by Howard Stephenson

Sales tax revenues understated by $104 million

If you ask a legislator or almost anyone involved in Utah public policy how much the state collects in sales taxes, they’ll look at page one of the TC-23 and tell you that the state collected about $1.8 billion in FY2006, a 10.2% increase over FY2005.

The TC-23 is the most anticipated and viewed periodic financial report issued by state government.

Unfortunately, the TC-23’s main chart significantly understates by about $104 million the amount of revenue the state receives from the 4.75% general sales tax. The growth rate is also understated.

The numerous sales tax earmarks are excluded in the main chart and are reported in the footnotes that hardly anyone reads.

Only a few people know about this. Most legislators and policy wonks are completely unaware of this. The accompanying table shows how much the state really collected in sales tax. Earmarking of general sales tax revenues began in earnest in the mid-1990s, and it has increased in recent years.

Consequently, as earmarking has increased and these revenues are not reported in the TC-23 main chart, the actual growth rate in state sales tax revenues is higher than reported. Some legislators have mentioned that state sales tax revenues grew by “only” 10.2%, as cited in the TC-23. Actually, this is a significant increase, almost double the rate of inflation and population combined. However, the actual growth rate in state sales tax revenues was even higher at 13.6%, not 10.2%.

Most people would agree that $104 million is a lot of revenue to underreport. However, the big government types would argue that this isn’t a lot of money. Afterall, $104 million amounts to

• About one and a half movie tickets per Utah household per month

• About two and half tanks of gas per Utah household per year

• About one cheeseburger per Utahan per fortnight

• About 11.5 cents per Utahan per day

Sports stadiums don’t help the economy

Recently the University of Utah’s Center for Public Policy and Administration summarized a study which should put to rest any arguments that a soccer stadium will benefit Salt Lake County’s economy. The study shows that out of 36 professional team hosting cities studied, 32 of them gained or lost a team. Thirty of the thirty two cities showed no change in economic activity (including Salt Lake City) and only two of the cities had any change; one had positive and one negative.

This study should let the Salt lake County Council know that they made the right decision in rejecting subsidies for a professional soccer stadium and that hosting a professional stadium would not increase economic activity in the county.

Herriman City ’s public safety “user fee”

Herriman City will be funding law enforcement by imposing a so-called “user fee” of $300 per year on all households and businesses that are connected to the city’s water system. Herriman City claims that this proposal is fairer than property taxes.

This is one of the worst ideas in municipal finance to come along in a very long time.

Despite Herriman’s claim, this is not a user fee. User fees are based on usage. If a household uses more water, they pay more water fees. However, the city’s proposed “user fee” isn’t based on usage because everyone pays the same. Besides, how would the city measure a household’s usage of public safety and law enforcement?

Herriman’s “user” fee is a regressive form of taxation, which means low income households end up paying a higher percent of their income in taxes. With property taxes, higher income households generally own larger homes which mean they pay more property tax. Herriman somehow claims that a regressive fee is “fairer” than a property tax, which is not regressive.

At least with a true user fee based on actual usage, like water consumption, a household can reduce its usage of certain services, which is especially important to low income families who are trying to balance their budgets. Does Herriman propose to fund all city government with so-called user fees? What about city administration? The fire department? Should these be funded by regressive taxes masquerading as “user” fees?

User fees, whether real or fake, are not deductible on state and federal income taxes like property taxes are.

While genuine user fees should be earmarked to cover the costs of providing services, other revenues should not generally be earmarked. Earmarking general taxes (or bogus “user fees” in this case) should be avoided since this reduces government’s ability to prioritize spending.

General government functions – like law enforcement – should be funded by general taxes. If Herriman needs additional funds for law enforcement, they should go through the Truth-in-Taxation process and explain to their taxpayers why they need to exceed the certified tax rate. That’s what other cities do.

Cedar Hills homeowners paying high price of failed golf course

The Cedar Hills city council has imposed a $180 annual fee – payable $15 per month – to cover the city’s obligation on the bonds issued to purchase a golf course which has failed to be self-sufficient. The city purchased the golf course a few years ago expecting to make money for the city and provide a little taxpayer relief. The Utah Taxpayers Association warned city fathers of the high risk of purchasing the golf course and reiterated its admonition that local governments should stay out of the business of business. The mayor and city council members who made the purchase have all been replaced.

If the city had been smart they would have realized that the willingness of the original developer to sell was a huge warning that there was something amiss. Despite receiving an absolute property tax exemption on the course because it is city property, Cedar Hills was unable to make the course profitable.