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The four rate changes are expected to generate a little over $7 million in additional revenue annually.

They were among a total of 11 options initially presented to the City Council in August, with five being recommended by City Manager Tim Thomure. 

The council was expected to vote Tuesday night on increasing the city's advertising privilege tax rate as well, but a vote on that potential increase was postponed to a future meeting, Tucson Mayor Regina Romero said.

Three of the four tax rate changes approved Tuesday night passed by a 5-2 vote, with council members Paul Cunningham and Nikki Lee voting against them.

Cunningham did support increasing the rate for the fourth tax, which he called "the Airbnb tax," though Lee did not.

Lee, ahead of the votes, said the increases are not the correct "revenue lever" the city should be pulling: it should be to reinstate transit fares, she said.

"I believe we first need to use the revenue tools that we already have sitting in front of us. Reinstating bus fares under the city manager's prior recommendation, with free and low-income programs built in, could generate more than $8 million per year, which is more than the total revenue this entire package is projected to raise," Lee said.

"Until we choose to capture that revenue, I personally can't support proposals that will raise utility bills for people who cannot opt out of electricity, water or heat, increase the cost of doing business for local employers, and ultimately pass those costs back onto residents through higher prices," she said.

Council member Miranda Schubert, a free-transit advocate, said reinstating fares isn't the effective lever Lee called it, because the city doesn't have a clear picture of how much it would cost to reinstate fares, nor would the city know what impact reinstating fares would have on ridership.

"We do know that research consistently shows that every dollar invested in public transit generates $4 to $5 in local economic benefit, and that doesn't take into account all the other priceless impacts like improved air quality, improved equity," Schubert said.

"Something that is assessed to everybody by the city is more equitable than targeting people who can't drive," she said.

The city has been dealing with budget woes for some time now. The culprit Romero and city officials have pointed to for years is the flat rate state income tax the Arizona Legislature adopted in 2022, which was signed by former Gov. Doug Ducey.

When the city called for the Proposition 414 election last year, Thomure said the city was looking at a projected $400 million loss of state-shared revenues over the next decade because of the flat tax.

Romero, on Tuesday night, said it's a weight the City Council has felt for over a year.

"It really is outside of the control of mayor and council. The Doug Ducey-era flat tax have been removing more than $40 million in the last three years," she said. "It is beneficial for corporations and millionaires in this state, and it is robbing cities and towns across ÃÛÌÒÓ°ÏñAV of needed investments."

All in all, the City Council has been able to cut $24 million from the budget so far, Romero said, and another $18 million in one-time expenditures before getting to this point.

"This is not fun, but the mayor and council have a responsibility to provide the services that Tucsonans deserve, and that our charter asks that we do: transit, transportation, parks and recreation, and public safety, and that includes 9-1-1, 3-1-1, police and fire and all of the supportive services that keeps our city running," Romero said.

All tax-and-fee adjustments approved by the City Council will go into effect on March 1.

Public utility tax

The ordinance adopted Tuesday night increases the public utility tax rate from 4.5% to 5%. Lee and Cunningham voted against the rate increase.

The tax is imposed on "the gross income from the business activity upon every person engaging or continuing in the business of providing telecommunication or utility services to consumers or ratepayers who reside within the city."

The increased rate will be "combined with the existing public utility privilege tax rate" of 2.6%, said Anna Rosenberry, assistant city manager and chief financial officer for the city. The adjustment is expected to generate an additional $5.25 million in annual revenue, the most of any tax rates adjusted Tuesday night.

City fees for secondhand dealers

Fees paid to the city by "pawnbrokers and secondhand dealers" will also go up, from $1 to $3 per transaction, Rosenberry told the council Tuesday.

Lee and Cunningham voted against the rate increase.

The fee increase is expected to generate roughly $400,000 in additional annual revenue.

Occupational license tax on hotels

The City Council voted to increase the occupational license tax rate from 6% to 9%, while also eliminating the "variable dollar amount surtax" from $4 to $0.

The occupational license tax, and the variable dollar amount surtax, are imposed on hotel operators within city limits. Operators of recreational vehicle parks have been subject to the license tax but not the variable dollar amount surtax.

Cunningham made a substitute motion to increase the tax rate to 8.7% instead of the recommended 9%, but it failed by a 3-4 vote, with Romero and council members Lane Santa Cruz, Schubert and Lee against it.

The rate increase to 9% passed with Lee and Cunningham as the two "no" votes.

In total, the increase to the tax and the surtax being cut are estimated to net $1.05 million in additional revenue annually.

Short-term rentals added to transient occupational license tax

The City Council also approved adding a definition of "vacation or short term rental" to the ordinance relating to the occupational license tax rate for hotels. Vacation and short-term rental units will have the occupational license tax imposed on them at a 10% rate.

Cunningham said he had "somewhat the same logic" as Lee going into the votes Tuesday night in terms of her opposition, but he did support this increase.

"I think that's prudent, and I think that's good for housing," Cunningham said.

A vacation or short-term rental is defined as "any individually or collectively owned single-family or one-to-four-family house or dwelling unit or any unit or group of units in a condominium or cooperative."

Vote on advertising tax delayed

The City Council postponed a vote on increasing the advertising privilege tax rate from 0% to 2.6%. It is a tax "of the gross income from the business activity of engaging in local advertising by billboards, direct mail, radio, television" or other advertising means outlined in city code.

The increased rate, according to Rosenberry, would be expected to generate about $470,000 in tax revenue annually.