Tuesday's Truth in Taxation Hearing

In accordance with the provisions of the Truth in Taxation act, American Fork conducted a public hearing on the proposed tax rate last Tuesday. About fifty souls appeared to protest the increase.

The City Council's job in this hearing is to listen, so I spoke very little. The only time I opened my mouth was to correct a misunderstanding about Truth in Taxation. I immediately regretted doing so, because the resident in question was not interested in understanding.

It grieves me that so many voters make so little effort to understand the law. The ultimate consequence of ignorance is unfortunate decisions at the polls, so at the risk of angering still more voters, I will take pains to clarify this point again.

It is true that property taxes go up as property values increase, but this is not a rate increase. This is appreciation. Truth in Taxation is the name of a law whose intent is to hold property owners harmless against appreciation. It does so by holding the City's revenue constant from year to year. If property values rise, Truth in Taxation reduces the rate which is multiplied against the property value, so that the City receives no increase.

Truth in Taxation succeeds insofar as it holds the City's revenue constant from year to year. But it fails the property owner whose property value increases. The reason is that the law works in the aggregate. Some property values go up, and the property owners there pay more. But other property values go down, and those property owners pay less. In the aggregate, the City's revenue is constant.

The outcome of Truth in Taxation is that it removes the automatic inflation factor from the property tax. So while the City's costs rise with inflation, its revenues do not. The only way out of this is for the City to increase the property tax rate by three to six percent each year (depending on the rate of inflation), or to increase it by larger amounts every few years.

That's my understanding of Truth in Taxation, and it is correct. So said Senator Howard Stephenson, who also came to Tuesday's hearing. Because he gave such a lucid explanation, I requested the tape so that I could transcribe his words verbatim. Here's what he said:

Mr. Mayor, Members of the Council: I'm Howard Stephenson, with Utah Taxpayers Association. I'm also a state senator representing Alpine, Highland and Lehi, and southern Salt Lake County. I appreciate being here. I appreciate your budget director providing the information for us to examine beforehand, and the openness that your City has shown in providing information, and that's very much appreciated.

I have often said that the City Council is the most difficult and challenging elective office in America because you're where the rubber hits the road, and you're darned if you do and you're darned if you don't, especially when it comes to taking taxes. As the taxpayer advocate for thirty years with the Taxpayers Association, I've seen a lot of tax hike proposals. I want to express appreciation for you looking more closely at this increase and cutting it back to less than a third of what was originally proposed. I think we need to recognize that that shows significant effort on your part.

Okay, that was beside the point, but I liked sharing it.

Continuing . . .

I want to let you and the public know that with Utah's Truth in Taxation law, which the Utah Taxpayers Association helped to get passed in 1986, we set forth a plan for requiring that when a taxing entity chooses to increase taxes above the current level plus whatever you get from new growth, you have to go through this process.

What that means is that there is no inflationary adjustment built into property taxes. Cities do get inflationary adjustments from other sources, the most significant of which is the sales tax. The utility franchise tax also goes up automatically with rates charged by the utilities. So you get inflation from those, but we will acknowledge that you don't get inflation from the property tax.

In fact, when people get reappraised, and their values are brought current, the rates have to be brought downward so that there is no windfall whatsoever to the City budget. We have examined that and we have found that has been the case.

Now some people may say, well, when I got reappraised, my taxes did go up even though there were no Truth in Taxation hearings, and the reason for that is that somebody else's taxes went down because it was just an average of the whole City or the whole County, depending on where the levy was established.

Clarity from a lawmaker is a wonderful thing.