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SALT LAKE CITY — Utah Gov. Spencer Cox unveiled his $28.4 billion budget proposal last week, which includes a call for $1 billion in tax relief primarily through one-time cuts in property tax and income rebates.
Then, on Tuesday, the Utah Legislative Executive Appropriations Committee agreed to set aside $545 million for ongoing tax cuts. They approved $400 million in future cuts while extending a basic school levy freeze, valued at $145 million.
That might just be the beginning heading into the 2023 legislative session, which starts Jan. 17. Rep. Steve Eliason, R-Sandy, who was recently again appointed to be the chairman of the Utah House Revenue and Taxation Committee, said taxes are certainly one of the key topics among the discussions happening at the Utah Capitol ahead of the coming session, especially after Utah reported another major budget surplus.
"We know that we'll probably have a lot of bills and we'll probably have all three legs of the stool, in terms of different policy ideas," he said, during a Wednesday discussion conversation about tax policies at the University of Utah Kem C. Gardner Policy Institute. "I think it's always a better climate to be talking about how we're going to, and where are we going to cut taxes, versus, 'oh, we need to increase taxes to fill a budget deficit,' which other states are looking at."
Sen. Luz Escamilla, D-Salt Lake City, says there's plenty of bipartisan "synergy" on the topic heading into the session, particularly regarding the issue of fairness. Lawmakers want to make sure there's a good balance between the benefits property taxes provide and the burden they have on residents, she said.
That said, it's likely that there won't be many major changes in the upcoming session.
Reviewing Utah's property taxes
The institute's roundtable event Wednesday aimed to provide lawmakers with context ahead of the legislative session. A subsequent report focused heavily on property taxes, which U. policy folks figure will be a key issue in 2023 — even if it's possibly a one-time endeavor.
Utah collects taxes in many ways, including income, excise, corporate income, sales and use, motor vehicle and fuel and property taxes. These account for about 90% of the state's revenue. The state's property tax rates are relatively low compared to other parts of the country, according to the Tax Foundation, the nation's leading tax policy nonprofit. Even so, Cox argued last week that a one-time benefit could help reduce "stress on families" amid record-high inflation rates.
The state collects property taxes on homes, businesses, vehicles and even vacant land. These taxes are considered one of the more stable revenue sources, and governments can almost set their watch on them.
That's because the property tax rate is generally adjusted to handle growing values, so the property tax payment remains about the same year after year, unless a taxing entity — like a municipality — proposes increases through the state's truth in taxation process, said Phil Dean, chief economist at the Gardner Policy Institute.
The institute reviewed inflation-adjusted tax revenue growth over the past 50 years and found that the 2.81% property tax growth from 1972 to 2022 is only slightly higher than the 1.58% growth in motor vehicle and fuel growth. Individual income tax has seen the highest growth, at 5.17%.
Tax revenues at higher growth rates than property taxes can be erratic, however, bouncing up and down over the years. So, even though those revenues are strong now, that may not be the case next year, or the year after that.
"The income tax gives you strong growth but it also brings along with that growth strong volatility," Dean said. "So when things are going well, they go really well with the income tax. When the economy is not doing well, you see much larger declines. ... Property tax, again, is very stable."
Though stable over the past 50 years, there has been some variation in the property tax collection and how these taxes are collected. For instance, residential property tax accounted for 52% of all property tax collection in 2021, which is a 6 point increase from a decade ago — and double the rate in 1955. Centrally assessed business property taxes, on the other hand, dropped to 7% last year, from nearly a third of the share in 1955, according to the report.
Dean explained most of this is the result of economic shifts.
Mines and railroads, which were some of the biggest centrally assessed businesses in 1955, don't command the business sector like they used to. The growing tech sector, on the other hand, is often subject to local assessments.
Utah's housing stock continues to skyrocket at the same time to meet the state's growth, which also factors into the collection shift.
Where does property tax money go?
There are state constitutional guidelines that dictate how property taxes are used. So of the $4.5 billion in property taxes collected in 2021, roughly 57 cents from every dollar went to schools, while the remaining money went to cities, towns, counties and limited-purpose districts, like water districts, according to the institute's review.
Utah is often chided for having low per-pupil funding compared to other states. Dean points out that this is a result of the state's property taxes being "comparatively low" on a national scale.
"We're less than half the national average in terms of property taxes for schools. We're below the national average — but closer, with state revenues — and below the national average with the fairly small federal revenues," he said. "But it's kind of at the heart of this issue of how we pay for schools in the state."
Of course, since local governments can adjust property taxes and Utah's population isn't evenly distributed, spending per student can differ depending on the school district. This led to the creation of Utah's Minimum School Program several decades ago, which helps tackle the issue.
The report states that most of the $5.9 billion in the program during the 2022 fiscal year came from other state funds — generally from income tax — but also from property tax and the levy guarantee.
Are tax tweaks coming in 2023?
Sen. Dan McCay, R-Riverton, said Wednesday the Legislature is looking at state tax reforms while also finding ways to "maintain predictability" associated with property taxes. Along with better transparency, reform and his personal goals are among any changes.
The majority of changes have come locally in recent years, though. More than 100 taxing entities went through the truth in taxation process this year, the most in at least a decade, according to the report. Institute officials explain that many school districts, cities, counties and water districts increased rates because of growing costs, including record inflation.
These can feel alarming when payments are usually about the same every year.
"Myself personally, I saw my property tax increase ... of over $750, which is a pretty big shift for a lot of people," McCay said. "I'm fortunate ... but everyone else who lives on a fixed income or has other difficulties trying to — or already working — two jobs, it's tough to meet."
Escamilla said that some families have had to take out personal loans for those types of increases. There are tax relief programs but the U.'s report finds only about 12,500 Utah households have received those benefits, about a fifth of all households eligible under the state program.
However, lawmakers believe there likely won't be any major overhauls to the system because of what property taxes provide and how reliable they are for everyone involved. In essence, it can be just as difficult to cut the property tax as it is to raise it.
The next session may very well focus on cleaning up some of the details instead. Eliason said some theories to tweak the system, like possibly raising the rate for owners of multiple homes or people who aren't actually living in Utah, would require changes to the Utah Constitution. He adds that the one-time reduction in 2023 would offer more time to reassess the system in the future.
"While we're looking to make changes, I don't think we're looking to completely turn the property tax system upside down," he said.
Escamilla also acknowledges that property taxes are a "complex topic" but they are also structured to fund what Utahns want to see. She contends that education is the top priority for many Utahns, so most of the dollars they spend are going where they want them to go.
Ultimately, whatever happens, Dean says he's optimistic that the report will help guide any changes.
"I hope legislators make informed decisions," he said.
