Gardner Institute releases visual guide to state’s property tax system & policies

Utahns share a common interest in a state and local tax system that provides for our needs, keeps the economy strong and remains viable over the long term. That is the conclusion reached by the Kem C. Gardner Institute at the University of Utah with the release of its visual guide that illustrates key components of Utah’s property tax, the oldest and most stable of Utah’s major taxes.

“Utah faces relentless growth, changing cost structures, structural economic changes and funding tradeoffs,” said Phil Dean, public finance senior research fellow at the Gardner Institute and lead author of the report. “These changes require constant adaptation, innovation and realignment of Utah’s fiscal systems. Though not without complications, the property tax provides a stable and economically efficient revenue source with many economic benefits to help address the state’s growth challenges.”

Key data points from the visual guide include the following:

• Revenue Yield. Property taxes pay for about $4.2 billion of Utah’s local government services, including those provided by school districts, counties, cities, towns and special districts.

Nearly 60 percent of property taxes fund schools. While the state of Utah itself chooses to no longer collect a property tax, school property taxes heavily influence state school budget allocations.

• Broad Base and Low Rate. Of Utah’s major taxes, the property tax has the broadest base (taxable values total about $500 billion) and the lowest rate (statewide average about 1.2 percent).

• Stability. Tax revenues change over time due to both economic changes (such as population growth, inflation and real GDP growth) and policy changes (such as tax decreases or increases through tax base or rate changes). The broad and relatively immobile property tax base and the design of Utah’s property tax system contribute to greater revenue stability.

• Economic Efficiency. Of the major taxes, the property tax generates the least economic inefficiency, in large part due to the immobility of real property. Property taxes on land minimize economic drag and encourage efficient land use.

In addition to key data points, the visual guide offers four public finance opportunities and challenges for policymakers to consider:

1. Relentless Growth. Utah’s K-12 student population remains on a long-term growth trajectory, even with near-term slowing. Although various factors, including the downside demographic wave of the "Baby Boomer Echo Boom 2," will moderate internal school-age population growth over the short-term, long-term population projections forecast continued growth in Utah’s school-age population.

2. Changing Cost Structures. Utah’s school population and systems continue to become more diverse in different ways. Along with its many strengths, this increasing diversity influences the demand for services, such as educating English learners, economically disadvantaged students and providing more individualized education, including for students with disabilities.

3. Transformational Economic Changes. The modern economy carries with it transformational changes impacting Utah’s fiscal structures. As policymakers contemplate balancing the composition of their revenue portfolio going forward, taxes on income and consumption will likely remain more volatile than the property tax and subject to aggressive national and global competitive pressures.

4. Opportunity Costs and Funding Tradeoffs. Policymakers continuously face tradeoffs as they make policy decisions. One example local officials face is in selecting the composition of their revenue portfolio. When officials perceive excessive political or statutory constraints on property taxes to fund core local government services, this creates financial pressure to seek “easier” revenue sources, even in situations when property taxes are appropriate.

The full visual guide is available online at https://gardner.utah.edu/wp-content/uploads/TaxModn-PropTax-Jan2022.pdf?x 71849.