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PROPERTY TAXES & WATER DEVELOPMENT PROJECTS: A FEEDBACK LOOP IN UTAH WATER POLICY

annually (Coleman et al., 2015, 7). In Midwestern and Eastern states with less arid climates, the difference is even more pronounced. For example, Iowa residents use only 65 gpcd annually, “suggesting that our state can better manage its water use” (Coleman et al., 2015, 7). Utah residents use more water individually than almost any other citizens of the country, which indicates better management practices exist, and an expanded water supply is not necessary. Second, this high usage is directly tied to Utah’s exceptionally low water retail prices. According to a series of studies by the Utah Rivers Council, Utah residents have been some of the most wasteful with their water due to how cheap it is for the consumer. The statewide average estimated cost per 1,000 gallons of water was $1.15 in 2001, opposed to a national average of $1.96 (Utah Rivers Council, 2001, 8). This difference plays out even more dramatically when comparing individual municipalities in the American West. Tucson’s estimated cost per 1,000 gallons of water stood at $1.81, while Reno’s price was a considerable $3.39 (Utah Rivers Council, 2001, 8). The disparity in water rates between Utah municipalities and comparable communities throughout the American West has only grown since then. For 15,000 gallons used, Tucson currently charges $10.20, Seattle $8.49, Denver $5.36, Phoenix $5.54, and Las Vegas $3.45 (Utah Rivers Council, 2014, 6). West Jordan and St. George charge $1.25 and $1.14, respectively (Utah Rivers Council, 2014, 6). Utah’s water rates are significantly lower than the rest of the nation in general and the West specifically. Additionally, these statistics don’t account for differences between Utah municipalities and other western localities in water retail pricing structures. Each non-Utah city cited above has a tiered conservation pricing structure that progressively increases the cost of water as the consumer uses more. For example, Tucson charges little over $2 per 1,000 gallons used up to 7,000 gallons, then increases at regular intervals until peaking at $15.88 at 22,000+ gallons. On the contrary, West Jordan only increases its price of water by $0.24 twice, while St. George claims to have a conservation pricing structure due to their meager increases of $0.08 for every 5,000 gallons used (Utah Rivers Council, 2014, 6). Thus, not only do Utah communities charge much less than the rest of the American West, they charge in such a way as to encourage as much usage as consumers see fit. Meanwhile, the regional norm is to increase the price of water as more is used. The result of these pricing policies is wasteful water usage. Consumers purchase water as a basic good, and basic supply and demand economics dictate that the cheaper the price of the good the more demand there is from consumers. As BYU Professor Emeritus Dr. B. Delworth Gardner explains in the book Aquanomics: Water Markets and the Environment, “in a market economy prices signal information to consumers and producers,” and as cost is lowered the customer will demand more water (2012, 226). Utah Rivers Council elaborates: “as with any commodity, low prices encourage consumers to consume more product” (Utah Rivers Council, 2001, 1). Municipal users are more likely to use an increased quantity of water per household for indoor and outdoor purposes, as the price of water is cheaper. “Cheap water prices result in high consumption and are the reason Utahns are among the most wasteful users of water (per person) in the entire U.S.” (Utah Rivers Council, 2014, 3). Therefore, it’s clear that Utah’s incredibly high usage of this precious resource is due considerably to our cheap water rates. The stated justification for collecting the property tax is no longer valid, as proven by the number of districts throughout the American

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West that no longer collect it. Water governance evolved similarly throughout the arid region, and special districts were established in multiple states to provide for the growing needs of settler populations. Included in the financial model of many of these districts was the ability to levy property taxes (Gardner, 2012, 224-6). Water districts in Utah insist, as they have historically, that these taxes are required to bond efficiently for projects, among other financial needs (Gardner 2012, 224-6). However, the Utah Rivers Council found that most water districts don’t collect the property tax while many have the power to do so, and are able to successfully bond for projects when necessary to upgrade or expand infrastructure (2001, 2-4). The revenue provided by ratepayers is large and stable enough to receive a high bond rating, let alone sustain regular operations. While populations may have been too small to support districts with rates in the past, this is empirically proven to no longer be the case. A variety of sources denounce the property taxes water districts levy due to the role they play in reducing the price of Utah’s water. From conservation groups, to academic economists, to a former Republican governor, these taxes are all said to be chief to blame for the high consumption outlined above, resulting in a variety of ill effects. The levying of property taxes serves to distort the relationship between water supply and demand. Gardner continues, explaining that efficient distribution of water resources occurs at the price point in which supply meets demand (2012, 228). “Using ad valorem property taxes in lieu of direct water-user prices as a revenue-producing mechanism for a water district” results in “the water price…not [being] allowed to rise to the equilibrium price” (Gardner, 2012, 228). They act as virtual subsidies that have no correlation to the amount of water consumed, which means the consumer pays the same amount of taxes regardless of how much water they consume (Gardner, 2012, 228-9). Without the purchase price reflecting the full cost of delivering water, demand exceeds the supply that would result in the most efficient usage. “Although most Utahns embrace free market principles, property taxes for water, or water taxes, discourage the efficient use of water. This is the cornerstone of market economics: cheap prices drive high consumption” (Utah Rivers Council, 2014). This irony results in Utah’s uniquely wasteful usage as outlined above. From Governor Leavitt’s statements in the ‘90s to the present there is a consensus that the property tax both facilitates waste and leads to a myriad of detrimental effects. In 2012, 13 professors of economics addressed a letter to both houses of the Utah State Legislature on the issue. First, they reiterated the argument above: “Property tax subsidies for water in urban areas fuels unnecessary indebtedness and wasteful government spending…by lowering the retail price of water, these distortionary subsidies send a signal to consumers to use more water” (Reynolds et al., 2012, 1), while alternatively “in basic free market economics [this] commodity [would get] supplied only to the extent that its users paid for it” (Reynolds et al., 2012,1). The Utah Rivers Council extrapolated on this argument in 2001, explaining, “property taxes lower the retail price of water since part of the delivery cost is hidden in property, sales, and income taxes,” which actively discourages consumers from saving water (2). Allowing water districts to levy property taxes permits them to artificially lower Utah’s water prices, which results in our high rates of consumption due to supply and demand. The property taxes themselves are the third component of Utah’s wasteful water regime. In their letter, the economists extrapolated on the property tax’s

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Hinckley Journal 2017  

The Hinckley Journal of Politics is the only undergraduate-run journal of politics in the nation and strives to publish scholarly papers of...

Hinckley Journal 2017  

The Hinckley Journal of Politics is the only undergraduate-run journal of politics in the nation and strives to publish scholarly papers of...

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