House Government Operations -- Hard at Work

The House Government Operations committee has been busy over the last few meetings, and has been dealing primarily with the issues of municipal government. Late last week and early this week the committee sided with municipal governments and opposed legislation that would have required a public vote in any circumstance where a municipality is trying to dispose of a piece of real property and also would require annual audits of municipal bonds that are backed by private lease payments.

They will again be asked to support municipalites on Thursday as two critical pieces of legislation that will come before their committee. Unfortunately, we are again asking the committee to oppose bills. The bills in question are HB233 – Environmentally Restricted Zoning Districts and HB334 – Eminent Domain (regarding trails). Both bills are being run to benefit one disgruntled citizen in Mapleton, Dr Gibby, who has repeatedly lost legal battles with the city on issues regarding the use of his property. In fact, the case is still before the court of appeals and much of this legislation would apply retroactively to issues that he has lost in previous court decisions. We feel confident that the legislature will see the wisdom in allowing the legal process to take its course prior to stepping in on an issue where everyone involved has sided with the municipal government.

Fortunatley, the League of Cities has been able to solve most issues prior to reaching the House or Senate Floor. We hope the trend continues, as it is always easier to resolve issues in smaller settings prior to the larger debate. We will keep you posted on our progress.

Sales Tax on Food Revisited - A City Perspective

As promised in an earlier post, here are some additional thoughts on the removal of sales tax on food -- this time from the municipal perspective:

Tax Cuts or Revenue Substitution

The impact on government revenues will be determined by whether the policy decision is to simply cut taxes or whether there would be an attempt to mitigate the loss by imposing an offsetting tax burden. The impact on local governments is different than the impact on the state because of the individual economic factors of individual cities and towns.

Municipal Impacts

The term “revenue neutral” is rather casually employed when discussing revenue offsets. The most-commonly discussed means of achieving “revenue neutrality” is to increase the tax rate on non-food items sufficiently to achieve the same revenue as existed with food in the tax base. In truth, this objective may be achievable in the aggregate (overall city sales tax revenues). However, on an individual city basis the revenue neutral goal is much more problematic. Critical to the determination is the fact that food represents a different component in each municipality’s tax base. Furthermore, some communities have the capacity to export more of their tax obligations than other cities.

Simply put, an increase in the tax rate will result in a tax windfall for some communities and would likely result in a shortfall for others. It would be possible to create some type of “hold harmless” mechanism that would share the additional revenue from the increase from the winners and losers. However, hold harmless efforts are not look upon favorably by the legislature. I think that it is fair to say that any type of “hold harmless” would be relatively short-term and purely transitional.

Of course it is mathematically possible to increase the sales tax sufficiently to ensure that there would be no losers. Such an outcome is not likely from a political standpoint, however. I would summarize the likely impact on cities and towns as follows.

1. Any change in the 1% local option would politically require some revenue offset. The most likely approach is a rate increase in non-food items. Last year’s proposals as an increase from 1% to 1.1%.

2. There would be winners and losers with such an approach. The losers’ situation could be mitigated by a transitional hold harmless proposal.

3. Municipalities that have a relatively large number of grocery stores or other food sale outlets would in the long-term see a reduction in sales tax revenues from what they would have been if food had remained in the base. Conversely, cities that receive sales tax from a more diverse retail base would benefit.

There should be some mention about the unique nature of some Utah communities that have a high degree of export potential in their tax base – namely tourists. In general these cities and towns rely more heavily on the sales tax than most other communities. In some cases, Utah law has authorized a specific sales tax levy, the resort community tax for example, to reflect the unique nature of their situation. A rate offset would likely need to be significantly higher for these communities than for most other locales.

Lastly, in some cases communities may have incurred bonded indebtedness associated with their sales tax revenue. Because of the sensitivity raised by this issue last session I want to emphasize that the existence of this indebtedness does not mean that the legislature may not ever change the tax base. However, the removal of food from the tax base is not a small change and its impact is not the same across all communities. Therefore, the impact of eliminating food from the base and replacing it with a rate increase offset may not cover the indebtedness in every situation.

