Thursday, June 28, 2007

The tax increase voucher opponents won’t tell you about, and how to avoid it

The state Supreme Court has cleared up the ambiguities about Citizen’s State Referendum 1 this fall, and the campaign is under way. The first volley came when both sides submitted reasons for the referendum to repeal Utah’s voucher law to the Lt. Governor’s Office. While voucher supporters offered cogent reasons to vote YES on Citizen’s State Referendum 1, the opponents trotted out tired assertions that our elected officials have heard and rejected. More importantly, the opponents ignore the taxpayer reasons every Utahn should say YES to vouchers.

Recognizing the need to better fund Utah’s public schools, the Utah Legislature has more than doubled per pupil spending over the past 15 years. This dramatic increase-today Utah spends just over $7500 per pupil-has been possible because the state’s economy has been red hot, while enrollment growth has been flat. Between 1990 and 2006 Utah’s classrooms grew by only 18%, while the number of Utah jobs grew by a whopping 67%.

Unfortunately, these trends no longer prevail. Between 1990 and 2004, Utah schools never grew by more than 10,000 students in a given year; in 2005, 14,330 new students enrolled, and another 16,075 entered in 2006. The State Office of Education’s most current projections show another 156,345 new students entering Utah classrooms between 2007 and 2016, nearly quadruple the number of new students who entered Utah classrooms in the 1990’s.

More troubling is the reality that Utah’s economy will not always grow so rapidly. Since 1980, Utah has had 2 significant economic slowdowns, in 1986 and again in 2001 to 2003. With student enrollment growing faster than it did in the 1990’s, but not so fast as it is now, the 1986 slowdown forced lawmakers to impose the largest tax increase - $176 million - in Utah history.

The 2001 to 2003 slowdown happened while Utah school enrollment was flat, so no tax increase was necessary. However, it was all the Legislature could do not to cut public education spending. And if the slowdown had lasted just 6 months longer, Legislators would likely have had to raise taxes again.

It is at best folly-at worst irresponsible-to hope that Utah’s hot economy can protect taxpayers from further the tax increases brought on the dramatic increase in public school enrollment. With the largest families in the nation, and per capita income well below the national average, lawmakers must identify policy options that simultaneously reduce the strain on our public school system and increase the amount of money available to educate Utah children.

That is why the Legislature and the Governor adopted HB 148. Vouchers help solve both aspects of Utah’s education-taxpayer dilemma. Each time a student switches from public school to private school because of vouchers (worth between $500 and $3000), Utah’s public schools have one fewer child to educate, and they have between $4500 and $7000 more to spend on the rest of Utah’s children. In other words, vouchers decrease the number of students in Utah classrooms and increase the amount of money available for other students. Utah policy makers rightly see vouchers as one of several tools we need to avoid another tax increase. The lessons of 1986 and 2001 to 2003 are too clear and compelling to avoid any other conclusion.

Utah Taxpayers Association

Principled and Objective?

The Salt Lake Tribune’s recent editorial on splitting the Jordan School District betrayed their willingness to set aside principle, and pursue their ideological agenda no matter what. Since March 1, the Tribune has issued no fewer than 15 editorials in support of the referendum to repeal Utah’s voucher law, an issue far more “complicated” than splitting a school district. Nevertheless, they argue, the complicated nature of dividing a school district can’t be trusted to a district wide vote. Instead, they believe, that process “should be overseen an independent, dispassionate group [not the voters who would be affected by their decision!] that could call for data, analyze it and make and objective decision.”

While members of the Legislature declare an allegiance to a political party, our 2007 Legislative Scorecard shows how “independent” the Utah Legislature is. Democrat Ed Mayne scored in our top 10 in the 29-member Senate, and Republicans Sheryl Allen, Kay McIff, Mel Brown and Gordon Snow scored in the bottom 15 in the 75-member House. And over the past decade, the Legislature has “called for” and “analyzed” more data about the voucher issue than any other issue. They came to an objective decision, albeit one the Tribune disagreed with.

The Taxpayers Association supports smaller districts, but we find ourselves joining the Salt Lake Tribune in opposing the proposed vote to split Jordan School District. (In our view, there are serious questions about the constitutionality of depriving west side voters of their right to vote.) We hope, however, the Tribune will apply the logic behind their opposition to this vote to other, arguably more important education issues, like vouchers.

