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SALT LAKE CITY — A new report shows that the elimination of property taxes funneled to water suppliers could save significant amounts of water in the nation's second driest state and have the largest users — government and the wealthy — paying the "true" cost of water.
"Artificially depressing the price of this scarce resource through property tax collections only encourages water waste,” said Gabriel Lozada, an economics professor at the University of Utah who helped develop the model used in the study.
“There is no reason not to embrace the free market when it comes to delivering water in Utah," he said.
The analysis commissioned by the Utah Rivers Council asserts that indoor water rates would not need to be raised if property taxes were phased out because large government users would have to pay the entire cost of their water use.
"No other Western state so widely collects property taxes to lower the price of water, which encourages people, businesses and government institutions to overuse and waste water," said Zach Frankel, executive director of the Utah Rivers Council.
Richard Bay, general manager of the Jordan Valley Water Conservancy District, said it is not practical to believe that the demands of population growth and economic development could be met by water pricing and conservation alone.
"In round numbers, about half of the new water needs can be accomplished by water conservation, but about half of those needs will be met by new water development," he said. "The last thing we want to do is impair our ability to develop new water supplies to support ongoing population growth and economic growth."
Artificially depressing the price of this scarce resource through property tax collections only encourages water waste. There is no reason not to embrace the free market when it comes to delivering water in Utah.
–Prof. Gabriel Lozada, U of U Economics
The fallout by such a revision in water rates would be messy, Bay added.
"It would have severe consequences that would mean building moratoriums at some point, and that would mean falling behind in supporting economic growth," he said.
But Frankel said most Western water suppliers do not collect property taxes and instead operate solely on water sales revenue. By embracing a more aggressive rate structure for outdoor water use — which typically makes up the majority of consumption for higher-income households — Frankel said cities would realize double-digit increases in water savings.
In Salt Lake City, there would be a 16 percent savings if the current price of $2.15 per 15,000 gallons was bumped by 93 cents. Bluffdale, with a rate priced at $1.95 for every 15,000 gallons used, would experience a 26 percent decrease in consumption if the rate went up $1.57 more for every 15,000 gallons used.
"Water districts say they cannot conserve enough water to provide for Utah's future growth, yet these districts get more revenue from property taxes than from the actual water rates," Frankel said. "These taxes lower the true cost of water and encourage waste."
The report was released to re-emphasize the group's assertion that large water projects such as the Lake Powell Pipeline planned for the Washington County area and the Bear River Water Development promoted to meet northern Utah water needs are unnecessary.
"Phasing out property taxes for water would mean that Utah taxpayers would pay only for the water they use and no one would get a free ride to waste water. This would lower taxes for Utah residents and eliminate the need for excessive government spending," the report said. "The day has come for Utah water suppliers to utilize the free market and make water prices more transparent and equitable."