Tim Steller's column: Tucson tax increases add to economic malaise

Tucson's season of plenty, the winter and spring months, are looking pretty barren.

Job opportunities are scarce, people aren't spending much, and it doesn't look like the Canadians, Europeans and Mexicans will bail us out by coming en masse for sun and shopping. 

That's the grim reality the Tucson City Council faced Tuesday when they discussed the city's large budget shortfall and efforts to fill it by raising some fees and taxes. In the end, their efforts to respond seem to feed into the Tucson area's cycle of economic struggle. Higher taxes and fees lead to less business activity, which leads to lower tax revenue, which leads to higher taxes and fees. 

On Tuesday, the city raised fees on pawnshop transactions as well as taxes on utility customers, short-term rentals and hotel-room stays. While these increases marginally help the city fill its shortfall, adding up to around $7 million in expected revenue, they also weigh down an economy that is barely slogging along.

Tucson, a laggard among Arizona's cities, now will have one of the state's highest hotel bed taxes, discouraging stays within city limits — 15.05% total, including state and county taxes.

Just six days before the council decided to raise these fees and taxes, University of Arizona economists spelled out some key pieces of bad news at the annual Eller College Economic Outlook Luncheon. 

Tucson is projected to have lost jobs two years in a row. In 2024, job growth in the Tucson area was negative: down 0.5%. Tucson was the only city among our western peers to actually lose jobs in 2024. Even Albuquerque was up by 1.4%. 

This year, the Eller College forecasters expect jobs in our area to be down by 0.1%. And in the next two years, they project an increase of less than 1% per year. 

George Hammond of the Eller College's Economic and Business Research Center told me the 2024 slide was part of a broader economic doldrums that enveloped the area in 2024. The federal spending that buoyed us since the pandemic wound down, and economic activity eased in many areas. 

In 2025, the tariff policies layered on top of existing malaise kept growth down. 

High tax burden

But let's face it: This is a long-term pattern in Tucson. The Common Sense Institute, a free-enterprise-oriented research group, noted in a March report that "Despite boasting a large and recently growing manufacturing sector, overall economic growth in the Tucson area has for decades lagged behind the state as a whole, Tucson’s peer (in) the Phoenix MSA, and even the United States as a whole." 

The report cites the area's relatively high tax burden and relatively low focus on core government services as reasons for the low economic growth and the flight of young adults. 

You can see this underperformance in the 30-year average of job growth, as Hammond explained to me. From 1994 to 2024, the Phoenix area's average annual job growth has been 2.6%, while Arizona's has been 2.2% and Tucson's has been 1.1%. 

In 2024, the difference in job growth between Tucson and Phoenix was even bigger than average: 2.1 percentage points.

So Tucson is struggling economically, even more than usual, which in part explains the shortfall in sales tax and hotel tax that is leading to the city's budget gap, as residents and visitors spend less. And this winter season doesn't look great. 

The big drags on visitation to Tucson this year come from Trump administration policies. 

"The political climate has definitely had an impact on visitation to the United States," said Felipe Garcia of Visit Tucson.

That's especially true of Canadian visitors, many of whom are not happy about Pres. Trump pledging to make Canada the 51st state and casually levying ever-higher tariffs on Canadian products. But other, less-known policies are also putting pressure on foreign travel here.

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— Fees for tourist visas have increased to a base of $185 per person, just for the visa. 

— Fees for the I-94 form for entering the country by land used to be $6 per person, but have increased by $24

— Travel from 17 countries to the United States has been banned, and restricted from an additional 15 countries.

While travel from countries such as Yemen and Nigeria may not be central to Tucson's tourist economy, the annual gem and mineral shows typically draw people from all over the world. Madagascar, for example, has been a key source of minerals over the years, but travelers from the country to Tucson have at times been blocked.

State revenue decrease

It was this grim picture council members were looking at when they considered the tax and fee increases Tuesday. Mayor Romero argued that the primary driver of the city's shortfall was a decrease of $40 million or so from state-shared revenue due to the state's flat income tax. 

"It’s outside the control of the mayor and council," she said. "I wish we had magic dust to cover the holes being created."

Despite cutting tens of millions in ongoing and one-time expenses, it's likely the city still has a deficit of about $21 million more to go, Tucson's chief financial officer, Anna Rosenberry, said. 

Ward 4 Council member Nikki Lee refused to ignore the obvious in debating whether to go ahead with the tax increases, though. She noted the city's general-fund spending has gone from $550 million in fiscal year 2019-2020 to $830 million this year. She said she wouldn't vote for the increases unless the city first reinstates bus fares, which she estimates could bring in $8 million or so.

Free-transit advocates such as Ward 6 Council Member Miranda Schubert countered that it's unclear how much revenue renewed fares would bring in. Also, she cited a figure she mentioned on the campaign trail: "Research consistently shows every dollar of investment in local transit generates 4-5 dollars in local economic benefit."

But if that's the case, it's hard to see how free fares boosted Tucson economically over two years when the metro area lost jobs. 

The right choices?

While the new tax on utilities will be the tax increase felt by the most Tucsonans, the one likely to hit hard during future travel seasons is the hotel tax. After it goes into effect March 1, Tucson's tax will be 15.05%. Statewide, only Payson, Glendale and Guadalupe have higher bed-tax rates, and Bisbee's is the same.

Marana and Oro Valley have a bed tax of 14.55%, while Sahuarita's is 10.05%.

Council Member Paul Cunningham asked for the council to knock down the increase so that the ultimate tax rate would be 14.70%, arguing that the large groups that occupy lots of hotel rooms will opt to go outside city limits because the tax becomes expensive when multiplied by hundreds of rooms. 

"We’ve got to be careful about our competitors," he said. "Our competitors will take advantage of this."

But the majority voted down the idea, citing the need for higher revenue.

"We care deeply about business and especially small businesses," Vice Mayor and Ward 1 Council Member Lane Santa Cruz said. "What would hurt small businesses is if we had to cut city services, delay inspections or underfund our public safety. This helps avoid bigger cuts down the line."

I've been a supporter of free bus fares, but only as long as we can afford them. When such sacred cows are spared while taxes are raised, I'm not convinced the council really is committed to making the choices necessary to help Tucson's economy out of its persistent malaise.