Simply put, Utah cities and towns have used the sales tax as a significant revenue source for nearly 50 years. Reliance on the sales tax has increased significantly in the past 15-20 years. The result is today sales tax represents the major revenue source for most Utah municipalities. Removal of the sales tax on food would represent the single largest adjustment to the sales tax base in recent memory and merits careful understanding of both the policies and impacts.

Have any thoughts on the issues -- We would love to hear about them please feel free to comment.

Now on to other legislative items. Here are the agenda items for early next week. We hope to see many of our local officials on the hill for some of these important items.

Until next time...Enjoy

Cops, King George and Municipal Government

Yeah, its a strange linkage but its all in a day's work at the Utah State Legislature.

Cops

Today, the House Law Enforcement committee considered HB-255 Prohibition of Citation Quotas by Representative Neil Hansen of Ogden, which would prohibit local police departments from using any ticket "quota" system for police performance evaluations. The bill, which was written fairly broadly attempts to target specific daily quotas, but would also prohibit police departments from using any ticketing information to evaluate police officers. As you can imagine may local police departments testified in opposition to the bill. The bill did, however, pass the committee by a one vote margin and is now on its way to the House floor for further consideration. The Utah League of Cities and Towns, Police Chiefs, Sheriffs and Association of Counties will all be working together to oppose the bill on the House floor. Stay tuned on this one.

Now moving to King George

Yes, is excellency was actually invoked during a committee debate today regarding the splitting of school districts. SB-30S1 Creation of New School Districts sponsored by Senator Carlene Walker of Cottonwood Heights would allow portions of an existing school district to split out of that school district and create a new, smaller district. The bill is fairly nuanced, covering issues such as asset distribution, interim school boards, and the process for actually proceeding with the split; but the issue that received the most attention in committee today was the voting aspect associated with the split. The argument centered on whether the entire district should be allowed to vote on the split or just the portion requesting to split. And that is when it happened, during the testimony an individual representing the City of South Salt Lake and arguing for the voting to remain solely with the splitting faction asked if the 13 colonies would have been created if all of England and King George had an opportunity to vote in the Declaration of Independence. While you may scoff, the argument, buoyed by others testifying in the same vein, carried the day and the committee passed the bill out with the provision which only allows the splitting portion of the school district to vote on the creation of the smaller school district.

It is unlikely that this debate is over, and it "splits" right down the Jordan River in Salt Lake County, where most "east-side" communities support the idea of only allowing the splitting portion to vote, and most "west-side" communities supporting and idea that would require the entire district to vote on the split. At this point the ULCT has not taken a position on this aspect of the bill, but our Policy Committee did support the original legislation which allows cities to initiate a split in the current school districts. Fortunately, Senator Walker has expressed willingness to sit down with all interested parties to find an amicable solution for all involved. As you can imagine, the ULCT will be watching this one closely as it moves through negotiation and the legislative process in general.

And Additional Items for Municipal Government

In addition to the committee hearings, today marked the first milestone in the 2007 legislature. It was the last day that a bill file can be requested by a legislator. As such, tomorrow we should see a much longer list of "requested" bills. Once we have a chance to peruse the comprehensive list we will begin posting/tracking all of the municipal legislation on this website and our homepage www.ulct.org.

Please check both places for tracking and update information.

Until next time....Enjoy

Food Sales Tax Bill Now Sits Before Senate

Today HB-282 Sales and Use Taxation of Food and Food Ingredients passed the Utah House of Representatives and now awaits action in the Senate. The bill passed the House without much fan-fair, which was to be expected, but the road will likely be much rougher in the Senate. With the size of the fiscal note, the bill will likely be on hold for quite some time while other budget related negotiations continue between the two bodies, and this bill is likely to be a significant bargaining point for both.

Traditionally the Utah League of Cities and Towns has opposed efforts to remove sales tax on food due to the significant impacts that such a change could have on our cities and towns ability to provide essential services. This year, however, the Speaker of the House has initially entertained various ideas to make up lost revenues, and several of our most heavily affected municipalities are still gathering information on the "exact" impact such a change would have.

As you can imagine, this is a significant issues for many local governments and it is likely that a definitive course of action will be established by the ULCT within the next few days. In the meantime, here are a couple of thoughts on this issue.

