For many years, the Utah Taxpayers Association has been calling for the end of property tax subsidies for water delivery in the state. We have argued that the full cost of water usage should be contained in the prices consumers pay, to ensure that consumers are motivated to conserve water in a desert state. When a portion of the cost of water is subsidized through property taxes, the water bill appears artificially low, and motivation to conserve is lessened.
The Utah Taxpayers Association has long argued for user fees to pay for services, rather than subsidizing costs among many users. Transportation funding is a part of this, as the gas tax begins to plateau and alternate-fueled vehicles proliferate, traditional-fueled vehicles are making up the slack. The same principle applies to water.
Source: Utah Rivers Council
Municipal water prices in Utah are among the lowest in the nation, despite the fact that Utah is the second driest state. Both the state of Utah and the federal government invest heavily in large water delivery infrastructure, from the Central Utah Project to the proposed Lake Powell pipeline, to ensure the state has enough water to meet its needs. But most cities and water conservancy districts charge water users just enough to meet the repayment obligations for these costly water projects.
These water conservancy districts receive revenue from the sale of water, but a primary source of their revenue comes through property taxes. In fact, 1/3 of the Washington County Water Conservancy District’s total revenue comes from property taxes in FY 2019. That’s $11,980,387 collected in property taxes for a $39 million budget. The district even received an increase of $542,784 in property taxes from the prior year.
Artificially low prices hide the actual cost of the water, making it appear less expensive than it actually is. If water prices rose to reflect water’s actual value, Utahns would conserve more water.
If property tax and sales tax subsidization of water were phased out, the water districts would have to charge water users the full price, which would in turn lead consumers to economize their monthly water use. This outcome is precisely how we expect people to behave.
Unfortunately, that is the exact opposite of what happens when we use property taxes to pay for water. Since property and sales taxes are not affected by the usage of water, there’s no real incentive to conserve. If we stop using property taxes to pay for water, and instead rely on people paying based on how much they use, people will only use as much water as they need to.
If domestic water users are willing to pay the full costs of watering their lawns, they should be allowed to. Instead, water remains artificially cheap, despite the fact we live in a desert. If we reformed the system of water law in Utah, now and in the future, there might just be enough water to go around.