Wednesday, September 19, 2007

Ron Mortensen's Paper

Ronald W. Mortensen, Ph.D.

Taxing our World War II Heroes Out of their Homes.

Recently, I had the honor to be with Utah's World War II veterans as they visited the World War II monument in Washington D.C. Even here the subject of property taxes came up as I talked with a veteran who was among the first to storm ashore on D-Day in 1944 and then fought in battles throughout Europe.

I learned that he and his wife have been married for over 62 years and like so many others of their generation, they worked hard and saved for the twilight of their lives so they would be independent and able to leave something for their children and grandchildren.

Their independence is largely built around their home and a couple of parcels of property surrounding it. They are not rich but neither are they poor. This year, their property taxes increased significantly and now the community that this man put his life on the line for is forcing him and his wife to consider selling their property which neither of them want to do.

Can't Afford the Taxes, Sell It!

This, of course, is not an isolated case. When a Kaysville resident received notice that a two-acre piece of landlocked land, that cannot be developed, had been reappraised from $50,000 to $300,000, he told Commissioners at the Truth-in-Taxation hearing that he was advised by the assessor's office to sell the land. A senior citizen told the news media that she was also advised to sell her house if she couldn't afford the taxes. In the Ogden valley, long-term residents of modest means are faced with huge tax increases that threaten their ability to keep their lifetime homes.

Young families in South Davis County who are struggling to purchase their homes, manage variable rate mortgages and keep mom home with their children are facing large, unplanned tax increases. A middle-aged couple, working multiple jobs, called me because they were afraid that they could not support their family and at the same time pay the huge property tax increase on their home.

Utahans, young and old, married and single, middle income and poor, all point out that governments, including school districts, are imposing property taxes on unrealized gains. And they note, that not even the IRS does this.

A Fatally Flawed Tax?

Before talking with the hero couple in Washington D.C., this presentation was taking a largely academic approach to property taxes with a focus on reforming the existing system and this may still be an option.

However, before accepting the status quo, it now appears that we should go a step further and ask whether a tax that is based on an imprecise evaluation system that taxes unrealized gains and that is carried out by assessors who frequently fail to comply with constitutional and/or state laws can or should be saved?

Perhaps even more fundamentally, we should ask why are we imposing a tax that denies citizens the full ownership of their property by requiring them to rent it back from the government at a cost of hundreds of dollars per month even if it has been fully paid off?

And finally, does it make sense to rely on a tax that can spin out of control as rapidly as the property tax has this year and force good, hard-working people to sell their homes and other property?

Unequal Treatment.

Utah's property tax system is deeply if not fatally flawed. It taxes property owners on unrealized gains and fails to treat like properties equally.

According to the state Constitution, "So that each person and corporation pays a tax in proportion to the fair market value of his, her, or its tangible property, all (emphasis added) tangible property in the State….shall be: (a) assessed at a uniform and equal rate in proportion to its fair market value." On its website, the Utah State Tax Commission states: "All taxable real property is appraised at 100 percent of its fair market value based upon its status and location as of January 1 each year."

Is that really what happens? Well, not exactly. Let's take a look at what County Assessors and others say and do.

James Ivie, Davis County. In a letter to the Davis County Clipper, Mr Ivie wrote: "Unfortunately, Bountiful had not been reappraised in the past 10 years, due to lack of staff in the assessor's office prior to my election to the office. As a result the values in Bountiful were lower than market value."

Salt Lake County Assessor, Lee Gardner. "With hundreds of thousands of parcels in Salt Lake County assessments are bound to be off in some places." (Source: Salt Lake Tribune).

Doug Larsen, Weber County's chief deputy assessor. "You're always going to have some errors." (Source: Standard-Examiner).

The National Taxpayers Union. Up to 60 percent of properties are overassessed. (Source: Kiplinger's Personal Finance)
Salt Lake County Tax Administration. In Salt Lake County, seven out of 10 appellants have succeeded in lowering their property values over the past seven years.
The Utah State Legislature. Utah law only requires a review of property characteristics once every five years, therefore, it is very possible that up to 80% of properties are not appraised at 100% of fair market value on January 1 of each year nor or all properties assessed at a uniform and equal rate in proportion to fair market value.
Renting Our Property Back

When property owners pay off their mortgages and any liens that may have been applied to their property, they still do not own their property outright. Rather, they have to rent it back from the government each and every year at hundreds of dollars per month. And as we have seen, government can be a capricious landlord. It rather arbitrarily assigns value, frequently increases rent, and even requires rent be paid on unrealized gains.

Forced Divestiture Benefits Governments

Just think about it, if citizens cannot be secure in their property, then government has failed them. And yet, the property tax, as currently applied in Davis County, Cedar City and the Ogden valley, will almost certainly force certain individuals to sell their highly appreciated property and with the exception of the principal home, to pay state and federal income taxes on gains that they would have preferred not to have taken at the present time. The only winners in this scenario are governments and especially school districts since they win twice. They immediately realize additional taxes resulting from the sale of the property and over the long term they may benefit from even significantly higher property taxes if the property is developed and upgraded.


Given the massive failures in the property tax system, serious consideration should be given to completely abolishing the property tax in Utah and replacing it with another source of revenue for local governmental entities including school districts.

