TRANSFER FROM THE BOUNTIFUL POWER FUND TO THE GENERAL FUND NOW EXCEEDS PROPERTY TAX REVENUES
Ronald Mortensen, Ph.D. Co-Founder, Citizens for Tax Fairness August 28, 2020
Note: On August 25, 2020,
Ronald Mortensen, Ph.D. and co-founder of Citizens for Tax Fairness gave public
comment on a proposed transfer of funds from the Bountiful City power fund to
the city’s general fund. Below are the key points that he covered in his
comments. An expanded version of his comments can found below. Following the
public comment period, the Council voted unanimously to approve the transfer of
funds.
Key Points:
Power fund transfers necessitate
higher electric rates and customer charges
Power fund transfers are an attempt to indirectly tax non-profits,
governmental and other non-taxable entities
Bountiful routinely
increases power rates and fees to avoid truth-in-taxation hearings
Bountiful’s
power rates once were 25% - 40% below commercial power rates
Bountiful’s
power rates are now roughly equal to or even higher than Rocky Mountain Power rates
2020 Customer Charge up by 20%; power rates up 10.5% for 68%
of customers
Customer Charge hits small power
users and poorest members of the community the hardest—75% or more of
electricity bill
Transfer from the power fund to
the general fund increased by 11% in 2020—$2.5 to $2.8 million
Power
transfer now contributes more to the general fund than do property taxes
Power transfer hides the
true cost of city government
Power transfer allows
elected officials to promote higher property taxes to fund a bond by arguing
that property tax rates are among the lowest in the state
Bottom
Line is that the both power bills and property taxes are paid by Bountiful
residents
Kaysville
stopped power fund transfers to the general fund
Is
it time to consider ending the power transfer in order to to enhance
transparency and control government spending in Bountiful?
Introduction
Well over a decade ago, Citizens for Tax
Fairness questioned the process
whereby Bountiful, Utah charges higher electric rates than would otherwise be
the case in order to create excess funds that can be transferred from the power
fund into the general fund. Citizens for Tax Fairness further noted that property tax increases
require a truth-in-taxation hearing while there is no such requirement to raise
power rates, customer charges, etc
Power fund transfers necessitate
higher electric rates and customer charges
City
officials assert that the power fund transfers can be made without increasing
the amount that power customers pay for their electricity, but that is not the
case.
Let’s say
for example that the power company needs $100 per month to meet its operating
expenses and to build reserves. Let’s also say that the power company has eight
property tax paying customers and two non-property tax paying customers.
All ten
customers use exactly the same amount of electricity so each pays $10 per month
for a total of $100. In this, case there is no surplus to transfer to the
general fund. However, if the $20 dollars paid by the two non-taxing entities or
any smaller portion of their payments is transferred to the general fund in
order to offset their exemption from pay property taxes, the power company no
longer has the $100 it needs to operate.
Therefore,
it has to raise rates to recoup the amount of the transfer. Assuming the full
$20 is transferred, now each of the ten customers has to pay $12 for their
electricity for a total of $120. The extra $20 is then transferred to the
general fund leaving the power company the $100 it needs. The non-taxed
entities only pay 20% ($4) of the total amount transferred while the other
residents pay $16 of the transfer since there is not a separate, higher rate
for non-profit and governmental entities.
If only
$10 is transferred, then everyone pays $11 per month. The non-taxed entities
pay $2 of the transfer and the other power customers $8 of the amount.
The
bottom line is that all power customers are paying more than needed to fund the
power company in order for the city to supplement its general fund without
raising property taxes.
In the Public
Notice of Funds Transfer, it is acknowledged that “The utility transfer
helps keep property taxes in Bountiful low.” This was further emphasized on
multiple occasions during the staff’s presentation to the City Council on the
proposed transfer request. According to staff comments during a June
16, 2020 presentation, the transfer (2:31:00) “keeps property taxes in
Bountiful low” and “For existing services, property taxes would need to be more
than doubled if the Light and Power transfer was not in effect” In a subsequent
August 25, presentation on the transfer, it was stated that without this
transfer the city “would have to raise the property tax” and that this transfer
“significantly reduces property taxes.”.The staff also reiterated that
Bountiful had one of the lowest property rates in the state but that “property
taxes would have to increase by 110% without the power transfer,” and that this
transfer “significantly reduces property taxes.”
Power
fund transfers are an attempt to indirectly tax non-profits, governmental and
other non-taxable entities
According to Bountiful City officials, the transfers
from the power fund to the general fund “provide a means for reimbursement of
the general Fund for service provided to non-property tax paying groups such as
non-profit organizations, churches, and governmental entities.”
Therefore,
according to city officials, it is appropriate for the city to find ways to indirectly
tax non-profits and other tax-exempt entities operating within the city limits.
Of course, Bountiful residents largely fund these organizations and, therefore,
they actually pay for the so-called “reimbursement” or “dividend.”