General Tax Policy

The basics of tax policy theory would argue against exempting food from sales taxation. Classic economics would support broadening the sales tax base and using as low a rate as possible in order to generate adequate revenue. Indeed, the primary concern of all studies of the current sales tax base is the increasing narrowness of the base and the absence of economic activity that is not part of the system – particularly services.

Essential purchases present a particular question since by their very nature they constitute the most stable component of the sales tax base. In short, they are somewhat recession proof. Given the inherent fluctuation of the tax system concerns over stability are legitimate. This fact is an increasing concern for Utah municipal finances as we have shifted so heavily to sales tax as a funding source. Clearly the elimination of food from the tax base increases fiscal instability – it is however, a fair question as to what extent the system instability would actually be impacted.

Systemic Fairness

Given the fact that “good tax policy” would argue for including food in the tax base, why is it that most states do not tax food and there is generally clear popular support for its removal? The answer lies in the debate over such terms as “tax fairness” and the “morality” of taxing essential purchases. These terms are also highly subjective. Furthermore, the popularity of such an exemption is obvious. The following information addresses these issues in more detail.

Regressivity

There are three classic terms used to describe the relationship of taxes and income: regressive, progressive, and proportional. The term “regressive” means that as income increases an individual’s tax obligation in percentage terms decreases. Conversely, “progressive” means that as income rises the tax obligation in percentage terms also increases. Lastly, “proportional” means that an individual’s tax obligation stays constant in percentage terms as income changes.

Virtually all flat rate taxes, particularly consumption taxes, are inherently regressive – the tax burden in percentage terms decreases as income increases. Individual consumption patterns are such that although consumption increases with additional income it usually does not increase as much as income does. In other words, regardless of how rich you are there is only so much you can eat. Yes, you may eat different things but overall the money spent on food does not relate proportionally to income increases. As such, the tax obligation decreases in percentage terms in relation to income – the definition of a regressive tax.

Traditionally modern society has generally been somewhat troubled by the concept of tax regressivity. Even if there was skepticism of progressive taxes, there was not broad public support for actually reducing the percentage tax burden as income increased. Nonetheless, that is the functional effect of flat-rate consumption taxes.

There have been various approaches to addresses regressivity. One of the more common approaches is to eliminate some essentials, such as food, from the sales tax base. In other words, the value of not taxing food is much greater to a lower income person than a wealthier one. The result of the elimination is to reduce an aspect of tax regressivity from the system. The challenge, however, is that this elimination is very expensive. The reason for the hefty price tag is that all consumers, regardless of income, receive the benefit.

This high cost has caused some other states (although clearly a limited number) to address the impact of regressivity through other means such as an income tax credit or by increasing the progressivity of other taxes such as the personal income tax.

Morality – Essentials should not be taxed

This argument is completely philosophical and should be analyzed as such. The underlying assumption is that there are certain purchases that should be removed from the tax system because of their unique, essential nature. There are legitimate questions, however, about what is or is not an essential purchase. This argument needs to be assessed against a countervailing premise that all citizens should pay something for the operation of government. That goal can be accomplished if in fact essential purchases are taxed.

One item that should be noted: The original food exemptions that were incorporated as part of the first sales tax systems – usually in the 1930’s - were associated with the purchase of raw food stock. Most meals were prepared from scratch at home from raw ingredients. Today, most meals involve some element of pre-packaged food. One can therefore ask the question about why a pizza delivered to a home is fundamentally different in moral terms from a frozen pizza that one merely puts into a microwave. With the food exemption the frozen pizza is exempt and the delivered pizza taxed.

Note: One question that is often raised concerns the definition of food – what qualifies as an exempt food purchase. The work of the national SST committee has resulted in a national definition of what qualifies as an exempt food purchase. However, the fact that there is definitional uniformity does not mean that there is not still some very strained line-drawing. This line-drawing results from the ever-increasing number of food items that are bought in various stages of preparation for consumption.

Assistance to the Poor/Everyone should pay something

Associated with the “morality” argument are concerns that the current tax system overall is somewhat harsh on lower incomes. There is some legitimacy to the argument that the current Utah system overly burdens some income groups in relations to others. The removal of sales tax would indeed mitigate some of this impact. One question is what is the cost of this removal and how would the benefit be distributed?

