Salt Lake City is considering raising its portion of sales tax by 0.5% and asking voters to consider a new General Obligation bond in November for three main reasons:
The growing needs – accumulating from the past few years and upcoming projects – total millions of dollars of unfunded one-time and ongoing needs. For example, a recent study of all City roads found that 64 percent – nearly two-thirds – of roads are in poor condition or worse with approximately 20% that will need to be rebuilt entirely. In addition, a decision by City leaders in late 2017 to add 50 new police officers must be adequately funded. Finally, recently approved master plans for improving housing and transit service require investment to implement.
While these needs have been building for years, there are several important factors that make now the right time to act:
By creating more affordable housing options, providing safer neighborhoods and connecting residents and businesses to better transit and complete streets, we can ensure that our Capital City remains a place where all people can live, work and play in comfort and safety.
The critical needs and potential revenue streams identified in this process are based on adopted plans and studies that received extensive public feedback over the last several years. Mayor Biskupski specifically addressed these four needs and the revenue options in her State of the City address in January of this year and the initiative has been covered in the media and regularly discussed at City Council meetings since then.
For decades, frugal budgeting has meant that budget dollars have been stretched as much as possible, and inadequate funding resulted in deferring ongoing maintenance needs like streets and other critical infrastructure. Salt Lake City has grown, but that income does not fully cover the increasing cost to provide services, construction prices, or the list of deferred projects.
Please see “What revenue options are being considered?” to learn about different types of revenue, their limitations, and why some projects have been funded while others have remained deferred.
City revenues come from a variety of sources, but many are limited to specific uses, such as fees for water and sewer are used to pay for water and sewer, impact fees from new developments are used to pay for continuing the service level related to new growth, golf greens fees for golf and Redevelopment Agency project area revenues go back to their respective project areas.
Property taxes and sales taxes are the two main sources of funding for most general services. Revenue can also be raised by cutting some services and shifting funds to others, as well as dipping into the City’s “fund balance,” essentially a savings account for unforeseen or unexpected needs.
Given the funding needs identified, Mayor Biskupski and the City Council see two revenue opportunities as the most logical options to raise needed funding while having the least-possible impact on City residents and taxpayers. These are:
Approving a sales tax increase:
Asking voters to consider a General Obligation (GO) bond:
Anyone who spends money in Salt Lake City. This means that, instead of residents carrying the majority of the burden, about 60 percent of this revenue is paid by nonresidents – office workers, visitors, tourists.
Grocery items such as fruits, vegetables, pantry basics and more will not increase in cost as a result of a potential sales tax increase. To help clarify how food is taxed, here is an example: the meal you eat in a restaurant will be taxed, but if you buy those same ingredients and cook at home, you’re not paying increased sales tax. See this handy chart for a detailed breakdown.
Luxury items (think HUGE) like boats and cars are also exempt. While Salt Lake City could certainly find a use for that revenue, State Tax Code actually sets these rules.
It’s been so long, we’re still checking our records. So far, we’ve gone back 20 years and confirmed that Salt Lake City had not raised the sales tax in that time.
Sales tax revenue is appealing because it’s a flexible funding source: it can be used for a wide variety of ongoing needs, such as street maintenance and repair, public safety, affordable housing and improved transit service.
Salt Lake City has a current sales tax rate of 6.85%. The increase would raise it to 7.35%. Comparatively, Murray and South Salt Lake currently have a total tax rate of 7.10% which includes food and large purchases. Park City has a tax rate of 8.45%, and Moab has a tax rate of 8.60%.
The City is very sensitive to the sales tax increases impact on retail business. However, leaders also recognize that good roads and better transit options for customers, affordable housing for employees and increased public safety all have huge implications for the future of retail and economic development in Salt Lake City.
In preparation for this process the Salt Lake City Finance Department met with two nearby cities, Murray and South Salt Lake, to discuss their recent sales tax increases and what impact, if any, those increases had on business revenues. Their studies of sales before and after the sales tax increase noted no negative impacts as a result of the increase.
All City departments continually work to identify and implement efficiencies in their operations. However, after decades of frugal budgeting and major underfunded needs like street maintenance, incremental savings are small, and the needs are large. The City lacks options to make significant cuts without majorly affecting impacts to, or even eliminating, core services. Because some services are funded by revenue sources that legally can’t be used for other purposes, the main place the City could make substantial cuts to existing services is in the General Fund. The General Fund finances the areas where needs are greatest, such as public safety, street maintenance, and parks. Any such cuts would affect residents in substantial ways that could reduce the overall quality of life in the City.
