by Howard Stephenson
Those who oppose tax cuts as a means of attracting businesses to relocate to Utah often say “taxes don’t matter to businesses.” By looking at the economic growth of Austria, and the decline of Germany’s economy, one might think otherwise. Austria has outperformed Germany in nearly every economic measure in recent years.
A recent Wall Street Journal article compares the German and Austrian economies and the direction they have turned in the recent past. Since the new government took power in Austria in 2000, it has cut taxes, cut spending, and taken away the hurdles to investment in their country. Austria’s corporate income tax was reduced from 34% to 25% which separates them from their German neighbors by more than 13%. They also had a tax- overhaul which cut taxes by $3.6 billion dollars.
Austria has reaped the benefits from there business friendly taxing policies in the form of foreign investment. This year alone corporate relocations from outside the country are up nearly 20%. Many of those relocations have come from their German neighbors.
With serious tax reform on the front burner, and an economic development governor in office, Utah leaders should look at examples such as the Austrian example which shows the impact that a business friendly tax structure can have on an economy.
Strong Leadership Produces Dramatic Turnaround in Eagle Mountain City Budgets
Things could not be more different in Eagle Mountain City today than they were four years ago. Records show that by the end of 2001, the city was under suffocating debt, state required audits had been neglected for years, and city owned utilities were awash in red ink with citizens paying sky high user rates. Investors and developers were fleeing the town, and parts of the municipality had discussed de-annexation. But four years later the booming city west of Utah Lake is getting attention for its conversion into a model of sound management and better government.
“Nothing was working right,” said former Mayor Kelvin Bailey about the city when he took the helm in January of 2002. “Any reasonable person could see that things were a mess, but at first it was disorienting because financial records simply weren’t there and the city administrator was not forthcoming with information. It was hard to get your bearings and know where to start,” Mayor Bailey said.
State Senator Mark Madsen, who took office as an Eagle Mountain City Councilman with Bailey recalls, “We were briefed by staff on the condition of the city before we were even sworn in. The financial information the staff provided us had huge, six figure, discrepancies for which there was no explanation. The city didn’t have enough money for the fire department equipment, but it was spending thousands and thousands on an arts council. I was aghast.”
In the ensuing four years, however, the city has put its financial house in order. The city administrator’s contract was terminated and other personnel let go. The new leadership adopted tighter spending constraints, implemented more realistic budgeting practices, and introduced a purchase order system. Over time, delinquent state audits were caught up and penalties that had been assessed against the city by the IRS, the State of Utah, and the city’s bond insurers were lifted, ultimately saving the city several hundred thousand dollars annually.
In four years the city’s debt was reduced by over $12 million dollars: from $63.5 million down to $51.5 million. It has also moved towards privatizing utilities, currently awaiting FCC approval for the sale of the telecommunications system, which will reduce the city’s debt by another $4.3 million. And government subsidies for the arts have been terminated.
In the case of Eagle Mountain, it’s not just that they’re doing things right — there are other well run cities in Utah — but that strong political leadership brought about such a dramatic reversal from the way the city was being run before. In January 2002, the newly elected officials inherited a $480,000 deficit that virtually wiped out the city’s financial reserves. By the next fiscal year they had replenished the general fund reserves or “rainy day” funds with over $200,000 and collected roughly $530,000 more in dedicated funds for the construction of roads, parks, water tanks and sewer facilities.
By adopting a pay as you go philosophy, Eagle Mountain keeps taxes lower while providing essential government services. With sound spending and budgeting policies in place and with close oversight of city operations, Eagle Mountain officials have avoided disaster and created conditions for success.