Tuesday, July 31, 2007

Property Taxes, Part 1: How Truth-in-Taxation Works

Truth-in-Taxation is Utah’s most taxpayer-friendly law. It’s even better than California’s Prop 13 (more about that in a later post).

How does Truth-in-Taxation (TNT) work?
TNT is a revenue-driven system, not a rate-driven system. Generally, as valuations of existing property increase, property tax rates decrease. This automatic reduction in property tax rates prevents local governments from getting a windfall simply because valuations have increased.

For example, if valuations of existing property increase by 20%, the property tax rate decreases by 16.7% to maintain revenue neutrality as demonstrated by the following equation:

(100% + 20%) * (100% - 16.7%) = 100% of original tax = no change

The reduced property tax rate is known as the certified tax rate (CTR). This rate is then applied to all property, including “new growth”. While local governments receive increased revenues due to new growth, TNT includes no automatic adjustment for inflation.

If local governments want to adjust for inflation (or more, or less), they go through TNT notification and hearing process. This is a good opportunity to for local government officials to explain the proposed budget to their constituents.

For the record, the Utah Taxpayers Association does not oppose every proposed increase over the certified tax rate. In many cases, local governments are recouping inflationary losses. Certainly, that is not always the case. In Part 7, we’ll talk more about that.

Other notes
- Automobile Fee-in-Lieu and semiconductor personal property revenues are excluded from CTR calculation

- RDA increments are excluded from CTR calculations (as increment becomes taxable, it is treated as new growth)

Tomorrow, we’ll discuss some of the other factors that impact the certified tax rate and why your property taxes may have increased in spite of Truth-in-Taxation.

Monday, July 30, 2007

Explaining your property taxes

If you own property in Utah, you have most likely received a "notice of property valuation and tax change" from your county. Nearly everyone's property has increased dramatically. (Don't get too giddy about that because the value of your next house has increased by about the same percentage.)

In the next two weeks, we will be discussing property taxes with emphasis on Truth-in-Taxation. The Utah Taxpayers Association lobbied very aggressively for Truth-in-Taxation in the 1980s and continues to defend it every year.

This six-part series will cover the following:

1. How does Truth-in-Taxation work?
2. Why did my property taxes go up (or down)?
3. What have been the results of Truth-in-Taxation?
4. Does Truth-in-Taxation hurt local governements?
5. What impact do centrally assessed properties have on tax rates?
6. Does Utah need a Prop 13?

Wednesday, July 25, 2007

Congestion Pricing and Maximizing Freeway Throughput

Transportation experts have demonstrated that congestion pricing can maximize highway throughput. Throughput is defined as the number of cars that cross a certain point on a freeway over a given amount of time. Cost-effectively maximizing throughput is obviously an important objective, and congestion pricing can achieve this objective by controlling average vehicle speed during rush hour.

Intuitively, two factors impact a freeway’s throughput: the average speed of the vehicles on the freeway and the number of vehicles on the freeway. Inevitably, these two factors work against each other. As more vehicles enter the freeway, the average speed of vehicles decreases.

Studies have shown that freeway throughput is maximized when the number vehicles on the freeway allows vehicles to travel at about 50 mph. In other words, if vehicles are traveling at 70 mph, then throughput is not maximized because the increased average speed is offset by the low volume of vehicles. On the other hand, if vehicles are traveling at 20 mph, then the high volume of vehicles is offset by the low average velocity.

By charging commuters to use roads during periods of congestion, the number of vehicles on the freeway is optimized to maximize throughput. As average speeds decline, the price to enter the freeway increases to ensure that vehicle speeds hover around 50 mph.

Chao Chen and Pravin Varaiya have demonstrated the relationship between average vehicle speed and freeway throughput. Click here to see the chart.

In 2005, the US Department of Transportation issued Report on the Value Pricing Pilot Program Through March 2004. According to the report, a lane with congestion pricing on State Route 91 in Orange County, California carries twice as many vehicles per lane during rush hour than the adjacent toll-free lanes.

