Category Archives: Budgets
Interesting special report from CNNMoney regarding the future of the motor fuel tax in America. The article discusses the idea of the need for a big energy tax to alter our use of oil and lead to more alternative sources of energy.
You can read the series of articles here: Does the country need a big gas tax?
On a different issue there is an interesting article in the New York Times today about the bidding process for municipal bonds. The article states:
Three federal agencies and a loose consortium of state attorneys general have for several years been gathering evidence of what appears to be collusion among the banks and other companies that have helped state and local governments take approximately $400 billion worth of municipal notes and bonds to market each year.
This will be an interesting issue to follow. You can read the article here: Nationwide Inquiry on Bids for Muncipal Bonds
At least a dozen states are anticipating significant budget shortfalls in 2008. The biggest crisis is occurring in California where Governor Schwarzenegger has declared a fiscal emergency — after reporting a $4.6 billion revenue shortfall. Schwarzenegger recommended reducing every state program by 10%. One in interesting quote in the article comes from Iris Lav (deputy director of the Center on Budget and Policy Priorities:
“It’s amazing how sales tax revenues are tied to the housing market,” said Iris J. Lav, deputy director of the Center on Budget and Policy Priorities. “People aren’t buying construction materials, people aren’t furnishing new homes. Some states also have real estate transfer taxes.”
Doug Macdonald, ULCT economic consultant, has been saying the same thing. In fact, at our September Annual Conference Doug presented on the cycle of residential development. In this presentation Doug stated that for every $1 billion decrease in residential construction values, taxable sales in Utah could drop by 3%. Utah is not one of the handful of states that is experiencing the budget shortfall this year…but historically Utah has been a year or two behind the national curve. So what can we anticipate in 2009? The way things look right now (with national trends and a slowing local housing market) I would bet on some level of a budget shortfall for the next FY. You can read a couple of recent articles here:
Cycles Happen — November ULCT Newsletter
After a few month hiatus from blogging I’m back and recommitted. I figured today is a good day to relaunch the blog since today is also the first day of our new website: ULCT website (thanks to the great work of our new friends at Utah Interactive). So what is the topic of the first blog post of 2008? Budgets and taxes, of course…
The ULCT staff has continued with tradition and have spent our winter (post municipal election years) touring the state offering training to newly elected municipal officials. One piece of the half day training seminar is a presentation offered by Roger Tew and myself. Cities still left on the training tour are:
- Price (January 19th)
- Cedar City (February 2nd)
- Salt Lake City (February 9th)
Our presentation of budgets and taxes is focused more of the overall fiscal policies of municipal government and less on the exact nuances of managing a budget. For example, we spend a large portion of the presentation addressing the policy questions related to each revenue stream utilized by local government (property tax, sales tax, and fees). If you are interested in the presentation you can access it here: Taxes presentation to Newly Elected Officials 2008
Or if you have questions please contact me at firstname.lastname@example.org
There have been a number of questions about the tax changes made during the 2007 Legislative session and how they will impact Utah cities and towns. In particular, there have been questions about what action cities may have to take in response to legislative actions.
It should be noted that virtually all of the tax changes were part of the comprehensive tax bill which incorporates virtually every tax change made during the session. This bill was Second Substitute Senate Bill 223 sponsored by Sen. Niederhauser. The bill incorporated not only all of the sales tax related changes but also the income tax reform. It also included a number of special business tax changes.
The following information outlines the primary changes that affect our cities. Obviously all cities are not impacted by every tax change. However, there was enough of an overlap that we chose to outline all of the tax changes here in this information.
The Removal of Food from the Specialty Taxes
Non-prepared food was exempted from the sales tax base for the specialty tax levies (previously referred to as the “boutique taxes”). In some instances there have been attempts at offsetting revenue increases. All sales tax changes take effect on January 1, 2008. Be aware that the actual impact of the food removal will vary from community to community and will depend entirely on what portion food sales represent of your community’s tax base.
Municipal Local Option Tax (1%)
This municipal local option tax was not affected by the partial removal of sales tax from unprepaired food items. There will be no revenue implications associated with this revenue source.
Municipal Transportation Tax Levies and Transit Levies
There are a number of specialized transportation levies that were impacted by the removal of food. To offset the impact of the food removal the tax rates were raised on the remaining tax base. The cities are required to amend their ordinances on this matter. If you wish to recapture the money that was associated with sales tax on food, you are allowed to raise the municipal transporation levy from .25% to .30%. This must be done prior to November to ensure that the new rate is reflected in January when the rate changes take effect. If you have questions on the oridnance, we have attached a sample ordinance for you to review. Also, please feel free to call or write with additional questions.
Resort Community Tax
The legislation authorized an increase in the base resort community tax rate cap from 1% to 1.1% to minimize the impact of removing food. Since this action involves an increase in a rate cap, cities will have to pass a new ordinance to implement the new rate cap. Be aware that although the law change itself does not take effect until Jan. 2008, current law requires a 90 day notification to the tax commission prior to implementation. As such, impacted cities should not delay making decisions and necessary ordinance change. Lastly, there was no offsetting rate increase on the additional .5% resort tax dedicated for debt reduction.