Because the removal of the food sales tax impacts everyone regardless of income the majority of the benefit will inevitably go to the non-poor. As a means of assisting a particular income group, the removal of food is a rather blunt instrument – everyone receives the benefit regardless of income. The counter-argument is that the removal of food sales tax is simply a tax cut for everyone – but has the added benefit of providing a more valuable impact for lower income categories.


The assistance to the poor argument is often rebutted by the position that every resident should be required to pay something for government services. The sales tax on essentials, such as food, ensures that some tax obligation is imposed on virtually all citizens. This position has taken on some added impetus because of concerns over illegal immigration.

By some measures this position is mitigated by the fact that there would still be essential purchases required other than food that would be subject to taxation. Furthermore, there are still taxes embedded in the price of other commodities such as rent that are paid by consumers – even though these payments are indirect. Nonetheless, the taxation of food does have a much more direct result of imposing a tax on all residents.

Another argument uniquely applicable to Utah is associated with family size. There have been those who have argued that a “head tax” should be imposed because of the impact of large families on schools and other related services. For a variety of reasons the imposition of a head tax has been rejected by Utah policy makers. However, it can be argued that the sales tax on food is a near-perfect substitute for a head tax given the disproportionate impact on larger families.

And now you may be asking about the municipal specfic pro's and con's of such a proposal. That information will be available on our next post -- please check back tomorrow.


-- Enjoy

The Telecom Debate Has Started

It is about 6:15 on a Tuesday evening and the first formal debate on the "Statewide Telecommunications Franchise" Bill has just concluded. All of the interested parties to include Comcast, Orange Cable, Broadweave, Qwest, AT&T, the Utah League of Cities and Towns, the Department of Commerce and the Association of Counties all sat around the table to discuss the intricacies of municipal franchise arrangements. As can be imagined, with a group of this size, very little was accomplished but at least we have staked out our proverbial "territory". Senator Bramble will be hosting several of these forums in the near future to determine if a compromise position can be attained -- We will see where that goes.

The ULCT has consistently held a policy position to ensure that all communities have telecommunications and cable options for their citizenry. This tenet is often gained through effective local franchising arrangements that ensure fair telecommunications competition and basic service to all residents within the city.

The major issue in franchising deals with local government “build-out” requirements in some cities and towns. These franchising arrangements require incumbent and new telecommunications providers to provide, or have a plan to provide, telecommunications services on a city-wide basis. While not all cities require build-out, some cities feel that these requirements are critical to ensuring service to all residents within the city while maintaining a fair and competitive telecommunications market.

Since the Utah League of Cities and Towns has been consistently involved in telecommunications issues ranging from the transition from the old franchise arrangements to the new Telecom Tax as well as issues such as UTOPIA and iProvo, we would like to continue to be a part of the dialogue on this important issue.

Our basic philosophy is to maintain local government autonomy on franchising arrangements so that we may effectively ensure a fair and comprehensive telecommunications environment in our communities.

We will be providing consistent updates on this issue as the legislature continues.

Taxes Will Likely Consume Utah Legislature

Taxes:

There will be a large tax cut but at this point the Governor/Senate/House are all playing poker as to the size and composition of the cut. The House has proposals for a cut of nearly $300 million. The Governor has proposed a cut of $100 million. The Senate has yet to play a figure. One challenge is that most of the "surplus" money is in the income tax. This fact means that the cuts are likely to be primarily in the income tax or the state minimum property levy.
There are a number of rumors and other guessing regarding tax changes that could impact cities and towns. Those receiving the most serious discussion involve the "boutique" taxes (resort community,ZAP, special transit taxes). The Speaker would like to remove food from the tax base for these taxes. The result is more serious discussion about shifting some of these taxes to a property tax levy. The net impact is a resurrection of the single-sales tax proposal floated in previous sessions. These discussions will be ongoing but it is fair to say that there is more impetus behind them now than in prior years.