Benefits to taxpayers
Congestion pricing offers several benefits to taxpayers. First, congestion pricing slows the growth in vehicle miles traveled (VMT) by incentivizing commuters to carpool, telecommute, use roads during off-peak hours, and live closer to work. Slowing the growth in VMT means state and local governments can slow the growth in transportation expenditures.

Congestion pricing also improves the utilization of freeways and does this in two different ways. First, congestion pricing encourages drivers, especially discretionary non-commuting drivers, to use roads during off-peak hours when roads are under utilized. Second, as explained above, congestion pricing maximizes freeway throughput by optimizing average vehicle speeds.

Monday, July 23, 2007

Mike's Top Twenty Political Songs

Later this week, we'll have the results of a report we've done on the disparity between charter school and district school funding.

In the mean time, inspired by Rep. Urquhart's top ten movies list, we present Mike's Top 20 Political Songs of All Time (in no particular order).

Redemption Song - Bob Marley
Sunday Bloody Sunday – U2
If I Had a Rocket Launcher – Bruce Cockburn
Right Here, Right Now – Jesus Jones
Invisible Sun – The Police
Wind of Change - Scorpions
Cult of Personality – Living Colour
Sonderzug nach Pankow – Udo Lindenberg
99 Luftballons - Nena
Sympathy for the Devil – Rolling Stones
Revolution – The Beatles
The Trees – Rush
Okie from Muskogee – Merle Haggard
Courtesy of the Red, White, and Blue - Toby Keith
Fortunate Son – Creedence Clearwater Revival
Rain on the Scarecrow – John Mellencamp
Star Spangled Banner – Jimi Hendrix/Francis Scott Key
Borrowed Time – Styx
Rockin’ in the Free World – Neil Young
We Didn’t Start the Fire – Billy Joel

Thursday, July 19, 2007

Utah School District Spending Report for FY2006

How does your school district spend your tax dollars compared to other Utah school districts?

The Utah Taxpayers Association has just released its annual school district spending report. Click here to view the report FY2006.

The report contains district-by-district per student spending data, including the following:

- instructional expenditures
- instructional expenditures as a percent of total operations
- transportation
- library
- maintenance/operations
- student services
- interest
- facility construction
- food services

The report also looks at district revenues (operations, capital, nutrition, non K-12, and total) on a state-wide basis.

Monday, July 16, 2007

Congestion pricing and the environment

Congestion pricing is an issue that taxpayer advocates and environmentalists can rally behind. Environmentalists in other states and countries have been advocating for congestion pricing, and it's only a matter of time before environmental groups in Utah catch up with their counterparts in other places.

Congestion pricing slows the growth in vehicle miles traveled by incentivizing car pooling, telecommuting, living closer to work, and leaving earlier/later. This is good for the environment due to reduced pollution and good for taxpayers because growth in transportation spending is reduced while congestion is reduced.

Congestion pricing will also shift discretionary non-commuting traffic to off-peak hours. According to the US Department of Transportation, up to 50% of rush-hour traffic is discretionary (that is, non-commuting) Even if discretionary traffic is merely shifted instead of reduced, this still reduces pollution because fewer drivers will be stuck for longer periods of congestion burning more fuel than if they were just able to drive at normal freeway speeds.

According to the Texas Transportation Institute's 2005 Urban Mobility Report, Americans waste more than 2.3 billion gallons of fuel per year due to congestion, and that's bad for our wallets and for the air we breath.

Thursday, July 12, 2007

Are massive local sales tax increases for transportation “real” taxes?

Are massive local sales tax increases for transportation “real” taxes or just “pretend” taxes?

To most people, this sounds like a strange question. “Of course, local sales taxes for transportation are real taxes”, nearly every one would reply.

We’ve been talking to a lot of people who are concerned about transportation funding, and surprisingly many of them seem to think that local sales taxes for transportation are not "real" taxes. Frequently, they act like sales tax dollars from a taxpayer's perspective are just Monopoly money.

