boundaries of your political subdivision, the more your share is going to be," said Chuck Essigs, government relations liaison for the Association of Arizona School Board Officials.
The Maricopa County Community College District must contribute $2.46 million, which comes to about 50 cents for a $100,000 home, said Gaye Murphy, associate vice chancellor of business services.
"If we have a tax judgment, we can adjust the property tax to recover that judgement amount. That's what we're going to do," Murphy said. "In a way it's like saying, during these particular years in question, Qwest believes they had paid too much tax."
Like homeowners, companies can dispute the assessed value of their property. Qwest took those steps and the cases landed in Arizona Tax Court. The settlement will not effect how Qwest's property is assessed in the future.
"Part of the settlement was to reduce (Qwest's) 2008 value by 10 percent, but there is no agreement that they'll be treated differently in the future," said Cheryl Murray-Leyba, assistant director of the Revenue Department's property tax division.