Legislators table tax shift
In the face of a student population crisis, a concept generated by the Utah Tax Reform Task Force in October proposed to shift city and county sales and use taxes to school districts and school property taxes to cities and counties. But the tax shift was tabled for further study, legislators announced last week, which comes as a relief for Park City representatives of the Utah League of Cities and Towns (ULCT).
"The idea is a bad one," concludes Gary Hill, who manages City Hall’s budget, and joins City Manager Tom Bakaly, Mayor Dana Williams and City Councilwoman Candace Erickson at ULCT Legislative Policy Committee meetings.
The task force’s "bad idea" was to take away the local option sales tax the tax that cities impose on themselves and turn it into a state sales tax to fund education. To off-set the sales tax revenue lost, legislators recommended cities raise property taxes, according to Hill.
"I think the cities were frustrated first and foremost because the concept came so late in the process. The league never took a formal position and I don’t think it needed to because there was general opposition to the proposal within the task force," he said.
Cities do not keep all of the sales tax they generate. A 50-50 formula gives 50 percent of sales tax generated in any Utah city to that city based on the point of sale — the rest goes to the state. Yet sales tax constitutes a significant portion of cities’ revenues, Hill notes. For Park City, sales tax generates only less than half of its revenue, he said, and to take that tax away from municipalities could create a lot of different problems. "Without a sales tax, you have no way to off-set the impacts created by people who don’t live in your city," he explained. "What they’re asking for, then, is for residents to pay for those impacts from property taxes. And in our opinion, it just doesn’t seem right that residents would have to subsidize tourism through property tax." A city like Park City, that generates a lot of sales tax, but has very little population, would therefore lose in a scenario where cities send sales taxes to cities with a higher population. Property taxes, for instance, would need to cover an increase in transportation demands for The Sundance Film Festival, and "that’s just not equitable," argues Hill. Hill supposes that the motivation behind the tax shift concept comes from the state’s concern that cities are making bad development decisions. If cities no longer benefit from sales tax, then there’s nothing to distribute and cities aren’t trying to lure big box retail away from one another. "You don’t have to look very far in the valley to see where Wal-mart is trying to decide which city to go to and asks cities to provide certain infrastructure improvements to have them locate in their city," Hill says. Bakaly, who has worked with the ULCT’s tax team for 18 months, concurs. "In their mind, they feel that some cities make land-use decisions based upon what kind of sales tax they might get, so it was one way to remedy that," he explained. "Of course, we feel that local officials should have the decision-making ability." Though he can understand the state’s position, Hill says legislators did not think about the negative consequences for schools. "One of the results of the tax [shift] would be to pit cities and schools against each other, and if there’s no sales tax revenue, a city would have no incentive to put in roads and intersections and things to entice sales tax-generating stores into town," he explained. In addition, Hill noted that swapping sales tax revenue to schools had a high potential to backfire. The tax shift would tie education to a volatile revenue source, since sales tax is dependent upon the ebb and flow of the economy. By comparison, property taxes, which currently fund the Utah school system, are much more dependable, Hill observed. With new estimates by Utah’s demographers showing a statewide population growth of 2.9 percent last year, and per-pupil spending taking a dive, the tax shift could have been a big mistake. "I think that what happened was we started to get the message out to the legislators and I think they realized that this was absolutely a deal-killer for cities and that we would probably fight this," Hill said.
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The Jordanelle Reservoir is at about 67% of its capacity, not the lowest its been but a level that officials say is concerning.