Wednesday, December 28, 2005

Is Land Use Influenced by Sales Tax?

Story in today's Trib about a bill for the 2006 legislative session that would phase out, over a period of time, the "hold harmless" formula that was put in place back in 1983 when the state legislature changed the local distribution of sales tax from 100% point of sale, to 50% point of sale and 50% population. To gain approval and not negatively impact some communities, the law provided for cities to ba able to choose which provided them with the greater amount of revenue.

Not surprisingly, those with a heavy sales tax base received greater benefit from 100% point of sale.

In recent months, there has been considerable discussion about "zoning for dollars," that is, the concept that cities are doing about anything they can to gain those sales tax dollars to fund city budgets. The contention is that cities are zoning for too much commercial, often in the wrong places, and accepting about anything the commercial developers want, just so they can get those coveted sales tax dollars, even to the detriment of good community planning.

Sen. Greg Bell, the former chair of Envision Utah, has been at the forefront in this discussion, proposing in the last legislative session to change the sales tax formula to a much greater weight on population vs. point of sale, the idea being that this would diminish the incentive to have commercial at any cost in the community.

Is there really anything to the idea that cities will do anything, even bad planning, just to get sales tax dollars? My own opinion is that there is, though maybe not to quite the degree some think. But it certainly has had an impact. The emphasis seems to have come about in relatively recent times, however, and in my mind correlates with the "truth-in-taxation" constraints on property tax, which have made it increasingly more difficult for local governments to rely on that tax. Once again, a product of the law of unintended consequences.

The bill proposed by Sen. Bell for the 2006 session is a result of on-going discussions between the Senator and the League of Cities and Towns. Sen. Bell would like to proceed with his original idea, but can see that there is considerable controversy in doing so. Also, there is some doubt as to whether changing the distribution formula really would change cities' attitudes about seeking commercial development.

What did become obvious was that the old hold-harmless provision was still in play, something that really was intended to be short-term to get cities used to the 50-50 formula. Sen. Bell and other legislators insisted that this should be fixed, and in return for not pursuing the other formula change, the League agreed.

So would changing the sales tax distribution formula really reduce cities' desire to have more commercial development, at any cost? My sense is that it would to some extent, but probably not as much as some think. Will we ever really know?


At 9:55 AM, Blogger rcooperdog said...

A community on the southern Hwy 89-91 corridor into cache county is actively pursuing commercial strip development along their stretch of highway; totally unconcerned about the consequences for this critical transportation facility. I asked the City Manager if you were to take away POS sales tax incentive if they would still pursue the same development coarse. His response was "Heck No"..why would we foul our own nest. Stay tuned for Cache County's version of Riverdale Road!

At 4:55 PM, Blogger mattflynn3539 said...

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At 7:37 AM, Blogger James said...

Personally, I think it would definitely have an impact, but like you much? Time (and legislation changes) will only tell.

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