If you were at the October 16 American Fork City Council candidate debate or listened to the audio or watched the video, you might have wished for some detailed background about how property taxes work. Here I’ll give you that background as concisely as I can, then say a few words about the candidates with respect to these issues.
(My other responses to what I heard at that debate are in the previous post. It’s about twice as long as this one.)
This post is heavy on information, for those of who seek only that here, but the closer we get to the end, the more you’ll get my opinions.
How We Calculate Property Tax
The annual tax on a property in American Fork is determined by multiplying the rate (sometimes called “mill levy” by insiders) by the assessed value of the property. Then, if and only if it’s a primary residence, that result is multiplied by 0.55. That way, if it’s your primary residence, you pay 45% less tax than you’d pay on a business or another residence of the same value.
Two kinds of changes can affect how much tax you pay on your home: a change in the rate and a change in the county’s assessment of your property’s value. The valuation changes when the county changes it. The rate is different every year, and unless there’s a tax increase, the rate almost always goes down.
Your tax bill could go up even when the rate goes down, if your valuation goes up. And vice versa.
A Brief History of Property Tax Rates in American Fork
As we’ve seen, the property tax rate is only half the story. But we have to start somewhere. Here are actual American Fork property tax rates for the last 11 tax years, according to Utah County. (Utah State records differ for 2022.)
| Tax Year | Actual Tax Rate | Change from Previous Year |
|---|---|---|
| 2013 | 0.002750 | 2.2% decrease |
| 2014 | 0.002540 | 7.6% decrease |
| 2015 | 0.002362 | 7.0% decrease |
| 2016 | 0.002261 | 4.3% decrease |
| 2017 | 0.002082 | 7.9% decrease |
| 2018 | 0.002077 | 0.2% decrease |
| 2019 | 0.002027 | 2.4% decrease |
| 2020 | 0.001906 | 6.0% decrease |
| 2021 | 0.001687 | 11.5% decrease |
| 2022 | 0.001715 | 1.7% increase (0.001670 per state, a 1.0% decrease) |
| 2023 | 0.001778 | 5.9% increase |
| Last four years | 12.2% decrease | |
| Last ten years | 35.3% decrease |
The problem with this table is that we don’t calculate tax increases based on changes in the tax rate from year to year. We calculate them based on increases above the certified tax rate the county provides for each year. There’s a lot of good to say about Utah’s Truth-in-Taxation law, but it sometimes actually yields deception in taxation.
For tax years 2013 through 2021, the City simply accepted the certified tax rate provided by the county. (We’ll talk about how those are calculated shortly.) But let’s look at 2022.
According to state and county documents, American Fork’s certified tax rate for 2022 was 0.001265 — sharply lower than the previous year’s rate, because valuations increased sharply. According to city, county, and state records, the City initally proposed an increase to 0.001725 — a 36.4% increase above the certified rate. This triggered the Truth-in-Taxation process, including written notice to all taxpayers of a proposed increase, and a public hearing specifically about the proposed increase.
According to county data, the City actually adopted 0.001715, a 35.6% increase over the certified tax rate. According to state data, the City adopted 0.001679, a 32.7% increase. (I’ll ask somebody at the City about this discrepancy soon, but it may not be this week. In the meantime, I believe the state.)
Either way, two things are clear: First, there was a substantial increase in the City’s portion of our property tax bills. Second, the number candidate Ken Sumsion has mentioned and published, 37.8%, is nowhere to be found. We know from years of history that he’ll prefer a worse number to the real one, for politics’ sake. I expect better from a CPA. And isn’t a real number, 32.7%, bad enough to support his point?
Maybe his property value went up when the rate did, so his own American Fork property taxes went up 37.8%. But that’s not a number he should use to represent the whole, and he should know it.
Elsewhere he says it was 40%; there I presume he’s just rounding up.
Now let’s look at 2023. The actual tax rate went up 5.9% from 2022 — but by law it’s not a tax increase, because the City didn’t increase the rate above the certified tax rate the county supplied. The other component, property valuations, decreased.
So the rate can go up from year to year, but it’s not a tax increase. The rate can go down, and it is a tax increase — as long as the new rate exceeds the certified tax rate for that year. The previous year’s rate doesn’t matter, in this sense.
Got it? I won’t blame you if you don’t. I’ve been through all this before, and I’ve explained it many times — but I still had to spend more than two hours last evening with City, state, and county documents, making sure I had a clear picture.
Where Certified Tax Rates Come From
Here’s how the county calculates that certified tax rate for each municipality (town or city) and other local taxing entities in the county. This is slightly simplified, but not in a way that obscures anything important to this discussion or the current election.
The county looks at the number of dollars a municipality received this year and determines what rate would yield the same number of dollars (not adjusted for inflation) next year, if exactly the same set of properties were taxed. That rate becomes that city’s certified tax rate for the next year.
If my property’s assessed value increased more than others’, I may pay more dollars next year. In the opposite case I might pay fewer dollars. If no one’s assessed property value changed, or if all properties changed by exactly the same percentage, we’d all pay the same number of dollars from year to year, based on the certified tax rate.
The same rate applies to any new properties, so if there’s growth, tax reveunues will grow proportionally. Of course, most of the things the City does will have to grow proportionally too — police and fire protection and water and sewer service, for example — so costs will also increase.