Generally speaking, the offsets that were provided in the legislation cover any anticipated losses that would be associated with a reduction in the tax base. While this is predicated on the composition of the tax base for each affected community, it is fair to say that most cities and towns will see little or no negative impact related to the removal of sales tax on food, and in many circumstances the net result will be revenue positive.
Hopefully this information helps. Please call myself or Lincoln with any additional questions or concerns.
A new study released by the U.S. Government Accountability Office (GAO) predicts that large and growing fiscal challenges will confront state and local governments in the coming years. Absent policy changes, the study finds that within the next decade expenditures will exceed revenues in the state and local government sector, resulting in a deficit. It is no surprise that the largest burden in future expenditures is going to come as a result of health care expenses.
The GAO state and local model projects the level of receipts and expenditures of the sector in future years based on current and historical spending and revenue patterns. The report concluded, “In particular, two types of state and local expenditures will likely rise quickly because of escalating medical costs. The first is Medicaid expenditures, and the second is the cost of health insurance for state and local employees and retirees.
I was intrigued when I grabbed the Deseret News this morning and saw the headline “Tax rates are jumping” and I admit I was pretty surprised to see that residents of Kanarraville would be paying $172.70 more in property taxes. So I did a little research and it appears to me that the property tax jump isn’t quite what Lee Davidson describes.
First of all the first five cities mentioned by Davidson are also some of the cities with the lowest property tax rates in the state (bottom 10%). In addition in this analysis the Des News assumes a $200,000 home value to apply the rate to…this assumption is pretty high for at least 3 of the top 5 cities. For example, home values in Kanarraville (the lead city of the story) are closer to $100,000. And according to the latest census only 8 homes (which is also around 8%) in Kanarraville are valued at over $200,000. So what does this mean? It means the jump is closer to $50 or $60 annual increase for 92% of the city, not quite $172.
So in defense of Kanarraville and many of the other cities mentioned, their property taxes comparatively were already very low and the tax increase isn’t impacting most of their residents to the degree claimed in this article. Also, the city portion is still a minor percentage of the total tax bill.
To me this article does raise an interesting issue though…why are these government entities raising taxes? I think some of it has to do with the continuing discussion that while growth stimulates the economy it also comes at a cost (more infrastructure, more schools, more people to serve, etc).
The Florida Legislature last week in special session passed an interesting tax cut in two parts… First, the tax-cut requires cities and counties to hold tax rates at 2006 levels – and then cut up to another 9 percent, depending on how much they raised taxes over the past five years. Those that raised the most will have to cut the most.
However, the more interesting (to me) component will come in January. In January FL voters will vote on to change the state’s constitution to increase the property exemption for primary residential homes. It will take 60 percent of the voters to approve the measure, which would exempt 75 percent of the first $200,000 of a home’s value from property taxes. Homes valued between $200,000 and $500,000 would get an additional 15 percent exemption.
I’m curious how the campaign will go the next few months…of course we all want lower property taxes, but what are we willing to give up? Or will this just cause a shift in public finance (higher impact fees for developers, higher sales tax for residents, etc)?Florida Gov. Crist signs tax-cut legislation last week (I love how this kid with the truck is so uninterested in the Governor).
What happens when a city owes $6.2 million to a wastewater treatment company and only has a $300,000 reserve? Ask the city of McCall in Idaho. The options are pretty grim for this small Idaho resort town:
- Take out a loan — challenge: can’t get a loan quickly enough
- Double property taxes — challenge: state law caps property tax increase at 3%
- Sell off city property — challenge: may be illegal and requires public approval
- Raise sewer rates — challenge: Idaho supreme court has ruled rate increase
- Declare bankruptcy — challenge: the debt will still be owed.
It will be interesting to see how this unfolds. You can read the Idaho Statesman article here: Residents Balk at Tax Hike for McCall debt
For local governments May is budget season. A number of cities are presenting their budgets for the 2007-08 fiscal year (Mayor Billings’ presents Provo’s budget on a bus tour of the city). I’m sure you’ll see a lot more news stories about city budgets as they are debated and finalized.
Today on KCPW’s Midday Metro show Bill Anderson (South Salt Lake City Councilmember), Gary Hill (Park City budget officer), and myself discussed the state of local government finance with KCPW host Bryann Schott. If you are interested in the 20 minute podcast check here: KCPW discussion May 14th 2007.
Excellent column in the The Spectrum this weekend written by Steve Kiggins, Cedar City Bureau Chief. I keep telling people that local government finance really is an interesting issue that people should pay more attention to…sounds like Steve agrees. One quote from his column, “In the past 21 months, I’ve learned more about the world around me than I did in all my years as a sports reporter. That’s because I’ve covered city council meetings, interviewed state, county and city leaders, studied subjects such as health care, taxes and education, opened my eyes to the issues and challenges around me….If you don’t pay attention to city government, I urge you to start.”
You can read the full column here.
On another note…how about those Jazz? Western Conference Finals here we come (am I jumping the gun?).