Bill would force Utahns to pay for the water they used by eliminating property taxes on water projects

Senator Daniel McCay wants to reduce the state’s water consumption by having customers pay for the water they use.

(Trent Nelson | The Salt Lake Tribune) Irrigation in Moab on Thursday, July 15, 2021. A bill introduced in the Utah Legislature on Wednesday would end water districts’ reliance on property taxes to support water development projects.

For months, Utah Senator Daniel McCay has been assembling legislation to end the common practice of subsidizing water projects through property taxes, but the Riverton Republican has received little feedback or support from Utah’s water development community.

His goal is to reduce water use in Utah, which is facing water shortages after years of unrelenting drought, by requiring customers, both homes and farmers, to bear the cost of the water they use through tariffs . Basic economics suggests that when it costs more to take a unit of water from a faucet or pivot, people consume less and are more conscientious about washing dishes and watering the garden, McCay told a preliminary legislation committee on Wednesday, in to whom he presented the fruits of his labour.

McCay’s bill would ban water districts and cities from using property taxes to pay for water projects beginning January 1, 2023.

While the bill wins praise from taxpayers and conservation advocates, it draws fire from water districts that view the measure as a threat to their bond ratings and ability to pay for water projects like the Bear River and Lake Powell pipelines.

The criticism prompted McCay to take off the gloves and hit back.

“What they’re telling you is they want to socialize the costs of conservation, but privatize the benefits,” raged McCay, the co-chair of the Interim Committee on Revenue and Taxes. “Indeed, this is one of the worst tax policies I’ve ever heard anyone at this podium advocate for. Period. It is both morally and socially irresponsible.”

He complained that “stakeholders,” the Utah water districts that collect property taxes, had declined his invitation to discuss the legislation. But that didn’t stop those counties from sending a lobbyist to Wednesday’s hearing to rain down the proposal.

According to Mark Stratford, general counsel for the Jordan Valley Water Conservancy District, the bill as it stands would force large hikes in water rates and undermine conservation investments.

“That’s not the right way to just say let’s get rid of property taxes and tighten everything [water] partly because projects aren’t always paid for by the people who will use them,” Stratford told the panel, speaking for Prep 60, a consortium of Utah districts pushing for $32 billion to develop new water resources.

“Many projects are built in anticipation of growth, and the property tax helps support payment for those projects for the people who will ultimately use them, as opposed to the people who are current customers.”

Stratford argued that Utah is hardly alone in developing revenue streams other than water pricing. Arizona, California, Wyoming and Colorado use property taxes and Nevada uses sales taxes, he said.

“So all these other states are seeing that it’s important to have a broad base of available revenue to build, maintain and replace these systems,” Stratford said.

However, conservation activists have questioned these claims.

According to Utah Rivers Council Executive Director Zach Frankel, at $160 million a year, Utah really is an outlier when it comes to taxing waterfront properties. Utah residents enjoy some of the lowest water rates in the nation, while Utah’s per capita water use is near or at the top.

The council is preparing a report that surveyed 350 water utilities in 10 western states to examine their dependence on water property taxes. According to Frankel, Utah is at the top.

“The property tax lowers the price of water and creates this really high waste. We found that just five water utilities in Utah collect about $130 million in property taxes,” Frankel said. “One hundred water utilities that we surveyed together in six or seven states collected only $83 million overall.”

While the Utah League of Cities and Towns opposed McCay’s legislation, it received a warm nod from the Utah Taxpayers Association.

“That moves the needle in the right direction,” said the group’s chief executive, Rusty Cannon. “At this point, in many areas of the state, your water usage has absolutely no financial impact on you, and that’s not right. So if we want to save, user fees are the way to go and a better general principle of taxation.”

McCay withdrew his bill from tax committee consideration to refine it ahead of the January general assembly. But judging by the parting words of some committee members, the measure enjoys strong cross-party support.

We act like there’s a surplus [of water] and instead of charging people the actual cost of water, we spread that cost out onto their tax bill and pretend there’s no drought,” said R-Paradise Associate Vice Chair Casey Snider. It is time we had a serious discussion about how we pay for water and how we charge for water across the state.” Bill would force Utahns to pay for the water they used by eliminating property taxes on water projects

Justin Scacco

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