In
addition, implicit in their reimbursement argument is the notion that the payments
for power made by property tax exempt entities aren’t really needed by the
power company and can be distributed to the “shareholders,” i.e. general fund,
without any impact on power rates, customer charges or other related fees. However,
as has been shown above this is simply not the case.
Bountiful routinely
increases power rates and fees to avoid truth-in-taxation hearings
The
fact is that Bountiful’s elected officials routinely increase power fees and
surcharges in order to maintain or increase the amount of the power transfer to
the general fund. These increases are easier done than holding the much dreaded
truth-in-taxation hearings required in order to raise property taxes.
In 2005, a new Customer Charge was initiated at
a rate of $1.54/month; now it is $12 a month—a 779% increase. In 2019, a separate $2.00 street light fee was
implemented in order to supplement power fund revenues. Prior to that street
lights were funded out of power fund revenues. Since 2005, power rates have gone from .0755/kwh
to .1022/kwh – a 35% increase
So,
while the city prides itself in keeping property taxes low, it has steadily increased
power rates while implementing a customer charge and street light fee in order
to transfer ever more money from the power fund into the general fund. This, in
turn, has allowed the city to increase spending without raising property taxes. This
slight-of-hand allows city officials to pretend to be fiscally responsible when
in fact just the opposite is true—spending continually increases, construction
delays and substantial cost overruns are covered up and paid for with power
company funds and fees, and a million dollar plus ice ribbon is paid for in
cash using reserve funds which are all too often treated as slush funds to
cover up poor management by the city’s elected officials.
Bountiful’s power
rates once were 25% - 40% below commercial power rates
It’s
important to note that many years ago Bountiful prided itself on the fact that
its power rates were 40% below those of Utah Power and Light. In 1990, the
Desert News Reported “Even with this latest [14%] increase, which will raise
the rate from 4.9 cents per kilowatt-hour to 5.6 cents [to meet anticipated
higher energy costs and to help fund city council salary increases], the rate
is still 25 percent lower than that charged by Utah Power & Light.”[i] In the ensuing years that 25% differential has
been virtually totally erased.
Bountiful’s power rates are
now roughly equal to or even higher than Rocky Mountain Power rates
According
to city officials, in 2020 Bountiful City Power customers will pay between 3.6%
and 6 % less than Rocky Mountain Power Customers. However, Bountiful Power
customers miss out on rebates and incentives for home energy upgrades[ii]
offered by Rocky Mountain Power that can be worth hundreds of dollars.
And
Rocky Mountain Power passes the savings realized from the reductions in federal
corporate income taxes on to its customers in the form of credits that have the
effect of reducing the utility company’s electrical rates. The initial credits
were expected to cut the average user’s total bill by 3.45% or $32 per year.[iii]
Bountiful Power is exempt from corporate income taxes.
Customer Charge up by 20%; power rates up 10.5% for 68% of customers
In order to help fund the increase, the mandatory, flat-rate
Customer Charge for 2020-21 was increased by 20% from $10 to $12 or from $120
per year to $144 per year. In addition, power rates were adjusted and, according
to the City, the 32% of residential customers who average 400 Kwh per month or
less saw their Kwh charge reduced by 13.5% to $.08/Kwh effective July 2020. The
68% of residential customers who average more than 400 Kwh per month will pay
10.5% more per Kwh ($.1022) effective July 2020.
Customer Charge hits small power users and
poorest members of the community the hardest—75% or more of electricity bill
This Customer Charge hits small power users and the poorest
members of the community the hardest. For example, a person, without solar
panels or air conditioning, using 196 Kwh pays $15.68 for electricity and a $12
Customer Charge for a total of $27.68. In addition, they pay a city energy and
sales tax of $1.78 (11.35% of the electricity charge). A person using 700 Kwh
pays $71.54 for electricity and a $12 customer charge for a total of $83.54
before taxes.[iv]
The Customer Charge for a person using 196 Kwh is equivalent
to a 77% surcharge on the electricity used. When the city energy tax is added
on, the person is paying 88% of the total bill in charges and taxes. If a
person uses 400 Kwh, the customer charge comes to 37.5% of the total bill. For
someone using 700 Kwh, the customer charge is 17% of the total bill.
Transfer from the power fund to the general
fund increased by 11% in 2020—$2.5 to $2.8 million
Last year’s (2019-2020) transfer from
the power fund to the general was $2.5 million; this year (2020-2021) it is roughly
$2.8 million – a $300,000 or 11% increase at a time when many rate payers have
been hard hit by the economic downturn due to COVID-19. In fact, during the
past 20 years, the transfer has increased from $1,886,295 in 2001 to $2,752,123.00
in 2020—a 46% increase.
