Utah Taxpayer

The Utah Taxpayers Association's August newsletter has an article on pages 3 and 4 that explains Utah's spending limit and why it is ineffective at slowing government spending growth.

In FY2008, total expenditures from the general and education funds (including earmarks) increased by 18.3%. The actual increase will be even higher once FY2008 supplementals are determined in the next legislative session.

The spending limit is ineffective because most government spending is exempt from the limit. In FY2008, only 39.7% of combined education/general fund expenditures (including earmarks) will be subject to the spending limit.

Click here to read the article on pages 3 and 4.

Posted by Utah Taxpayer at 1:08 AM | Permalink | Comments

We’ve received some questions about our $7,500 per Utah K-12 student spending estimate for FY2008. Click here to see the original post. Here are our answers to the questions we’ve received.

Does your $7,500 estimate include “one-time” money?
Yes it does, as it should. Those who want to minimize the amount taxpayers spend per student try to exclude all sorts of things, such as facility construction, interest, “below the line” items such as Social Security, Medicare, retirement, block grants etc. Now, some want to exclude so-called “one-time” expenditures.

Here’s why one-time expenditures should be included

- One-time expenditures are still expenditures of tax dollars. These are real tax dollars, not pretend tax dollars.

- One-time expenditures will be replaced in succeeding years by additional one-time revenues or by ongoing revenues.

- To exclude one-time expenditures would be to assume that per student spending will be DECREASING in FY2009 because the one-time money would not be replaced. History strongly indicates that FY2009 spending per student – which will also include one-time funds -- will be even higher than FY2008. Only once in the past twenty years has nominal per student spending decreased from one year to the next.

- If these one-time expenditures had been diverted to higher education which would have then diverted general funding to transportation, then the opposition would not be dismissing these expenditures as “one-time”.

- One-time expenditures in the Minimum School Program are less than 4% of estimated school district expenditures in FY2008. Therefore to reach $7,500 per student in FY2009, the legislature would have to add an additional 3% for enrollment growth and 4% to replace one-time funding.

- All budgets have one-time money. A lot of the current one-time money is from budget surpluses, and these budget surpluses are the result of conservative revenue estimates by the state. If the state were less conservative in estimating revenue, then a lot of the one-time money in the FY2008 budget would automatically become ongoing money. During recessions, one-time money comes from transfers from the Rainy Day Fund and the “working” Rainy Day Fund (cash for capital projects).

What about federal money?
Our estimate includes federal money, as it should. Afterall, Utahns pay federal taxes just like everyone else. A voucher program that results in educating students at a lower cost to federal taxpayers makes sense just as a voucher program that educates students at a lower cost to state and local taxpayers.

Besides, most federal dollars are driven by poverty levels. Therefore, if voucher opponents are going to argue that vouchers are going to result in “loss” of federal dollars, then they must be assuming that low income students will be using vouchers. Besides, federal dollars for K-12 education are generally allocated to the states based on Census Bureau poverty levels.

What about adult education?
No, our estimate does not include adult education or fund 23 expenditures. Even though these are tax dollars, this would not be an appropriate inclusion in the voucher debate.

In the context of the voucher debate, how much of these costs are variable?
Considering that Utah’s enrollment is expected to grow 3% annually, virtually all K-12 costs are variable. There are no fixed costs associated with teachers that have not yet been hired, buildings that have not yet been built, or equipment that has not yet been purchased. Even districts that have experienced declining enrollment have demonstrated that costs are largely variable by redrawing school boundaries. They can also convert underused traditional district schools to charter schools.

Posted by Utah Taxpayer at 7:25 PM | Permalink | Comments

Opponents of Truth-in-Taxation (TNT) argue that TNT harms local governments because the calculation of the certified tax rate does not include inflationary adjustments. To offset inflationary losses, local government must go through Truth-in-Taxation periodically.

As we explained in part 3, property tax revenue growth since TNT's enactment has been nearly identical with inflation and population growth. When property tax reductions unrelated to TNT are accounted for -- two legislative reductions in the statewide basic levy for education and a reduction in county property taxes in exchange for county authority to impose a 0.25% sales tax -- property tax revenues have increased slightly faster than inflation and population growth.

Property tax revenues would be even higher (or property tax rates for everyone would be lower while local governments would be getting the same amount of revenue they are currently receiving) if cities would stop using RDAs to subsidize locally-driven retail, recreation, and entertainment. Subsidizing economic activity that would occur on its own somewhere in Utah without a subsidy is poor fiscal policy. Hopefully, recent RDA reform will change this.