The impact of children on Utah government

Jay Williams’ op-ed (“There is no way around paying for quality education,” Salt Lake Tribune) notes Utah’s demographics present tremendous challenges for funding Utah’s public schools. However, his argument about the “ratio of students to taxpaying adults” not causing similar funding problems for roads, the power grid, sewage treatment system, etc. is not accurate.

With 38 school age children per 100 Utah working age adults, all segments of Utah government struggle to obtain funding for their services. And given the political pressure to move Utah out of last place in per pupil spending, public education is spared the ax more than any other segment of Utah government. For example, to avoid cutting public education spending during the 2002 and 2003 budget-cutting special sessions, the Legislature cut non-public education spending by $234.8 million, and another $90.4 million in transportation spending. By contrast, the Legislature maintained Utah public education spending at its 2001 levels.

As this recent history shows, public education is better insulated than any other portion of government from the challenges our uniquely high dependency ratio creates.

Tuesday, June 26, 2007

Proposed sales tax increases demonstrate need for transportation reform

The need for transportation reform becomes more obvious every day, and it's time for Gov. Huntsman and the Utah Legislature to step up to the plate and make it happen.

This November, commissioners in Weber, Davis, and Box Elder counties will be asking voters to increase sales taxes by 0.25%. The increased revenue would be earmarked for transportation and transit projects, including corridor preservation.

This proposal would increase taxes by about $10 to $12 million per year in Davis County and by about $8 to $10 million in Weber County. In Box Elder County, tax increase would yield about $1 to $2 million per year.

Meanwhile, back at the Utah State Senate, Sen. Ed Mayne is calling for a full
one-percentage point increase in state sales taxes and would dedicate this for transportation. This proposal would increase taxes by more than $500 million per year and would be the single largest tax increase in Utah history. It would also make Utah's state and local tax structure more regressive, even if food purchases are exempt from this tax.

Periodic increases in state and local sales taxes are exactly what the transportation lobby wants. Most people don't pay attention to sales tax increases, and most taxpayers are unware how much they are paying in sales taxes. A median income Utah family pays more in sales taxes than in property taxes as demonstrated by our annual
report on tax burdens for a median income Utah family.

Raising sales taxes for transportation is a bad idea. Increased sales taxes do not encourage commuters to change driving habits by telecommuting, carpooling or living closer to work.

Real reform is needed. Implementing congestion pricing and increasing gas taxes while cutting general taxes such income taxes will slow the growth in vehicle miles traveled, which decreases the need for higher taxes. It's also a good idea for the environment. Gov. Huntsman could score some points with his counterpart in California if he promoted these reforms.

Prioritizing roads and transit projects based on cost-effectiveness of reducing congestion would ensure that our tax dollars are being spent efficiently. The current prioritization process is completely inadequate, as demonstrated by the hundreds of millions of dollars that will be spent building a TRAX line to the airport which will relieve no congestion. (Click here to read our post on the airport TRAX line).

The governor and the Utah Legislature need to show some leadership on this issue. Simply passing the buck to county commissioners won't solve the problem. If the transportation lobby gets its way, the recent tax cuts will be offset by tax increases in the future. In fact, it started happening last year with sales tax increases in Salt Lake County and Utah County.

Friday, June 22, 2007

Government living large in Utah

The June newsletter of the Utah Taxpayers Association has a report on state and local revenues and tax burdens. Typically, Utah ranks high by these measures, and this year is no exception.

Click here to see the report.

Click here to see previous comments we made about so-called voluntary and non-mandatory fees.

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Monday, June 18, 2007

More WPU confusion

Last week, we commented on the confusion that is created when newspapers, education advocates, and elected officials equate the WPU with per student spending. Today's example comes from the Deseret Morning News:

"The Legislature gave a 4 percent increase in the weighted pupil unit, the state's basic per-student funding formula that traditionally sets the pace for teacher raises."

Most readers would think that the Legislature increased per student spending by 4%, but this is not the case. The increase was much higher.

