Thursday, August 31, 2006

Responding to The Critics, Part 1

It's no surprise that our support for congestion pricing has its critics, although we are surprised that the source in this case is a government planner.

We respond to Wilf Sommerkorn's criticisms as follows:

Sommerkorn: "Now [congestion pricing] is a government-imposed solution that costs people more"

Response: Transportation solutions are generally government imposed. Raising sales taxes to build light rail is a government-imposed solution which costs taxpayers more, even if it is approved by the people (the government after all is of the people, right? Everyone pays the tax increase even if they voted against it). Government imposes and raises gas taxes so this would be a "government-imposed" solution as well. When a local government goes through Truth-in-Taxation to raise general funds for roads, this is a "government-imposed solution" also.

No one believes that transportation problems will somehow resolve themselves without a "government-imposed solution".

Second, Wilf says congestion pricing costs more. Costs more than what? Raising general sales taxes and gas taxes is a cost. Everyone knows that state and local taxes will be increased to address transportation issues although other taxes will be cut at the same time. In the long run, Utahns will pay lower taxes and fees for roads if the state implements congestion pricing (and probably raising gas taxes as well) than if the state were to increase general taxes without implementing congestion pricing . General taxes do not provide incentives for commuters to use transportation infrastructure more efficiently. Congestion pricing does reduce commuter usage, as experience in Stockholm demonstrates. Therefore, as commuters use "government-imposed" infrastructure more efficiently, total taxes and fees would be less in the long run that they would be if the "government-imposed solution" were to fund expansion of transportation infrastructure by raising general taxes. Those who support lower taxes and fees-- like we do -- have no choice but to support congestion pricing.

Efficient use of roads during rush hour is not limited to using mass transit more. Alternatives include carpooling, telecommuting more often, traveling to work earlier or later, living closer to work. etc.

Keep in mind that the association does not oppose use of general funds for roads since a sound transportation system provides a benefit to society in general. However, congestion pricing has an important role to play in addressing transportation problems.

Sommerkorn: [Congestion pricing] was touted as a "free-market" solution in a Wall Street Journal editorial, which automatically (to some groups and viewpoints) means it is the "right" way to go.

Response: We'll agree that the Wall Street Journal usually gets it right, especially compared to the Pravda Daily Herald. However, environmentalists -- and probably the Tribune as well -- support congestion pricing as well. I guess that makes it the "wrong" way to go.

Sommerkorn: Either way, costs go up for commuters. Pick your poison!
Response: Not so for most commuters. Compared to the alternative (raising general taxes and not implementing congestion pricing), taxes and fees will be lower for those commuters who are already efficient users of transportation infrastructure or will become efficient users.

Tuesday, August 29, 2006

Congestion Pricing in Sweden

Today's Wall Street Journal has an article on congestion pricing in Stockholm. Before you dismiss this as some crazy socialist experiment read the following details from the WSJ:

- Fees vary depending on time of day. For example, between 6:30 p.m. and 6:29 a.m., drivers can drive into Stockholm at no charge. However, fees are imposed during the rest of the day and peak during rush hour:

6:30 a.m. to 6:59 a.m.: $1.38
7:00 a.m. to 7:29 a.m.: $2.07
7:30 a.m. to 8:29 a.m.: $2.76
8:30 a.m. to 3:29 p.m.: $1.38
3:30 p.m. to 3:59 p.m.:$2.07
and so on

- The Swedish government contracted with IBM to implement the system. Cars are tracked by reading license plates or by transponders.

- Traffic decreased by 22%.

- Accidents involving injuries fell by 5% to 10%

- Commute time during rush hour decreased by about one third.

- Use of all forms of mass transit increased by 6% and ridership on inner-city bus routes increased by 9%.

To read the article, click

Transportation reform is just as important as tax reform and education reform, and congestion pricing is a critical part of transportation reform. Congestion pricing encourages efficient use of transportation infrastructure which in the long run will allow the state to slow the growth in transportation expenditures.

The Utah Taxpayers Association has been advocating for the following transportation/transit reforms:

1. Prioritization of transit and transportation projects based on cost effectiveness of alleviating congestion (this would be ONE single list, not two separate lists).

2. Funding transit and transportation in one budget, not two, which forces projects to compete against each other based on prioritization.

3. Issuance of large bond to purchase transportation corridors for roads to be built in the next ten to twenty years.

4. Implementation of congestion pricing on new/expanded state highways.

Thursday, August 24, 2006

Sleeper Issue for 2007 General Session

Some issues are debated every year at the Legislature: tax cuts, tax hikes, vouchers, charter schools, public education, transportation, Truth-in-Taxation.

Every couple of years, a sleeper issue dominates the headlines, catches everyone off guard and causes a big ruckus: credit unions vs. banks, UTOPIA, and subsidies for a soccer stadium.

We'll be a little bold and make a prediction: one of the sleeper issues for the 2007 Session will be Utah's state spending limitation law.

In 2004, Rep. Greg Hughes (R-Draper) sponsored
HB66, a taxpayer-friendly bill that strengthened Utah's very weak spending limitation law. The bill passed each chamber overwhelmingly (48-17-10 in the House and 18-5-6 in the Senate.)

