Wednesday, June 14, 2006

Tax Hike Drops to Thirty-Five Percent

Here's the good news:

Earlier this week, Cathy Jensen, City Budget Officer, received this year's certified tax rate from the County.

The certified tax rate, as you may recall from a previous post, is the multiplier applied to the tax rate to make sure revenue to the city does not rise with inflation. (Why Truth in Taxation felt it so important that cities' spending power should decrease each year is a question I cannot help you with.)

However, the law DOES allow cities to keep additional revenues if they come from new growth (new houses, businesses, shopping centers, etc.).

Which brings me to the good news. Growth last year turns out to have been higher than projected, resulting in more revenue to the City -- revenue the City is allowed to keep.

Therefore, to raise the $1,027,000 needed to balance the budget, property tax revenues need only rise thirty-five percent over last year.

Thirty-five percent is still an increase, so I'm not putting on my party hat -- but I think I can speak for the Council when I say we're greatly relieved to have backed down from the fifty-percent figure.

[That increase shows up as a fifty-one percent rise above the certified tax rate -- but it's important to remember that the certified tax rate is an artificial benchmark.]

Tuesday, June 13, 2006

True Story

"Every City Council has one fool on it."

This is what David Church said. Mr. Church is General Counsel for the Utah League of Cities and Towns. His job is to teach us rookie Councilmembers just enough about the law to keep our cities out of the courtrooms.

"You look at your City Councils," he said, "and you see that every Council has five members, and one of them's always a fool.

"Look real careful," he said. "If you can't tell which one is the fool, it's probably you."

I'm looking. Very, very carefully.

Monday, June 12, 2006

WHAT Are They Thinking?

"Raise my property taxes fifty percent? What are you #$%@& politicians thinking?"

Okay, it may not be a direct quote, but this is the question my friend Tim Christlieb posed to me, on behalf of his family and his neighbors, when he first read about the tax hike in the newspaper.

(This is one of the things I like about Tim. He tells it like it is.)

For the record: I am NOT a tax-and-spend politician. I never thought I would see the day when I would support a tax increase. But I'm raising both my hands to vote for this one.

Now first, a clarification. This does NOT raise the entire property tax bill by fifty percent. Only the City's portion goes up. (The lion's share of our property taxes -- more than sixty percent -- goes to the school district.) On a home valued at $180,000, the City's increase will be in the neighborhood of $12 to $15 each month.

The need for this is clear: The rising costs of living, fuel, land, and insurance have combined with recent large capital improvements (parks, library, public safety building, fitness center) to overwhelm the City's operating budget. Add to this the public clamor for better services (sidewalks, roads, etc.), and it all spells increase.

Plus, if we don't raise our police wages to competitive rates, we'll continue to lose officers to our sister cities at the rate of thirty percent per year.

But there's one more, very big, very complex piece of the explanation: the certified tax rate.

The certified tax rate -- a product of the Truth in Taxation law -- is the reason why, when property values have been on the rise, revenue to cities has been on the decline.

Yes, you read that right.

This law, according to an article in this morning's Deseret News, "measures tax increases not by tax rates but by the total amount of tax revenue collected by municipalities. So when home values increase, cities must lower their levy rates to keep property-tax revenues the same as the previous year, or else advertise to the public a 'tax increase' and hold a public hearing."

So when inflation drives the value of money up, Truth in Taxation keeps the City's income constant at yesterday's dollar values, and the net effect is that the City's spending power goes down.

The article explains,

Each year, the state Property Tax Division gives every local taxing entity a "certified tax rate." The rate is an up-or-down adjustment from the previous year's levied rate. The state's formula for calculating the certified rate requires the local government to collect the same amount of revenue as the previous year, plus any extra revenue generated by "new growth": new subdivisions, commercial developments, an extra room built onto an existing home. If property values rise to the point that they would exceed the previous year's revenue, plus the revenue from new growth, the state adjusts the rate down.

To collect more revenue than the state formula allows, a government must approve a tax levy above the certified rate. To do so, they must go through the politically tricky process of an official tax increase, with Truth in Taxation hearings — a move most politicians want to avoid.

Because of this, the article says,

The state property-tax law has typically led Utah cities to cut corners where they can and look for money elsewhere, usually from sales taxes. . . . The dominant tax philosophy in Utah for the better part of the last quarter-century has been, 'Do whatever you can to keep property taxes low.' Instead of slow and steady revenue growth accompanying rising property values, cities put off increases until they can wait no longer -- and then they hit taxpayers up for as much as they think they can get away with.

This article is the best explanation I have seen of this phenomenon. It's an excellent piece of work by Doug Smeath. I highly recommend that you read it, before you pass judgment on the tax increase, by clicking here.

Friday, June 02, 2006

What's Up With Broadband?

AFCNet -- American Fork's municipal broadband system -- has plenty of proponents, and just as many opponents. For the record, I am one of its proponents. I believe the City's investment has opened the door to competitive information technology offerings by the private sector, and that it should be a prominent part of our economic development package. I give thanks daily for its speed, affordability, and reliability -- all gifts which enable me to accomplish significant amounts of work here at home while my children sleep.

But there is news afoot. Proponents and opponents alike will want to be present at the public hearing on June 13 when the City will ask for public comment on the question of declaring the Broadband system surplus.

How did we come to this point? Like this:

Under the very keen, very diligent care of Councilmember Dale Gunther, the City has been studying all its assets and departments, with the goal of improving revenues and efficiencies to bring long-term improvement to the financial condition of our City.

In that light, AFCNet is seen as a valuable asset. But the system faces one almost insurmountable challenge in that AF City cannot legally be a retail provider of Internet service because of HB149. The City must work through middlemen (the ISP’s). This severely inhibits the City's ability to make the system self-sufficient. At present, the City subsidizes the system.

We are studying several options, all with the goal of making the system profitable. Clearly, this must be done by enhancing the service. Guaranteeing continuous, reliable, affordable coverage for current customers and for new businesses and residences is also a priority.

Options could include sale or lease. Keeping and expanding the system is also an option.

No matter which direction the City takes, please be assured that the City is committed to protecting and enhancing the system’s speed, affordability, and reliability, and to making the system available to all residents and businesses.

That hearing on June 13 is tentatively scheduled for 6:00 p.m. in the Community Room of the public library. But times often change, so keep an eye on the agendas posted at the City's Web site.