Telecommunications:
In some ways this area is also a tax issue since it involves the municipal telecommunications tax. However, the broader subject area also incorporates the concept of a state-wide franchise for cable television. Our cities and towns have been on notice for several years that a downward adjustment on the rate cap was coming. It is currently 4%. We have indicated that a 10% (3.6%) cap cut is "swallowable". However, there are others that may be pushing for a greater cut.
Enter the franchise issue. Qwest and others are pushing this concept which would alter the role of cities in granting operating franchises to cable companies. When all is said and done the primary issue is that of "buildout" or whether a new cable company can be obligated to serve an entire community as a condition of operating in a city. This is an issue since prior franchises have imposed the buildout requirement on companies such as Comcast. We have had cities take conflicting positions on the buildout questions and have to date asserted that this issue one of individual city choice. However, the FCC recently issued an order which would restrict city choice in this area and there are varying opinions about if and how Congress may address the issue.
Like it or not discussions on the rate cap and the franchise authority are going to be related if not linked.

As you can imagine, these are not the only issues before cities and towns this year in the Utah legislature -- expect more to come in future posts.

-- ENJOY

Utah Local Officials Head to Capitol Hill

Well, kind-of. Since the construction crews are still putting the finishing touches on the renovation of the Capitol, we invited the legislature and Utah's local government officials to a meeting "off the hill". Nearly 500 local elected officials and youth city council members made the trip to Salt Lake City to meet with there legislators at the downtown Sheraton Centre, where they got a brief preview of legislative agenda for 2007.

In addition, we showed a video which clearly demonstrates how little our constituents know about government in general. The video was fashioned after a Jay Leno "Jay Walking" segment, where we asked elementary civics questions to Utah residents. In typical "Jay Walking" fashion we were not surprised at how little Utah citizens know about basic civics. We, as the League of Cities, hope to help in the education process by kicking of an extensive Public Information Campaign on the issue of civic engagement and the role of local government in Utah. Please look for it in the coming months.

If you attended and wish to see the video again, please check the ULCT blogs regularly. We will be getting it put on the web soon for your viewing pleasure.

Our event had several notable guests including Speaker Greg Curtis, President John Valentine, and Governor Huntsman, who all joined us to learn more about the issues affecting local government. On the whole it was a very successful day for local government. With the great turn-out for this event the message was sent loud and clear – WE CARE ABOUT THE VITALITY AND VIABILITY OF OUR COMMUNITIES. Thanks to all who attended.

In terms of actual legislation, today was fairly uneventful for municipalities at the Utah State Capitol. While the negotiations on large legislation is well underway, we fortunately had nothing of note in committee today for consideration. It also looks like a fairly lite committee day for Thursday as well. We should, however, start seeing several municipal bills in committee starting early next week and as soon as those schedules are available we will post them on the BLOG.

Until next time -- ENJOY

Lobbying 101 -- The Golden Rule

Over the past few weeks I have been asked to speak to a few association groups on the issue of citizen/association advocacy and the in's and outs of the legislative process. After completing the circuit (okay, so I had dreams of the speaking circuit as a youth), I realized that I had probably internalized most of this information, but had spent little time conveying this same information to our Utah League of Cities and Towns membership. So, with that being said, here are a few critical points from the lobbyist "creed"-- according to Lincoln

• Understand that politics are in play: Often times association groups and citizens rely solely on the policy positions in which they espouse and forget that politics are definitely in play. Now that shouldn't be taken as a criticism of the process, but more a statement of fact. As has been reported recently in the print media, our legislature is dealing with Senate/House/Executive dynamics that can often surround our issues. We also forget how individual legislators are dealing with several issues, which are often intertwined by several factors to include: Past experience with the advocacy groups, sponsorship, appropriation requests, etc. -- The job of a lobbyist is often to see how the "dots" connect and determine how to use that knowledge to their benefit.

• Respect a Legislator's Time: It is a very busy 45 days, so the best policy is to be concise and to the point. It is often best to make series of contacts, whereby information can be left with the legislator and you can then follow-up at a later date to answer any questions or address any concerns that are expressed. "Single-Shot" lobbying rarely, if ever, works.

• The art of compromise: By our very nature, most of us wish to avoid conflict -- thus compromise is at the very core of the legislative process. Legislators are generally looking to balance interests. Be willing to compromise, but at the same time, maintain a firm understanding of what it is you are trying to accomplish. Don't let "winning" get in the way of achieving your objective.