Why will this be an issue in the 2007 session? Stay tuned.

Monday, August 21, 2006

State individual income tax rates keep dropping

Gov. Huntsman’s proposal to lower individual income tax rates is based on a nationwide trend of the past twenty years. As capital becomes more mobile, interstate and international tax competition plays a greater role in economic development. A competitive tax structure is far more important to Utah’s economic development than subsidizing retail and professional sports stadiums.

The 50-state average top marginal tax rate -- including those states that do not impose individual income taxes -- has decreased by 25% since 1985, from 7.12% in 1985 to 5.34% in 2006.

In 1985, Utah’s top marginal rate was 7.75% which ranked 21st highest in the nation. In 2006, Utah’s top rate is 7.0%, which is 13th highest in the nation.

Rates are falling in western states as well. The average rate – including Nevada, Wyoming, and Washington which do not impose individual income taxes – has decreased from 6.0% in 1985 to 4.9% in 2006. Currently, of ten western states, only California, Oregon, and Idaho have higher individual income tax rates than Utah.

Source: Utah Taxpayers Association using data from CCH State Tax Handbook and the Federation of Tax Administrators

Thursday, August 17, 2006

State School Board Nominating Committee

The Salt Lake Tribune had an article in Monday’s edition about major problems with the State Board of Education nominating committee. (Did you notice that the Tribune continues to place quotation marks around the term school choice, suggesting that school choice is a misnomer?)

The article mentions two problems with the committee: the committee was stacked in favor of UEA supporters and the committee never fulfilled its responsibility to recruit candidates.

The first question someone might ask is why does a nominating committee exist in the first place? The committee exists because state school board races are low profile and non-partisan. As a result, very few people run for state school board, and those that do run are usually connected with the education establishment. The purpose of the recruiting committee is to actively recruit a broad range of people to run for state school board.

Unfortunately, the committee has never met. As a result, three candidates – all long-time members of the education establishment -- are running unopposed this year.

However, the decision not to have any committee meetings -- which meant that no active recruiting took place -- is only part of the problem. The 12-person recruiting committee was intentionally stacked with UEA supporters who are hostile to meaningful education reform. For example, the charter school committee slot was filled by former state superintendent Steve Laing, not a charter school provider or parent. The committee slot representing parents was filled by Granite School Board member Sarah Meier. Former state senator and long-time UEA loyalist Ron Allen, who is a member of the Public Service Commission, was chosen to fill the utility/transportation slot. (Interestingly, the utility industry is represented on this committee by one of its regulators, not an employee of the industry itself.)

Of course, the committee members filling the school boards, school administrators, and teachers slots are part of the education establishment. In fact, of the twelve committee slots, only a small percentage is filled by people who are known to be interested in genuine reform.

Monday, August 14, 2006

Consumption, Production, and Economic Growth

Association President Howard Stephenson was on the Doug Wright Show on KSL this morning. Doug disagrees with the Utah Taxpayers Association regarding economic development. Doug argued that Utah’s population is growing and therefore subsidizing retail and entertainment with tax dollars makes sense. The association argues that subsidizing locally driven retail (and entertainment) is a wasteful use of tax dollars because retailers and entertainment venues will come to Utah on their own without subsidy or incentives as long as there are people who are willing to buy their products.

Government can’t get people to spend more money by subsidizing local retail and entertainment. Retail expenditures occur on their own. If government wants its citizens to spend more money, it should cut taxes which gives consumers more money to spend, and it should create a climate that attracts high wage businesses.

Besides, the real key to economic development is not consumption but production. Nations, states, and households that focus on production instead of consumption end up making more money in the long run which allows them to consume more while increasing their savings rates at the same time. Utah should focus on ways to improve its productivity. That includes an education system that is improved through choice and competition and a tax structure that encourages investment in businesses that export goods and services or improve productivity (telecommunications, for example).

Economists are in general agreement that stadiums are not the engines of economic development that stadium proponents claim they are, mainly because most of the economic activity the occurs at or around the stadium is economic activity that is already in the state economy or would naturally occur in the state economy due to population growth. While stadiums attract some money from outside the economy that wouldn’t come to Utah otherwise – like an occasional Real Madrid game that will not be played in the new Real stadium anyway because the new stadium will not be big enough -- subsidizing stadiums is still a very low bang for the buck.

Doug also argued that using hotel taxes for Real’s soccer stadium is OK because out-of-state tourists, not Utahns, are paying this tax. The association maintains that hotel tax dollars are still our tax dollars – even if they are paid by outsiders -- and need to be spent appropriately. Just because non-Utahns are paying this tax doesn’t mean we should accept a lower standard as to how these dollars are spent. In fact, if politicians recommend funding something with taxes on tourists instead of funding the same project with property taxes, you can usually be sure that the project is not worth funding at all.

Wednesday, August 09, 2006

Time for a tax cut

The state's major sources of revenues have grown substantially over the past ten years.