There’s wisdom born of long, unpleasant experience behind these calculations. Because property tax is the product of rate and value, if the rate stays the same but property values spike, everyone’s taxes would spike too. Counties get their portion of property tax too, and there would be an incentive for them to overvalue properties to increase their own revenues without passing an unpopular “tax increase” — that is, a rate increase.
Less commonly, if property values troughed, city tax revenues would do the same, and that’s bad too.
Truth-in-Taxation
I’m a big fan of almost all of Truth-in-Taxation, including the very public extra hoops the City has to jump through — beyond a simple city council vote — to increase taxes.
But I see two problems. One may be unavoidable, and it’s just a little weird sometimes. The other I would called a big sinkhole, except that it didn’t just appear. It’s intentional, and its architects in the Utah Legislature were (and are) proud of themselves. It’s more like a trap.
Ken Sumsion says Truth-in-Taxation is his favorite law, including what I call the trap.
You’ve seen the small problem already: Rates can go up from year to year, as in American Fork from 2022 to 2023, but it’s “not a tax increase” according to the law. And rates can go down — say, if the city council set the rate for 2022 at 0.001266, a hair above the certified tax rate of 0.001265 (compared to 2021’s rate, 0.001687) — but by law it would have to be called an increase. I don’t know what else to do, in any readily explainable way, when both the rate and the property valuations are dynamic, and individuals’ taxes and city revenues alike need to be relatively stable.
The other problem, the sinkhole, is that the county doesn’t use real, inflation-adjusted dollars in calculating certified tax rates. The effect is gradually to strangle city budgets.
Inflation means the same number of dollars buys less this year than it did last year — and when the inflation rate is high, as lately, that’s dramatically less. Even if the inflation rate stays low, city tax revenues in real, inflation-adjusted dollars, in buying power — shrink a few percent per year. It doesn’t take too many years for the cumulative effect to be quite dramatic. If the inflation rate is a modest 2 percent, for example, the purchasing power of those non-inflation-adjusted dollars shrinks 18 percent in 10 years.
The only remedy is to increase taxes (as defined by Truth-in-Taxation). Wise entities, like the Alpine School District, impose a tax rate increase (remember, above each year’s certified rate, not last year’s rate) every year or nearly so. These small increases help the district break even in inflation-adjusted terms.
But we voters grant school districts an immunity we don’t grant to city councils. What are an incumbent city councilor’s prospects of reelection, when opponents can say he or she raised property taxes every year, even if the increases were small? So city councils don’t raise taxes to keep up with inflation — and budgets shrink until the situation gets so painful that only a large, painful increase every decade or two can keep their cities running.
Mr. Sumsion told me at a candidate event this summer that this intentional feature of Truth-in-Taxation is a virtue, that it means we have to elect “people of courage.” It’s a nice sound bite.
But some of the best people I’ve ever known have held local political office in Utah and found it politically impossible to impose small tax increases every year to keep up with inflation. To suggest that we should or even could find still better, more courageous people to elect is fanciful.
I asked Mr. Sumsion whether, if he’s elected to the council, he will support small annual tax increases to keep even with inflation. He scoffed and said no.
At the October 16 debate, candidate Ernie John said it well. He refused to promise never to increase taxes, and he emphasized that we shouldn’t kick the can down the road year after year, until we have to pass a very large increase just to keep going.
About This Election
Mr. Sumsion’s campaign communications say he wants to roll back the 2022 tax increase. If that means anything concrete, it must mean that he wants to pull money away from the things the increase funded: road repairs and public safety salaries. That will slow our progress in rebuilding our roads after years of budgetary neglect, beginning in the 1990s. The effect on public safety might be more subtle at first, but it probably won’t save any money. We have some experience with this in American Fork.
When my family and I moved to American Fork in 1998, and for several years thereafter, we witnessed the effects of “saving” money by failing to keep police salaries competitive. Here’s what happened. It was completely predictable, or should have been.
Generally speaking, the best, most senior officers left for better pay in other jurisdictions. Promising new officers got more training at City expense, then took it elsewhere for higher pay. It became more difficult to attract the best officers to replace them. This left — again, generally speaking — green officers and the experienced officers whom other agencies didn’t want to hire. Both these groups are prone to make mistakes. Even if, fortunately, they weren’t mistakes that got people killed, they got the City sued repeatedly. I don’t have numbers, but if I did, I’m pretty sure they’d show that the legal bills and settlements cost far more than the City saved by keeping salaries too low.
If you think returning to such past mistakes is a good idea for American Fork in 2024-2027, Ken Sumsion and Jeff Shorter are ideal candidates for you, and you should vote for them.
If you’re not taken in by bad ideas from the past tarted up as wisdom for the future, if you prefer fiscal responsibility, which means more than just cutting everything in service of an ideology, I respectfully suggest you vote for Clark Taylor, Ernie John, and Tim Holley. We’ll all be better off.
Fool us once, shame on them. Fool us twice or thrice or more, shame on us.
Image credit: generated by DALL-E with prompt “line and watercolor of woman studying spreadsheets full of numbers, spread out on desk”
David thanks for another excellent post. This is very articulate, clear, and easy to understand. Too bad this isn’t required reading for every voter in American Fork before they can receive a ballot.