As noted last week, the WPU excludes a lot of education spending. Moreover, the amount of K-12 education spending that is excluded from the WPU is growing faster than the amount that is included in the WPU. While total WPU expenditures increased by 7.3% (includes student growth), total Minimum School Program expenditures increased by 17.7%, or about 15% on a per student basis assuming 2.8% enrollment growth.

Once all local expenditures are included -- the MSP includes a lot of local sources such as the basic and reading levy and the voted and board leeways -- the per student increase will be at least 10%. After adjusting for inflation, the per student increase will be about 7%.

Saturday, June 09, 2007

WPU Confusion

Within public education finance, nothing is more misunderstood than the Weighted Pupil Unit, or WPU. An article in last Sunday’s Tribune provides an excellent example of how the WPU is routinely misunderstood by elected officials, reporters, education advocates, and the public.

'The [Minimum School Program’s] 'weighted-pupil unit' - $2,417 for fiscal year 2007 - represents one average child with no special needs. '

This is not correct. Others have stated that the WPU is the amount that state government spends in income tax per student, which is also incorrect since the WPU includes property taxes generated by the basic levy and excludes hundreds of millions of state income tax dollars in so-called below-the-line expenditures.

WPU accounts for less than 50% of per student expenditures
Despite the attention paid to the WPU, less than half of all public school expenditures including capital and debt service are accounted for in the WPU.

The following items – based on FY2008 appropriations -- are not included in the WPU.

Social Security, Medicare, and retirement: $333.3 million
Pupil transportation: $70.9 million
Teacher compensation increase (beyond steps and lanes): $68.7 million
Various block grants: $113.7 million

In total, about $1.2 billion Minimum School Program expenditures are excluded from the WPU. On top of that, there are local expenditures for capital and debt service.

In FY2008, WPU expenditures will be about $1.75 billion out of a total of $4.1 billion K-12 expenditures, or about 43% of the total.

Moreover, WPU is not a per student amount although there is a correlation between student enrollment and number of WPUs. Statewide, there are about 1.29 WPUs per student (based on anticipated enrollment of 540,190 as stated in the LFA's Appropriations Report). About 50% of the difference between the number of WPUs and the number of students is attributable to special education.

How much does Utah spend per student?
According to recently released Census Bureau figures for FY2005, Utah spent $5,257 per student which includes nutrition programs but excludes capital and debt service.

Utah Taxpayers Association calculated per student spending for FY2005 at $6,309 which includes capital and debt service. Excluding capital and debt service and including food service, the association calculates $5,300 per student, which is within 1% of the Census Bureau figure

For FY2008, the Utah Taxpayers Association estimates that Utah will spend about $7,500 per student, which includes capital, debt service, and nutrition programs. This includes state income tax, local property tax, and federal sources.

Excluding federal and local sources, the state will spend about $4,500 per student in income tax dollars for public education in FY2008.

Monday, June 04, 2007

Quote of the Day: Real Salt Lake

Today's quote comes from Real Salt Lake (0-3-6) spokesman Eric Gelfand

"When people are properly educated that the hotel taxes are paid nearly 100 percent by out-of-towners, they are in favor of [tax dollars for Real stadium]".
Source: Deseret Morning News, June 3, 2007

In other words, people don't mind wasting tax dollars as long as the tax dollars are coming from out-of-towners.

Real's statement is seriously flawed because hotel tax dollars are our tax dollars no matter who ends up paying them, and government has the responsibility to spend these dollars as wisely as the tax dollars that Utahns pay directly.

Besides, a lot of tax dollars in Utah are paid by out-of-staters, including the following:

- Sales taxes paid by tourists, which currently go to state and local government general and transportation funds (according to Tax Commission estimates, tourists pay about 7% of all state/local sales taxes, or about $185 million in FY2006)

- About 75% of state corporate income tax, which goes to K-12 and higher education (total corporate income tax revenues were $380 million in FY2006 so 75% would equal $285 million)

- Severance taxes on metals which go to the state general fund (about $17 million in FY2006)

One could also argue that hotel property taxes are ultimately paid by out-of-state tourists even if the incidence is the hotel owner.

Bottom line: Utah state and local governments are missing out on an opportunity to waste a lot of tax dollars according to RSL tax policy.