Legislators mulling property tax increase to boost school funding

Some GOP legislators say they will support a small increase in local school district property taxes next year, while actively opposing an income tax increase for public schools.

The Our Schools Now citizens initiative petition is staying away from the property tax part of the school funding equation because it is much too complicated to deal with in the petition format, UtahPolicy is told.

Last week the OSN group formally submitted its petition to the state Elections Office.

If approved by voters in November 2018, it would increase the state portion of the sales tax by 0.5 percentage points, and increase the personal income tax rate of 5 percent to 5.5 percent – over a three-year phase-in.

When all of the tax hikes are in place in 2020, the petition law will raise around $700 million a year for public schools.

Capitol Hill sources tell UtahPolicy that while few GOP lawmakers will support OSN in total, there are some conservatives who may oppose the income tax hike and stay neutral on the sales tax increase.

And there will be a legislative push to do something with property taxes to help schools in the 2018 Legislature, sources said.

OSN leaders tell UtahPolicy that they had to stay away from adjusting the property tax because any solution there would be very difficult to impose equally among all 41 individual school districts.

Some districts, usually with voter approval, have raised their property tax rates near the legislative set ceilings.

Other districts have steadfastly either refused to ask their residents to raise their property taxes or have done so only to see such ballot initiatives voted down by local property owners.

In either case, the high-rate districts don’t want to raise their property taxes higher when other communities are keeping their property taxes lower – and just go to the Legislature every year asking for more state-mandated help.

A relatively small property tax increase bill (SB255) was introduced last session by Sen. Howard Stephenson, R-Draper.

It was an oddity for Stephenson – who as president of the Utah Taxpayers Association has almost always opposed inflation-induced property tax take without a local government going through Truth in Taxation public hearings.

Here is a good summary of what SB255 would do, from the Salt Lake Tribune:

“(The bill) would freeze the statewide property rate and capture roughly $22 million for schools — and potentially more each year — through inflation.

 

“But before that vote, the bill was substituted to include elements of SB80, which aims to supplement school districts with low property tax yields by creating, and lifting, a statewide funding floor.

 

“SB80 passed the Senate in early February but has remained untouched in the House amid concerns from educators that diverting resources to low-funded school districts would leave the education system as a whole with less ability to address rising costs.

 

“The property tax freeze, sponsored by Stephenson, puts a five-year lock on a statewide property tax rate that would otherwise adjust down to remain revenue-neutral as property values increase.”

However, SB255 did not pass in the final days of the session – thus the renewed interest among some legislative Republicans, who say it’s a partial response to OSN.

As now written, the OSN petition does not allow a separate vote on the sales tax or the income tax hike. You either support BOTH tax increases, or you oppose BOTH tax increases.

The sales tax hike of 0.5 would bring in around $450 million more money for schools each year; the income tax hike around $250 million a year.

A sales tax increase is more palatable to GOP lawmakers because it is not felt as much by voters.

You pay your sales tax every time you buy something.

You see an income tax hike when you file your tax returns – more painful for politicians.

By and large, legislators stay away from the property tax completely. Property taxes fund schools and local governments.

But if school districts were forced by state law to increase their property taxes, on tax notices it would come under district taxes owed, not directly connected to the Legislature.

The state itself doesn’t levy a property tax for state operations but forces local school districts to impose a property tax as part of school equalization funding across the state.

OSN officials tell UtahPolicy that state officials lobbied their group hard not to have any income tax hike in their petition.

The OSN compromise to that lobbying was to go from only an income tax hike of 7/8th of 1 percent – their original proposal – to the 0.5 percentage point increases in both the income and sales taxes.

Now GOP legislators are looking to adjust the property tax as a way to at least move that leg of the three tax forms upwards for more school funding.

Of course, a $22 million per year property tax hike is much less than the $700 million in new taxes the OSN petition would bring to local schools.

[Editor’s note: An earlier version of this story incorrectly attributed a quote from the Salt Lake Tribune to UtahPublicEducation.org. We regret the error.]