Posted by Utah Taxpayer at 11:34 PM | Permalink | Comments

We’ve discussed the theory and mechanics behind Truth-in-Taxation in parts 1 and 2. Now we’ll talk about the results.

Property tax revenue growth before and after Truth-in-Taxation
In the six years (1980 to 1986) prior to Truth-in-Taxation’s enactment, property tax revenue grew at a 10.8% annualized rate even though combined inflation and population growth was about 7%

In the twenty years since Truth-in-Taxation, property tax revenues have grown at a 5.4% rate, equal to the combined inflation and population growth rate of 5.4%.

During that time period, there were three property tax cuts unrelated to Truth-in-Taxation – two reductions to the statewide basic levy for education and a reduction in county property taxes in exchange for a sales tax increase. All of these reductions occurred prior to 2000 so comparing property tax growth since 2000 would provide a more accurate impact of Truth-in-Taxation. Since 2000, property tax revenues have grown at about 5.9% annually, and combined inflation and population growth has been slightly lower at 5.5%. Relative to inflation and population growth, property taxes have grown at a much slower rate since Truth-in-Taxation’s enactment than before.

Utah’s property tax burdens compared to other states
Utah’s major sources of tax revenues are individual income, sales, property, motor fuel taxes, and fees. Of these, Utah is below the national average on property taxes only.

- Individual income taxes: Utah ranks 16th highest at 2.94% of total personal income (TPI) compared 2.41% for the U.S.

- General sales taxes: Utah ranks 13th highest at 3.33% of TPI compared to 2.63% for the U.S.

- Motor fuel taxes: Utah ranks 10th highest at 0.54% of TPI compared to 0.36% for the U.S.

- Property taxes: Utah ranks 36th highest at 2.73% of TPI compared to 3.36% for the U.S.

For a complete report on Utah’s state/local tax and fee burden in FY2005, click [here] to see the Utah Taxpayers Association’s How Utah Compares report. The association updates this report annually.

Posted by Utah Taxpayer at 12:52 AM | Permalink | Comments

The Utah Taxpayers Association estimates that taxpayers will be spending more than $7,500 per student in FY2008. This figure includes operations, facility construction, and interest. It does not include non-K-12 programs.

Isn't this higher than the Census Bureau figure?
The most current Census Bureau spending per student figure for Utah is $5,257 for FY2005, not FY2008. The $7,500 figure is for FY2008, and it includes expenditures that the Census Bureau does not include.

This Census Bureau figure excludes facility construction and interest. The Utah Taxpayers Association's figure (actual, not estimated) for FY2005 excluding facility construction and interest is $5,300, which is within 1% of the equivalent Census Bureau figure.

Including facility construction and debt service, the association calculates that Utah spent $6,309 per student in FY2005 (again, actual not estimated).

How did we get to an estimated $7,500 per student for FY08?
The association recently released its Utah School District Spending Report for FY2006. You can view this report here. The spending figures in this report are actual expenditures, not estimates. In FY2006, Utah school districts spent $6,529 per student. Again, this includes facility construction and interest.

The actual figures for FY2008 won't be available for another 18 months, but we can safely estimate that FY2008 per student spending in Utah will be at least $7,500 because the increase in Minimum School Program (MSP) spending per student from FY2006 to FY2008 is about $1,000. Adding the MSP increase to the FY2006 actual expenditure yields more than $7,500 per student for FY2008. This is a conservative estimate because it assumes that facility construction, interest, and non-MSP operating costs per student will not increase from FY2006 to FY2008.

By the way, facility construction and interest are not fixed costs in a state where enrollment is projected to grow by about 3% annually for at least the next decade. There are no fixed costs associated with buildings that have not yet been built. As long as Utah is expected to experience enrollment growth of about 3% annually, Utahns can expect to continue spend more than a $500 million per year on facility construction and interest.

However, Utahns can spend less if vouchers divert a portion of enrollment growth to private schools at a lower cost per student.

Posted by Utah Taxpayer at 9:45 PM | Permalink | Comments

Kim Burningham is turning to the age-old canard of “diversity,” a common theme among voucher opponents. As he notes in yesterday’s Salt Lake Tribune, “We are best served by schools that throw children together. . . . One of our greatest faults as a society is that we have become fragmented. Separation is not to be encouraged.” While that theme is laudable, it’s hard to see how the school system he has overseen for 8 years fulfills that mandate.