Through years of thoughtful study, planning and public involvement, the City staff have identified significant unfunded one-time and ongoing needs that urgently require investment. Specific amounts of how additional revenues would be allocated could be finalized during the City’s annual budget process. There will be additional public input opportunities as the City Council reviews the Mayor’s recommendations, but needs estimates for key improvements are provided below:
Improved Street Conditions:
Greater Housing Opportunities:
Better Transit Service:
Increased Neighborhood Safety and Security:
The City will implement the strategies outlined in the GrowingSLC Housing Plan to create, retain and stabilize housing. Strategies include increasing Housing Trust Fund loans for new mixed-income developments and loan rehabilitation programs, assisting with down payment strategies, and providing case managers for those looking for affordable housing solutions. Every $1 in investment creates $20 of private investment.
In recognition of residents’ concerns about safety in their neighborhoods, Salt Lake City leadership approved hiring 50 new officers in late 2017 using money in the Fund Balance (essentially the City’s savings account for unforeseen or unexpected needs) to start the process of hiring and training the new officers. However, the Fund Balance is not a sustainable funding mechanism for these officers and an ongoing source needs to be found.
Sales taxes are considered a regressive tax, meaning that they affect those on fixed incomes and lower-income families more than those earning higher incomes. It is important to note that the sales tax is not applicable to groceries or large purchases like appliances and cars. And the sales tax will help fund transit and affordable housing – two important considerations for those on low and fixed incomes.
Leaders are considering raising the sales tax for two main reasons:
Every year, City officials study the City’s service needs and revenue options and identify funding needs, including upcoming and deferred projects. However, the potential financial impacts of recent legislation to develop an inland port in the City’s Northwest Quadrant are unknown at present. Possible legislative changes in a potential upcoming special session could mean further adjustments to the legislation. As the legislation currently stands, the City would receive existing revenue but wouldn’t receive any increases in revenue as the area develops. Since the City would have to provide services to the growing Northwest Quadrant/inland port area without receiving increased revenue from it, costs will outstrip resources, requiring a future reallocation of revenues.
The list of unfunded needs we are considering for the new sales tax and bond are spread across the City and will benefit all City residents and visitors. There are many upcoming infrastructure projects related to the prison and northwest quadrant, as prison construction continues and new development occurs, the other needs and funding sources will be considered. There are portions of the costs that are included in the State’s budget for the prison construction, and additional development could be paid for by the property owners.
The inland port legislation, though, creates several unresolved questions about the City’s future role in guiding Northwest Quadrant development. A promised special legislative session this summer may provide more clarity, but it is too soon to say what the true impacts and benefits might be for Salt Lake City. However, if the City remains responsible for maintaining current and future public roads and infrastructure built in the Northwest Quadrant without receiving a fair share of revenues generated, those costs will have to be absorbed within the City’s already-strapped budget.
The legal language regarding what is defined as “grocery food” can be confusing and tax laws change frequently, but the Utah State Tax Commission has put together some basic information to help individuals and businesses determine what a “grocery food” is and how food is taxed: https://tax.utah.gov/sales/food-rate
Revenue generated through the sales tax increase will be tracked as a separate budget column, setting a precedent of use by future administrations. The Funding Our Future website (www.fundingourfutureslc.com) will eventually be turned into a dashboard for residents to check to see how the funding is being tracked, what projects are being done, and how the City is making progress on the critical services and projects that need to be addressed.
The numbers currently being used for the critical needs are estimates. Specific amounts of how additional revenues would be allocated are tentative and will be presented as part of the Mayor’s budget. Conversations about how additional revenue would be spent are ongoing, and if City Council approves the sales tax increase, would continue through May and June with during City Council’s discussion and approval of the final budget in June.
Impact fees are one-time fees paid to the City by developers who construct new housing, commercial/retail, office or industrial buildings in Salt Lake City. These fees can only be used to cover growth-driven costs of providing public services to that new development, not city-wide.
City leaders can only increase sales tax with state legislative approval. In 2015, when legislators decided to relocate the state prison to northwest Salt Lake City, they provided the City with the rare opportunity to raise its portion of sales tax by 0.5 percent (as part of HB454). That amount cannot be changed without legislative intervention.
Utah is a “Dillon-rule” state meaning that cities can only pass laws/ordinances if the state explicitly permits them to do so. This means that Salt Lake City does not have the power to change ordinances in areas such as legalizing marijuana, starting a lottery, raising the gas tax or hospitality fees, changing liquor laws, taxing religious institutions, raising income tax, increasing minimum wage or adjusting sales tax revenues beyond what it allowed by the state.