In most cases, they don’t articulate their position that way, but their arguments against congestion pricing indicate that they really don’t think these sales taxes are real, or certainly not worth worrying about.

The Transportation Lobby has really zoomed in on local sales tax increases because – due to near invisibility -- they are incredibly easy to pass. If a well-funded and organized group is pushing for a sales tax increase, voters most likely will not reject it unless it is an especially bad idea. The Lobby understands the boiling-the-frog principle as well as anyone.

The Main Event: Congestion Pricing (and other measures) vs. Increasing Local Sales Taxes Every 5 to 10 years (and increased earmarking of state sales taxes for transportation).

Elected officials and interest groups have already launched their effort to periodically increase local sales taxes for transportation. It began more than a year ago, and it scored early victories last year with sales tax increases in Utah and Salt Lake counties. The goal is to increase sales taxes by several hundred million dollars per year. State Sen. Ed Mayne wants to increase state sales taxes by more than $500 million per year.

This is why the Utah Taxpayers Association has proposed a four-point transportation reform plan. Of the four proposals, congestion pricing is encountering the most opposition, and this is where the issue of “pretend” and “real” taxes comes in. Here are some examples.

Comment: “Congestion pricing is bad because it will cost people and businesses money. We should do sales tax increases instead.
Response: Sales tax increases cost people and businesses money too. At least with congestion pricing, people will change driving habits which means that state and local governments will actually reduce more congestion while spending less than they otherwise would if they relied on sales taxes.

Comment: Congestion pricing is bad because roads should be free. Increase sales taxes instead.
Response: Roads have never been free. Taxpayers have always paid for them, traditionally with user fees like gas taxes but more recently with a combination of general taxes and user fees. When did sales taxes become "free"?

Comment: Congestion pricing is bad because once the road is paid for, pricing will still be there. Increase sales taxes instead.

Response: The same situation exists with state and federal gas taxes. We drive every day on roads that have been paid for, and we pay gas taxes to drive on these roads. The same applies to sales taxes. We won’t be paying less sales taxes when we drive on roads that have been paid for.

Comment: Congestion pricing is bad because we already pay gas taxes. Therefore, it’s a double tax. Increase sales taxes instead.
Response: That means that sales taxes must be double taxation as well since we’ll continue to pay state and federal gas taxes (and motor vehicle registration fees, impact fees, and existing state, county, and city sales taxes of which a large portion goes to roads).

Comment: Truckers will pass on congestion prices to consumers. Increase sales taxes instead.
Response: Business will pass on sales taxes on to consumers, either by applying sales taxes at the register on final purchases or hidden in the prices of the things we buy since sales taxes are applied to many business inputs.

Monday, July 09, 2007

Current system for electing state board of education members is too easily manipulated

Rep. Carl Wimmer is proposing partisan elections for the state board of education. Opponents criticize this as “politicizing” education.

Reform opponents, however, don’t want voters to know how their state school board is currently “elected”. Not only is the current system “politicized”, it is hardly democratic, and the process is easily manipulated by the education establishment. This manipulation, not vouchers, is the impetus for changing the current process.

When considering the current system for nominating and electing school board members, ask yourself if you think Utah should elect legislators and governors in the same way.

Here’s how the system works.

Step One: Low-profile committee recruits and selects nominees for the state school board

A group of insiders gets to determine who appears on the ballot in November. Currently, a low-profile 12-member committee consisting primarily of UEA supporters is supposed to select three candidates in each board race for the governor’s consideration. In order to get on the ballot, a candidate must be nominated by this committee. Members of the committee are supposed to represent a broad range of interests, but they typically represent the education establishment. Unlike the two-party process, this committee is virtually unknown to the public, and the local media provides very little if any coverage of this committee’s membership or decisions.

Step Two: The Governor makes his choices
Using the committee’s list of recommended candidates, the governor then picks up two candidates for each race (or one if the committee only picks one candidate for a given race) and then puts these names on the ballot.