According to the Civil Rights Project, a joint project of Harvard University and UCLA, Utah’s public schools are among the most racially segregated in the country. As the table below, extracted from page 22 of their 2006 report, “Racial Transformation and the Changing Nature of Segregation,” indicates, Utah public schools are more racially isolated than all of our neighboring states except Idaho. (And no one points to any state in the intermountain west as a bastion of racial integration.)

By this measure, Utah public schools are hardly “throwing students together,” to use Mr. Burningham’s phrase. Given the way public schools are designed to stratify along economic lines, that’s hardly a surprise. The wealthy and affluent people buy houses near each other, because they can, while the rest of the community lives in the nicest neighborhood they can afford. Then public schools mimic this economic segregation by using geographic boundaries to dictate who attends which schools.

Before the complaints are lodged, we’ll clarify. We support the wonderful work Utah public schools do. They do and always will educate the vast majority of Utah students, because most Utah families are very pleased with the hard work they perform. However, it is disingenuous at best for Mr. Burningham, or any representative of Utah public schools, to criticize vouchers on the grounds of segregation, diversity or some other racial codeword. Hard geographic boundaries like those used in public schools are hardly the model for achieving it.

Posted by Utah Taxpayer at 10:22 PM | Permalink | Comments

Hogle Zoo is asking the Salt Lake County Council to place a $65 million bond before the voters this November. Although the Zoo’s bond is nearly TWICE the size of the $35 million Real S.L. stadium subsidy, their proposal has faced little scrutiny. A scant 5 years ago, the Legislative Auditor General found serious lapses in the Zoo Board’s judgment. Voters should wonder whether the use of the $65 million bond will be appropriate.

To better understand whether the Zoo Board’s judgment has improved, on July 13 the Utah Taxpayers Association submitted a GRAMA request with the following questions deriving from the Audit.

1. What is the relationship between the Audit's recommendation regarding the elephant moat, and the elephant water tank the Zoo recently built?
2. What is the current size of the Zoo (in acres)?
3. What is the annual capacity of the parking at the Zoo?
4. How many on-site parking stalls does the Zoo have?
   How many off-site parking stalls does the Zoo have?
5. Please provide the names and contact information for every member of the Zoo’s Board from 2002 to the present.
6. What outside contracts has the Zoo let since the 2002 audit?
7. Who won the outside contracts let by the Zoo since the 2002 audit?
8. What is the relationship between the Zoo's Board members and the winners of these contracts?
9. What kind of competitive bid process has the Zoo Board used in evaluating various contract proposals?
10. What is the Zoo Director’s total compensation package, including salary, home and auto?
11. How does the Director's total compensation package (salary, home and auto) compare with that of directors at zoos of similar size and who have similar tenure?
12. What procedures has the Zoo put in place to independently track how ZAP funds and state appropriations are tracked?

Despite annually receiving approximately $1.4 million dollars from the state, and more than $500,000 from the Salt Lake County ZAP Tax, the Zoo Board refused our GRAMA request. The Zoo Board did provide the material they supplied Salt Lake County’s Debt Review Committee and the Salt Lake County Council. This material answers several of our questions; however, they failed to answer others. Our first question is perhaps the most surprising. The 2002 Audit questions whether the elephant moat creates a potential hazard for the elephants. Since then, the Zoo built an elephant water tank, where the elephants could safely play in the water.

This question stems from conversations with current and former Zoo board members, who say that elephants only play in water if trained from infancy to do so. Although these current and former Zoo board members have told us no Hogle Zoo elephant has even gotten in this elephant water tank, the Zoo board did not respond to this question.

Several questions focused on issues the Auditors raised about the suitability of the Zoo’s current site. For several years the Zoo examined the possibility of either expanding into undeveloped portions of This Is The Place Heritage Park, or relocating to another part of the Salt Lake Valley. Although the Auditors found that Hogle Zoo’s current site would be at capacity in just 8 years, the Board rejected both of those options, and is now pressing for a 20 year bond to improve the current site.

Finally, the Zoo’s response suggested at least one more question. On May 22, 2007, the Zoo told the Salt Lake County Council, “The Zoo operates without debt.” In reality, they operate on the debt carried for them by other taxing entities, such as the $10 million bond Salt Lake City approved for the Zoo in 2003, and now the $65 million bond they want from Salt Lake County.

