Truths, myths, and everything in between for Truth-in-Taxation season

Utah’s cities, special service districts, and school districts have wrapped up their annual exercise of creating their budgets for the upcoming fiscal year. These entities run on a July 1 – June 30th fiscal year and each year the elected officials for these entities need to sign off on the new budget before it can go into effect. 

It is safe to argue that this is the most important task for the elected officials of these entities to perform. While policy decisions are key, the budget and how much money is taken from each Utah family and business has a lasting impact. More often than not, if a tax increase is made by this entity, it is permanent and that is money that will never be returned to the taxpayers. 

Because of the serious nature of this matter, some elected officials, staffers of these entities, and even the public that support a tax increase come up with some creative and clever ways to ease the pain of the increase to taxpayers. Phrases such as “this increase is the equivalent of a family going out to eat once a month” or “this is just a minimal bump in taxes that matches what others are doing” are uttered to help the public and elected officials feel better about the tax increase but at times some phrases are used to veil what is taking place. Here are a few things to watch out for: 

“We are only ‘freezing’ the tax rate.” 

If this statement is used, it is being done so to game Utah’s property tax system. A freeze of the rate is a property tax increase on the taxpayers. Utah’s property tax system is revenue based not a percentage based system. Meaning, the system floats the percentage rate to ensure the taxing entity receives its previous year revenue and whatever new growth occurred within its boundaries. If a city or school district, or special service district (such as a water conservancy district) is claiming they are only freezing their rate, that means the rate should have gone down to ensure previous year’s revenue plus new growth but the elected officials have decided they want additional revenue. If a taxing entity is freezing the rate, it will trigger a truth-in-taxation hearing and will have to explain why it is seeking additional money from its taxpayers. 

“An expiring bond allows us to avoid raising taxes…” 

From time to time a taxing entity has a bond that is expiring which means the taxpayers in their jurisdiction should be getting a tax cut. Creative government workers oftentimes replace that temporary tax hike to pay for a capital project with an ongoing property tax increase to feed the entity’s general fund. So while you thought the 10 year bond you approved to pay for a city public safety building is going to be completed and you’ll get a break on your property taxes, it is instead replaced by a property tax hike and that break you were expecting is gone and the city now has an additional source of ongoing funds. 

“We are only raising enough to keep up with inflation…” 

This one has some merit but I’d still be cautious when using it. While Utah’s system does not automatically increase with inflation, there are times when a taxing entity may have to increase taxes to recover what they lost to inflation over time. Our recommendation has been for entities to examine this every 5-7 years. What we would strongly oppose is an entity holding a truth-in-taxation every year or every other year simply to do inflationary recaptures. We believe this practice is inappropriate and essentially “slow boils” the taxpayers to death by taking small amounts that add up to large tax hikes over a period of years. 

Tax increases are inevitable but should be done so after the entity has demonstrated an honest effort to stretch the dollars it already receives as far as possible. Yes the state needs schools, roads, parks, water, public safety and other essential services but a strong exercise should be done before any tax increase to determine if the entities are funding things that are necessary or seeking after nice to have items at the expense of Utah’s taxpayers. 

It isn’t easy, it can be messy and hard. That’s a good thing. As you receive your property tax notice in the coming weeks, we encourage you to take note of the entities that are holding a truth-in-taxation hearing and get to know the budget, the issues, and the elected officials and make your voice heard to ensure taxes remain fair for everyone.