• Incrementalism: You are in this for the long-haul. Remember that the theory of incrementalism is your friend and be willing to take the little "wins". Be willing to work slowly but methodically to achieve your goals and remember that it may take several years to get there.

• Plan for the Win-Win: Attempt to make your proposal an win-win situation for both you and the legislature. Long-term thinking is key this process. Inevitably the legislature will meet again, and you will likely be looking for assistance from this group in the future as well. Attempt to align interests and educate versus simply winning once.

• Find Friends: It is always best to broaden your base of support. Consider whose opinion can also influence the process: Colleagues? legislators? politicians? other interest groups? and then use those resources in your lobbying efforts.

• Never Get Defensive: Just because a legislator is asking questions does not mean they are coming after you. Utilize this opportunity to educate and reiterate your perspective. It is best to understand why those questions may exist and proactively address the issue versus becoming defensive and reacting as such.

• Maintain Contact Throughout the Year: If you only contact a legislator when you need something then you don't have a REAL relationship. Build legislative relationships that are deeper than simply asking for favors. People will get tired of you if they feel that you are only in this for yourself. Ask how you can help versus always asking for the favor.

• Honesty: The one fundamental key to lobbying is to gain and maintain trust. If you expect people to rely and value your opinion they must trust you -- and people have a long memory when it comes to this issue. Integrity and Honesty is one of the only commodities you have to offer.

Hopefully this information is useful, and we hope to see more of you on Capitol Hill

--Enjoy

Ony 44 Days Left!!!

I know it may be early, but yes, the countdown has already begun. The opening day ceremonies have just concluded and many on Capitol Hill already have their eye on the finish line. It is not that we don't love our fine legislature, but the process, by its very nature, has the potential to induce unforeseen panic attacks and levels of excitement that are only advised under strict medical supervision.

Call us sick, but many of us do, however, love the process and relish the opportunity to provide input on the democratic process that is before us. Thank goodness that those who proceeded us had the wisdom to only allow this exercise to last for 45 days a year.

Now that the first day ceremonies are behind us, the legislature will be in full swing tomorrow. I have included a list of a few items we will be watching on Tuesday-- and we can expect that list to grow exponentially over the next few weeks.

At this point, it is time to fasten your seat belt and keep your hands and feet inside the vehicle for the duration of the ride. 44-days here we come!!!

Tuesday, January 16, 2007 Committee Schedule:

House Political Subdivisions – 8:00 am – Room W125
HB0069 County and Municipal Land Use Provisions Regarding Schools (L. Wiley)

House Government Operations – 8:30 am – Room W010
HB0061 Election Law Amendments (D. Aagard)

House Revenue and Taxation – 9:00 am – Room W135
HB0098 County Option Sales and Use Tax for Highways, Fixed Guideways, or Systems of Public Transit Amendments (C. Frank)

You can anticipate updates on these items in tomorrow's blog posting.

Until next time enjoy.

Key Legislative Issues for 2007

It looks like Utah's Legislative Research and General Counsel has outlined several of the key issues that will be dealt with in the 2007 legislative session. The four page outline can be seen HERE. In addition, Utah's municipal governments will be watching the following issues closely.

1. Telecommunications Reform: There has been some discussion regarding a push toward statewide franchising for the telecommunications industry. The Utah League of Cities and Towns has been working closely with some members of the cable and telecommunications industry to maintain local control of franchising and will be watching this issue closely.

2. Additional Funding for Local Roads: The Utah League of Cities has also been working closely with members of the House and Senate to lift the "cap" off of the 1/16th cent state sales tax diversion for local road projects. Currently the fund is capped at roughly $18 Million. With the removal of the cap we would see an additional $5-7 Million come into the fund annually.

3. Land Use Regulation/Property Rights: As growth continues to be a major issue for Utah, the management of that growth is being increasingly scrutinized. Local governments will be watching closely for attempts to unilaterally change the code governing local land management decisions to further address developer interests. Local governments have, however, been working with a majority of the land developers in the state to come up with mutually acceptable solutions for the growth challenges we face.

And these three issues are just the beginning. As local governments, we anticipate a very busy 2007 legislative session and will likely be tracking roughly 60-80 bills. If you know of other issues that deserve attention please feel free to add to the list

-- Enjoy