We hope the County Council requires the Zoo to answer these pressing questions before they vote. To gloss them over when so much is at stake is entirely inappropriate.

Posted by Utah Taxpayer at 3:53 PM | Permalink | Comments

Generally, when property valuations increase, property tax rates decrease to maintain revenue neutrality (excluding new growth). This revenue-neutral rate is called the certified tax rate. This rate is then applied to all properties, including new residential and commercial developments. Increased valuations due to new developments do not reduce the property tax rate

Despite Truth-in-Taxation’s ratcheting down of property tax rates as valuations of existing properties increase, sometimes property owners see a higher property tax bill. Sometimes, property owners see a decrease. There are several reasons why.

Property valuations increase faster in one area than in other areas
Property valuations can increase faster in some areas than in other areas for two reasons. First, properties are periodically reassessed. As a result, properties that were recently reassessed by the county will typically experience larger valuation increases than properties that were not reassessed recently. Second, real estate market demand may push up the value of some properties faster than others.

Using yesterday’s example, if existing property valuations increase 20% county-wide, the tax rate is reduced by 16.7% to maintain revenue neutrality (excluding new growth). However, properties that increased faster than the county (and/or school district/city/special service district) average will experience an increase in property taxes while others will experience a decrease. In the end, it all works out because other parts of the county and school district will be reassessed in following years and their taxes will increase while everyone else’s decreases.

Local governments issue or retire voter approved general obligation bonds
A local government’s property tax rate is a sum of several tax levies. In most cases, one of the property tax levies is used to pay off voter-approved general obligation (GO) bonds. These debt service levies are NOT subject to Truth-in-Taxation. Therefore, if a local government issues a voter approved bond, property taxes may increase even though the local government’s other levies were reduced by the Truth-in-Taxation process.

When a local government retires a GO bond, the debt service levy is reduced (unless the local government issues new debt).

Local government raises taxes
Truth-in-Taxation does not prevent local governments from raising taxes. Once the certified tax rate has been calculated by the Utah State Tax Commission, local governments have the option of exceeding the certified tax rate. When local governments decide to exceed the certified tax rate, they must go through the Truth-in-Taxation notification and hearing process. Annually, about half of school districts increase their rates above the certified tax rate, and about 20% of counties and 5% to 10% of cities increase their rates above the certified tax rate.

Certified tax rates do not include adjustments for inflation. Therefore, local governments occasionally increase property tax rates to recoup inflationary losses. Sometimes, the proposed increases do more than offset inflation, sometimes less.

Local government imposes judgment levy
Occasionally, large taxpayers successfully appeal their property valuations, just as home owners successfully appeal their property valuations. In some cases, these large taxpayer appeals take several years to resolve. When that happens, the local governments must refund the property tax overpayment from previous years. In such situations, local governments have the option of imposing a one-time judgment levy to cover the costs of the tax refund. In these cases, property taxes may increase even though Truth-in-Taxation has reduced other levies.

Residential appeals, on the other hand, are generally resolved quickly, which means that refunds of multi-year overpayments are not an issue for residences.

Other factors: BOE adjustments, delinquent taxpayers, centrally assessed properties
Just as local governments are allowed to impose one-time judgment levies to cover costs of refunding previous years’ overpayments to large taxpayers, tax rates are increased when any property owner successfully appeal current-year property taxes. This adjustment is called the board-of-equalization (BOE) adjustment. This increases the certified tax rate.

Every year, some property owners do not pay their property taxes, usually due to financial hardships. (Note: property owners are required to pay their taxes even when they appeal.) When this happens, tax rates increase to hold local governments harmless. Local governments actually benefit from delinquent property owners since the tax rate increases when taxes are delinquent but tax rates do not decrease when delinquent taxes are eventually paid (which is always the case since such properties are sold by the county and back taxes are collected at that point.)

BOE (3-year moving average) and collection (5-year moving average) adjustments do not change much from year to year, especially in large taxing entities like school districts and counties. However, in small cities/towns and special service districts, a couple of delinquent taxpayers or successful property tax appeals can increase the certified tax rate for all taxpayers.

We’ll talk about centrally assessed property in a later post.

Posted by Utah Taxpayer at 9:46 PM | Permalink | Comments