Annualized growth rates of state tax revenue, 1996 - 2006
Corporate income tax: 8.3%
Individual income tax: 7.2%
Gas tax: 5.2%
State sales tax: 5.1%
Total of four major state taxes: 6.2%
Population/inflation combined, annualized: 5.2%
Notes: State sales tax revenue includes earmarked revenues. Corporate and individual income tax revenues include mineral production withholding tax (60%/40% split). Motor fuel tax includes special fuel tax but excludes aviation fuel tax and motor vehicle registrations.

Source: Utah Taxpayers Association based data from the Utah State Tax Commission, Census Bureau, and Bureau of Economic Analysis. FY2006 data is preliminary.

Conservative point of view: Revenues have been growing much faster than inflation and population growth. It's time to cut taxes.

Liberal point of view: Sales tax revenue isn't growing as fast as the other revenue sources. It's time to raise sales taxes.

Monday, August 07, 2006

Corridor Preservation

After speaking with the good folks at the Division of Finance and at the Office of the State Treasurer, we've picked up some more information about the state's capacity for bonding.

The updated state general obligation bond capacity is about $1.69 billion, up from $1.33 billion just twelve months ago. This increase is due to

- an increase in the constitutional bonding limit from $2.784 billion to $2.985 billion, a 7.2% increase (the constitutional bonding limit equals 1.5% of the total taxable property fair market value)

- a decrease in outstanding debt from $1.448 billion to $1.294 billion, a decrease of 10.6%

The difference between the bonding limit and the outstanding debt equals the bond capacity.

According to the State Treasurer's Office, a $1billion GO bond would not hurt Utah's AAA bond rating. So the good news is that the state has the capacity for a large bond for corridor preservation and would be able to maintain its AAA rating.

Of course, the state has to figure out how to pay for this. A $1 billion bond at 5% interest over twenty years would have annual bond payments of $80 million. UDOT officials say that the cost of land acquisition can account for up to 50% of total costs of building a highway, especially if land prices are escalating due to development or approaching development. The state can significantly reduce the cost of total highway construction by buying the land years in advance.

Thursday, August 03, 2006


Utah needs to address its transportation problems. A series of local tax increases is being proposed, and unless the following steps are taken, these tax increases will more than offset any tax cut at the state level.

The Legislature needs to establish a single priority list of road and transit projects, not two separate lists, based on cost effectiveness of each project with respect to rush hour congestion reduction
Currently, there are two priority lists: UDOT's priority list for roads and UTA's priority list for mass transit. The two lists need to be combined into one. Fiscal discipline requires that all potential projects be evaluated and compared against each other based on cost effectiveness of reducing rush hour congestion. Projects with best cost-benefit ratios should be funded first. Projects with poor cost-benefit ratios should not be funded at all.

The cost-benefit analysis needs to be based on addressing rush hour congestion, not improving access and parking conditions at special events such as concerts and football games. Transportation's most important role in economic development is getting employees to and from their workplaces in a reasonable amount of time and getting goods and services from suppliers to customers.

Where practical, congestion pricing needs to be implemented on all new roads and expanded roads, not just the Mountain View Corridor.
Congestion pricing is a mechanism to incentivize commuters to change their driving habits so new and existing highways are more efficiently utilized. By increasing the cost of driving on congested roads, commuters will have a financial incentive to car pool, live closer to work, use mass transit, drive to work earlier or later, or telecommute more often.

Unfortunately, federal law prohibits congestion pricing or tolls on existing highway capacity if these roads were funded with federal gas tax dollars. Hopefully, this will be changed in the future so congestion pricing can be implemented on all congested roads, not just new or expanded roads.

Is congestion pricing a form of "double taxation"? The Snake Oil Lobby (SOL) says yes. The correct answer is no. To see why, read page 4 of our
June 2006 newsletter.

In the 2007 general session, the Legislature needs to approve issuance of bonds of approximately $1 billion to fund preservation of transportation corridors.
Government programs are advertised as "paying for themselves". While this certainly isn't accurate in many cases, preservation of transportation corridors certainly will pay for itself because buying open land now is a lot less expensive than buying land that has been developed or buying land whose prices are escalating because developments are approaching.

At the end of FY2005, the state's constitutional bonding capacity was $1.3 billion, up from $948 million at the end of FY2003. The constitutional bonding capacity has increased for two reasons: the value of taxable land had increased and the net debt of the state has decreased. The state's constitutional bonding capacity will be updated in the next couple of weeks, and this value will most likely be higher than $1.3 billion.

The statutory bond limit is lower than the constitutional limit, but the statutory limit can be easily increased by legislation.

A bond of $1 billion would cover most of the corridor preservation for transportation projects over the next ten to twenty years.

Bonding for capital projects is not deficit spending. Borrowing money to pay for operating expenses, which the federal government does on a regular basis, is deficit spending. Taking a mortgage on a house is not deficit spending, but buying groceries on credit is.

Over the next twenty five years, Utah's expected population growth of 62% guarantees that state and local governments will have to build more roads in the future, even if mass transit and congestion pricing are able to slow the growth in vehicle miles traveled. Buying transportation corridors now makes fiscal sense.