by Howard Stephenson
For several years many organizations and elected leaders in Utah have been calling for the end of property tax subsidies for water delivery in the state. They have argued that the full costs of water should be contained in the water bill to ensure that consumers are motivated to conserve water in a desert state. When a portion of the cost of water is paid through property taxes, the water bill appears artificially low, and motivation to conserve is lessened.
It finally appears the message is being heard.
The Salt Lake Metropolitan Water District is planning a huge new project to include transmission lines, a water treatment plant, and storage facility in the Draper area — all to be funded without property taxes. Although the city of Draper is protesting the location of the facility, the one thing that is certain is that the cost of the project will be funded through water fees, not property taxes.
The Utah Taxpayers Association, Utah Foundation, the Utah Rivers Council, Governor Leavitt, Senator Michael Waddoups, BYU economist Del Gardner and others have all argued that property tax subsidies for water should be decreased or eliminated.
According to a Utah Foundation study, only 50% of the cost of delivering water comes from water rates in monthly bills. Property taxes and other subsidies make up the rest of the funding, acting as a disincentive to saving water.
Governor Leavitt has also spoken out against property tax subsidies for water. He has pointed out that Utah over-subsidizes water and under-subsidizes education. He says that’s strange given that we’re a state without much water.
The Utah Taxpayers Association has pointed out that since it wouldn’t make sense to propose a tax to subsidize electricity or natural gas rates, it also doesn’t make sense to subsidize water rates with property taxes.
There’s no reason why we should be forcing Utahns to pay property taxes to support water districts, says Senator Michael Waddoups who was sponsor of legislation this year which directs the Tax Review Commission to study the removal of property tax subsidies for water. Waddoups believes property taxes encourage people to waste water and penalize homeowners who save water. Senator Waddoups has tried to lower these property taxes but the water districts have fought to keep them.
Senior Research Analyst for the Utah Foundation Janice Houston says we need to look carefully at water districts’ motivation for arguing against a pay-per-use system, especially those receiving a high percentage of revenue from property taxes.
According to B. Delworth Gardner, Professor Emeritus, Brigham Young University, property taxes encourage Utahns to use too much water by subsidizing the price of water. Utah’s low water rates encourage people to waste water and hide the real cost of delivery in property taxes on homes, businesses, and cars. If all costs of water delivery were placed in water rates there would be a surplus of water instead of a shortage.
Gardner says property taxes and other subsidies distort water prices that in turn reduce efficiency in the economic system. He says the price of water must represent the cost of delivering it but property tax subsidies must be removed for that to happen. He said that water prices directly affect the demand for water. A 10% increase in price would produce a drop in demand by as much as 7.7%
The public also supports the removal of property taxes for water subsidies. When the public was asked how they would like to fund a new water project, a whopping 76% of Utahns polled said they would rather pay higher water rates compared with only 11% who would rather raise taxes to pay for such projects. This is based on a poll conducted in 1995 during the Governor’s Summit on Water, Transportation and Open Space.
Beth Niederman, assistant director of the Utah Rivers Council said it’s outrageous that in the fourth consecutive year of drought, Utah is still encouraging people to waste water by keeping property tax subsidies in place. She said we should reward people who conserve, not force property taxpayers to subsidize water wasters. Utah continues to have the highest or second highest residential water use and some of the lowest water rates in the Nation even in light of severe drought conditions.
Last Friday the Tax Review Commission adopted recommendations for the Governor and Legislature which call for an end to property tax subsidies for water except where contracts are already in place which require them. The Commission says urban water districts should not issue new general obligation bonds which require property tax payments and should stop the practice of using property taxes to retire revenue bonds or fund operating expenses. The Commission did say, however, that rural water conservancy districts operate under unique circumstances and that it may be appropriate under conditions for them to impose a property tax.
by Howard Stephenson