Power transfer now
contributes more to the general fund than do property taxes
According
to the city’s Fiscal Year 2020-2021 Budget Presentation, the city’s property
tax rate remains at 0.000789 with projected revenue of $2,571,519 (13% of the
general fund budget). The power transfer will be $2,752,123 (14% of the general
fund budget). The property tax would have to be double the current rate were it
not for the power transfer. That would make Bountiful the third highest
property taxing municipality in the county rather than the lowest as now the
case and it would no longer be able to tout that it has one of the lowest
property tax rates in the state.
Power transfer hides the true
cost of city government
The transfer
of millions of dollars annually from the power fund to the general fund hides the
true cost of city government from Bountiful residents and it eliminates the
need to hold truth-in-taxation hearings which are required to raise property
taxes. In fact, as clearly stated by city officials, if the power transfer were
not in place, property taxes would have to be more than double their current
rate—in order to sustain current levels of spending.
The
transfer also allows the city to generate tens of millions in reserve funds
that they can draw from to pay cash for projects such as the multi-million
dollar town square (plaza), a multi-million dollar new city hall (later
cancelled), the renovation of the existing city hall and to cover what may well
be significant construction cost overruns on these and other projects.
Power transfer allows elected
officials to promote higher property taxes to fund a bond by arguing that
property tax rates are among the lowest in the state
By
artificially suppressing property taxes by constantly increasing power rates
and charges, city officials are able to state that Bountiful has one of the
lowest property tax rates in the state. They can then tell voters that a proposed
property tax increase to pay for a general obligation bond that will be on the
November 2020 ballot is just a minor increase in property tax rates.
What city
officials won’t tell voters is that they have already increased their electric
charges by 20% and that electic rates have increased by 10.5% for the majority
of rate payers in order to transfer an additional $300,000 per year from the
power fund into the general fund in order to keep property tax rates artificially
low. They also won’t tell voters that if the city was not overcharging for
power in order to transfer a total of $2.8 million from the power company to
the general fund, that Bountiful’s property taxes would be among the highest in
Davis County and in the state.
Bottom Line is that both
the power bills and property taxes are paid by Bountiful residents
The
bottom line is that Bountiful Power’s bills and the city’s property taxes are both
paid by its residents. So whether the power rate is raised to increase the
power transfer to the general fund or whether property taxes are increased to
bring more funds into the general fund, the effect is the same. Residents pay
more.
Based
on past practices, it is certain is that Bountiful power rates will keep ratcheting
up in concert with Rocky Mountain Power rates. This will allow the city to
continue artificially suppressing property taxe rates and to support ever
greater city government spending. Since Rocky Mountain Power has already announced
that it will increase rates each year from 2021 to 2023 Bountifu residents can
be assured that the city will continue to increase its power rates as well.
Kaysville stopped power
fund transfers to the general fund
In
2013, Kaysville residents voted to end
transfers from their power fund to the general fund. Prior to the vote, Art
Morley, spokesman for Kaysville Citizens for Responsible Government, said “city administrators have been using power
fund money to hire police officers, among other expenditures. If Kaysville were
using money from its general fund and needed more for city operations, it would
have to raise property taxes, which would require a public hearing. By
transferring money from the power fund, customers are paying for the
expenditures through rate increases without being told the reason for the bump.”
The
proposition
that passed read: “All revenues of Kaysville Power Department
and/or the Power Fund shall properly be restricted solely to the direct
operations of the Kaysville Power Department and not used for any other
purpose. The Kaysville Power Department shall maintain an emergency fund as
established by the governing body. All revenues above operation expenditures
and the emergency fund shall be redistributed on an annual basis to the
customers of the Kaysville Power Department based on their proportionate use
per annum.”
Currently
Kaysville’s Customer Service Charge ($8.00) is 33% lower than Bountiful’s. Kaysville’s
rate for the first 1,000 Kwh $0.08613 per KWH whereas in Bountiful the rate for
everything above 400 Kwh is $.1022—a 19% difference. The rate for all Kwh in
excess of 1,000 charged by Kaysville is $0.09717—a 5% difference.[v]
Is it time to consider
ending the power transfer in order to enhance transparency and control government
spending in Bountiful?
Theoretically,
if Bountiful were to follow Kaysville’s lead and end the power transfer, power rates
and/or the Customer Charge would drop by the amount necessary to reduce power
company revenues by the $2,752,123 currently being transferred to the general
fund and property taxes would be doubled to offset the loss of the $2,752,123 power.
Citizens would pay the same amount but in different, much more transparent
ways and the city would have the same amount of revenue.
Spending
growth would be restrained because Truth-in-Taxation hearings would be required
before the city could increase property taxes. And, everyone, including
churches and schools would pay less for the electricity once they stopped
subsidizing the city’s general fund.
[ii]
Lighting, Plumbing and water heating (Up to $550 cash back on heat pump water
heater), Heating and cooling, New homes, Weatherization (cash back .10 sq. ft.)
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