by Howard Stephenson
Total property tax collections in Utah will approach $2.3 billion in 2007, according to calculations by the Utah Taxpayers Association based on data from the Utah State Tax Commission. Property taxes will increase 10.4%.
2007 Increase is higher than normal
Since the enactment of Truth-in-Taxation (TNT) in the mid-1980s, property tax revenues have increased by about 6% annually. This year is only the third time since TNT’s enactment that property tax revenues will increase at double-digit rates.
Under TNT, property tax rates are reduced as valuations of existing properties increase. This reduced rate – called the certified tax rate (CTR) – is then applied to all properties, including new growth or new construction. However, under certain conditions, property tax revenues can increase much faster than combined inflation and population growth.
1. Local governments adopt a tax rate that is higher than the certified tax rate. If no local governments had exceeded the certified tax rate in 2007, property tax revenues (excluding FIL) would have increased by 6.4% instead of 10.8%.
2. Local governments issue bonds, which are exempt from CTR calculations. In some cases, local governments – particularly school districts — issue bonds that were approved by voters up to ten years previously.
3. Property valuations increase rapidly. Even though increased valuations of existing properties do not create additional revenues for local governments, rapid increases in “new growth” valuations can substantially increase tax revenues.
Effective Tax Rates and Taxes Charged by Local Governments
School districts continue to increase their share of total property taxes. In 2007, school districts
will receive 56.2% of all property taxes, up from 50% ten years ago and higher than any year since the early 1980s. Counties will receive 17.9% of total taxes charged in 2007, cities and towns 14.6%, and special districts 11.2%.
Value of Primary Residence Exemption (2006)
Primary residences in Utah receive a 45% exemption on property taxes. The value of the 45% exemption can be calculated two different ways. First, if the exemption were removed (increasing and certified tax rates were not reduced, yielding a revenue windfall for local governments, then the value of the 45% exemption would be $775 million annually. Second, if the exemption was removed and certified tax rates were reduced to maintain revenue neutrality, the value of the 45% exemption would be $238 million.
Does Truth-in-Taxation unnecessarily restrict property tax revenue growth?
Over the years, opponents of TNT have argued that TNT does not allow property tax revenues to grow fast enough, although they won’t be making that argument too loudly this year due to revenue increases of 10.4%. TNT opponents argue that property tax revenues as a percent of total personal income have decreased since TNT’s enactment. However, most or all of this decrease is attributable to property tax reductions unrelated to TNT.
During the 1990s, the Legislature reduced the statewide basic levy for education twice, and also allowed counties to impose a sales tax in return for reducing property taxes. Analyzing city property tax revenues as a percent of personal income is a reliable method for determining the impact of TNT on property tax revenues since the Legislature has not enacted any bills in recent years that have impacted city property tax collections. City property tax revenues as a percent of total personal income have been very stable since 1985.