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.


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