Yesterday evening, June 18, Ivins held a “Talkabout on Truth in Taxation,” a first-step toward possibly increasing property taxes in the city. I would like to weigh in on this subject here, with a “blog” providing more detail on wayne4ivins.com for those interested.
First, a summary: Ivins has not had a tax increase in dollar amount since 2010 or earlier. Its taxing rate (the percentage value of a residence) has indeed gone down in that time, as housing values have risen. (See Note 1.) In the meantime, inflation has devalued the buying power of that dollar amount by a lot, and the City needs to return to a model where it can provide services that have been promised to its residents. The speakers at the Talkabout generally addressed the overall budget and its apparent shortfall as a function of growth, inflation, and improvement in services. In this response, though, I will address the cost to residents per residential unit, rather than overall, because I feel that growth should pay for itself, and this is a good way to test whether or not it has.
Next, a reality check: The tax being discussed is the Ivins City tax, which is about 13% of the overall property tax you pay each November; it is NOT the entire bill. For example, using round numbers, a primary residence assessed at, say, a market value of $600,000, would pay an overall tax bill of about $2300, but only about $300 of that is the Ivins City tax. It is that $300 tax that the City is considering raising, and it has not changed in at least 15 years.
Now, some background: The State of Utah uses a confusing approach to property taxes for municipalities, in an attempt to make the distribution of taxes fair. (See Note 2 for details.) The result is that the city cannot charge more in constant dollars from one year to the next, regardless of the increase or decrease in the value of the residence (assuming the residence has followed the overall trend of similar homes in the City). This means that the value determined in 2010, $300 for the example above, does not change until the next time a Truth in Taxation process occurs. The owner (or owners, if the home has changed hands) has paid the same $300 each year for all 15 years, with only minor changes both up and down.
So why has my tax bill gone up so much since 2010? It is not because of Ivins City’s portion of the tax bill, but because of all the other components in the bill, mostly the big-ticket items, including the school taxes (state and local), the water conservancy (your water bills are subsidized through this tax), and the county’s general fund.
Compare 2010 and 2025: In 2010, that home that is now worth $600,000 was probably worth about $250,000, and its owner paid $300 in taxes, or 0.12% of the market value. Today, the owner of that home still pays only $300, which is only 0.05% of today’s market value. In other words, the tax rate has been cut to four-tenths of the original rate.
It is purchasing power that is important: In 2010, the purchasing power of that $300 was significant, and to reach the same purchasing power in today’s dollars requires $440, or an increase of 47%. If Ivins City’s tax was adjusted for inflation instead of held at constant dollars, the owner of that home would be paying $440 in 2025 instead of $300. If the City had maintained the same tax rate, the owner would be paying $720 due to the dramatic rise in the home’s value. But the City hasn’t increased its per-residence tax in dollars, and the owner of that home is still only paying $300 per year. The City has been able to meet most obligations through an increase in tax base (growth) and a few other one-off sources of income (see Note 3), while also delaying many repairs, maintenance, and improvements. It hasn’t been growth that has caused the City to fall behind in funding; it has been the eating away of purchasing power from inflation. As long as the owner’s income has been keeping up with inflation, the real effect of the constant tax value has been a significant decrease in amount of purchasing power spent on that tax. (Social Security is indexed to inflation, but some people may be on truly fixed incomes, and find that seeking relief for tax hikes is essential; this can be requested through the county.)
Summary: In order for the City of Ivins to return to the purchasing power for material, services, salaries, etc. that was being collected per residence in 2010, it would have to increase property taxes by 47%. It is not proposing to do this. Mike Scott presented three options (see mikescott4ivins.com); his preferred option, using our example of a $600,000 home, would lead to an increase in taxes of just under $100, or a hike of 33% in Ivins City’s portion of the property tax bill, which would be a hike of less than 4% in the overall property tax bill. If Ivins City had distributed this evenly over the last 15 years, it would have been increased less than 2% each year in the Ivins City portion, or less than 0.3% in the overall tax bill each year. But they didn’t. There were several reasons for kicking this can down the road, but the road is ending, and we can’t kick it any further. Mike’s proposal is to recover about 2/3 of the value lost to inflation.
My position: There are two main reasons that this Truth in Taxation process was not forced on the City earlier. First, there were other sources of funds that were available over the past few years, but are not available now (as explained in Note 3). Second, the anticipation of tax revenues from Black Desert Resort allowed complacency, but this turned out to be premature at best. Those one-time sources will not return, but Black Desert Resort should eventually contribute significantly to the City’s coffers. I suggest a more-modest increase in Ivins City’s portion of the property tax, say 20%-25%, resulting in a tax bill, for our example $600,000 market-value home, of $360-$375 rather than the current $300, but slightly less than the $400 that Mike’s preferred model would imply. There is no doubt in my mind that the City needs to recover some of the purchasing power it has lost since 2010, and my proposal would return about half of that, but the anticipation of tax receipts from Black Desert Resort suggests that this shortfall will not be so serious after a couple more years. In honesty, though, my suggested increase, for our example home with $600,000 market value, is only $25-$40 per year less than that preferred by Mike, a small difference. My proposal would effectively return Ivins City’s tax, in inflation-adjusted dollars, to what it was in 2021, not back to 2010.
_____________________________________
Note 1: Because the dollar amount of Ivins City property tax has remained constant, as housing values have risen, the rate has decreased significantly. During an occasional housing downturn, such as during the housing financial crisis around 2009, the rate can go up as housing values decrease. But the dollar amount has remained essentially constant since 2010.
Note 2: Each year, the state requires the City to use the previous year’s tax receipts, and divide that by the total (aggregate) taxable value of properties in the City. (Recall that for primary residences, the taxable value is 45% of the market value. Second homes and other properties are taxed at the market value.) This determines the tax rate to be used, in recent years this was 0.09%. This rate is then applied to each residence’s taxable value. If all homes in the City rose or dropped in value by an identical percentage, each home would have the exact same tax as the previous year; but some homes have risen in value more than others, and some may have even lost value. This accounts for the small differences in the dollar value for Ivins City tax from year to year, but generally averages to a constant value. New homes also have this same rate applied to them, and their taxable value gets added to the total value for the following year. This approach allows growth to pay “its fair share” without being penalized, and keeps taxes constant from year to year, with only minor fluctuations.
Note 3: While inflation was modest for many years, it rose dramatically immediately following the pandemic. In addition, the volunteer fire and EMS services were replaced with professional services. Why didn’t these combine to result in a sense of financial urgency at the time? It was because of two things. First, a significant infusion of cash became available from Covid-related funding. There will not be any additional Covid-related funds, and we do not anticipate any similar one-time funding like that. Second, the City was able to take the deposits (essentially security deposits) made by developers and place them in fairly high-interest CDs, and reap the benefits of that interest. The state has recently changed the regulations, and the City can no longer retain interest earned from the developers’ deposits (as I understand it; the details may be more complicated). The net result is that, even though inflation accelerated a few years ago, other sources of funding allowed the City to avoid raising taxes; those sources will not be available going forward.