When the committee picks one candidate for a given race (which is a violation of the law), then that one candidate automatically appears on the ballot unchallenged and is elected to the state board of education.

Step Three: The people “choose”
This is hardly an election in the true sense of democracy since the candidates on the ballot were not selected by an open, accessible, contested process. They were selected by a low-profile committee and the governor. At least in a partisan process, most races would be contested, either within the party at convention or primary or in the general election.

To get on the ballot in the current process, there are no public debates or meet-the-candidates nights. It’s all done quietly and without any scrutiny except for a very small committee.

Sometimes, a reform candidate manages to get on the ballot, but this is rare. In the end, the “election” is almost always a perfunctory ratification of the establishment’s candidates, not a true election.

Some people claim that Utah’s “one-party” partisan process is too restrictive and is dominated by Utahns with narrow interests. However, the current process for selecting state school board members is much more restrictive and closed than the process for electing the governor and legislators.

Brazen manipulation of the system in 2006, not vouchers, is the impetus for change
The current restrictive process is bad enough, but the education establishment’s brazen manipulation of this process last year was the final straw for many legislators. Here’s a summary of what happened:

1. Although state law requires the committee to be formed by November 1 in the year prior to the election, the 12-member committee was not formed until March, just days prior to the candidate filing deadline.

2. The committee was stacked with mostly UEA loyalists.

3. None of the eight races had more than two nominees for the governor to choose from.

4. In three races, the committee did not recommend anyone other than the incumbent.

Opponents of partisan elections for state board of education are going to have a hard time justifying the current system.

Utah Taxpayers Association

Monday, July 02, 2007

Incrementalism, part 3: Bryan Gray of the Davis County Clipper

Bryan Gray of the Davis County Clipper gives us an opportunity to revisit the issue of incrementalism. We've previously written two posts on incrementalism. You can view those here and here. Incrementalism is a strategy employed by the spending lobby to gradually increase our tax burdens over time. It has two parts:

1. Justify all or nearly all tax increases as costing only a few pennies per day or a few pennies per purchase

2. Oppose all tax cuts as not worth implementing because these tax cuts will save us only a few pennies per day or purchase.

Of course, over the long term, small tax increases accumulate into large tax burdens, and that's exactly the goal of those who regularly rely on incrementalism to justify tax increases and oppose tax cuts.

In his weekly column last week, Gray wrote

"The proposed tax is only a quarter of 1 percent. If you buy a Subway sandwich, you'll pay an additional penny. Buying property now rather than at a higher price later is a no-brainer."

We naturally agree with the second part that buying transportation corridors is a good idea. In fact, it's one of the items in our four-part transportation reform proposal. However, is another sales tax increase really needed? Government revenues are growing at historically high rates (local sales tax revenues increased 15% in FY2006), and government could spend transportation dollars more efficiently by slowing the growth in vehicle miles traveled by increasing transportation user fees such as congestion pricing and gas taxes (while reducing general taxes to maintain revenue neutrality).

The additional-penny-per-Subway-sandwich argument is not the first time Gray has resorted to incrementalism to support tax hikes. In previous columns, Gray wrote

"If the Open Space proposal passes, a dinner for two at a nice restaurant will skyrocket an entire two cents! If the Open Space proposal passes, the owner of a spanking new Mercedes will pay an extra $40."

"Have yourself a tiny tax increase...Through the year, you'll barely even notice [the tax increase], a dollar here or there"

Note: we could not find links to these comments on the Clipper website. We are relying here on hard copies in our files.

Painting the freeways apricot?
In 2004, Gray wrote "If someone proposed that we pay five cents per year to paint the freeways an apricot color, I'd vote against it". First of all, no one is proposing that, and we can be quite sure that no one will propose that in the future either. While Gray is obviously trying to be funny here, it's clear that he really could not think of a serious tax increase or expenditure to oppose.

Several months ago, Gray also came up with the worst argument to-date against congestion pricing. Read about that here.
Utah Taxpayers Association

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