The focus of any reform attempt must be on the right of property owners to keep and enjoy the use of their property. Nothing should ever be done to threaten any Utahan with the loss of their home or other property just so government can have a stable source of revenue or so our three-legged tax stool can remain balanced and intact.

That being said, what can be done? Here are a few ideas for your consideration based on a very quick analysis of the current situation. I'm sure that as I mull them over, I will further refine them and come up with additional options.

First, immediately, by legislative action if necessary, roll back all property tax appraisals and resulting tax increases to a period immediately before the rapid real estate price increases began in a given county. This will give the legislature time to come up with a comprehensive solution to Utah's current property tax crisis.

Second, immediately put systems into place to control government, including school district, spending. Consider implementing "Transparency in Government Spending Systems" that empower taxpayers to become fiscal watchdogs by making all taxpayer funded contracts and expenditures available on the Internet. Require all governmental entities, including school districts to publish the total compensation of the five highest paid elected officials, the five highest paid civil servants, the five highest paid individual contractors, and their five largest business contractors. Also, require all governmental entities to abolish incremental budgeting and to review all programs, on a rotating basis if necessary, in order to eliminate duplicate, outdated and nice-to-have programs.

Third, explore options for totally eliminating the property tax all together given its inequity, volatility and violation of fundamental property rights. This would allow property owners to own their property outright without having to rent it back from the government.

Fourth, if it is determined that the property tax absolutely cannot be eliminated, then develop a "Truth-in-Taxation system on steroids" to protect taxpayers and put in place an appraisal system that will ensure that all property is properly valued each and every year. Then and only then, begin reappraising properties to increase values above those set in step one above.

Fifth, do not solve the problem of certain groups by shifting the property tax burden to others. If you are going to freeze property values, freeze them for everybody, not just for a certain age or income group. Don't even consider putting government in the position of taking out reverse mortgages on homes of senior citizens through property tax deferral. This is the ultimate in legalized plunder and demeans individuals who have worked hard all of their lives to be independent of government.


1. Abolish the Property Tax

· The property tax is inherently unfair and anti-family.
o It forces individuals to pay taxes on unrealized gains – not even the IRS does this.
o Assessments are arbitrary, unreliable and often technically flawed resulting in unequal treatment of like properties in possible violation of both the Utah and United States Constitutions.
o It forces families to rent their homes back from government at hundreds of dollars per month.
o It puts great strain on young families, single income earners, etc. trying to purchase a family home.
o It is unpredictable and can increase by hundreds of thousands of dollars without any prior notice irrespective of a family's ability to pay.
o Property taxes do not fluctuate as income changes. If income declines, the property tax bill remains stable or it may even increase.
· Eliminating the property tax would also eliminate the assessment bureaucracy that just can't get it right due to limited resources and the complexities and number of parcels to be assessed.
· Abolishing the property tax would remove governments' claims on an individual's private property and put an end to citizens having to rent their property back from the government.

2. Strengthen Truth-in-Taxation – Truth-in-Taxation on Steroids

· Keep Truth-In-Taxation as current set up, including the retention of revenue from new growth, with the following modifications:
o Require that all property be assessed at the same time by fully competent and qualified assessors to avoid inequities arising from different assessment periods.
o Issue a consolidated Truth-in-Taxation notice that:
§ Shows the total amount of revenue to be raised by all proposed tax increases by all taxing entities.
§ Shows the total property tax increase for the average property owner if all the proposed increases are adopted.
§ Shows the total property tax bill for the average property owner before and after the fact if all increases are passed.
o Consolidate all Truth-in-Taxation hearings.
§ Require all taxing districts in a county, including cities, special districts, school districts, etc. to hold Truth-in-Taxation hearings at the same time in the same place and to address all increases in one hearing.
o Increases Not Requiring Voter Approval.
§ Tax increases that raise an entity's revenues by one percent (1%) or less may be approved by the current Truth-in-Taxation procedure as long as all property was assessed at the same time and a consolidate hearing process is used. (Note: See the next bullet for limitations on the number of approvals allowed under this process).
o Increases Requiring a Double-Majority Voter Approval.
§ Tax increases that raise an entity's revenues by more than 1% in any one year or more than a cumulative five percent (5%) in any ten year period and/or the issuance of new bonds or the renewal of existing bonds that are due to expire require:
· (1) all property to have been appraised at the same time.
· (2) a consolidated Truth-in-Taxation hearing be held and, if an increased is approved by the taxing entity,
· (3) approval of the voters by a "double majority" (a majority of registered voters must vote and the increase must be passed by a majority of those voting.)

3. Other Changes to Control Taxes
· Eliminate the authorization for the creation of special districts for recreation and other non-core governmental functions, all RAP and other boutique taxes, etc.
o Grandfather existing special districts taxes but limit them to existing functions.
o Reprogram existing boutique taxes to property tax relief as required.
· Require a super-majority (60%) vote by both houses of the state legislature to approve any tax increase including the delegation of taxing authority to other government entities and/or the provision of incentives for local governments to increase taxes in order to get state matching funds.
· Transparency in Government Spending – put all spending including contracts on state and local government, including school district, websites as is done at the federal level and in many states ( Minnesota, Oklahoma, Hawaii, Missouri, Texas, Indiana).
· Require all taxing entities to review all programs annually in order to eliminate duplicate programs, programs that have outlived their need, etc. by zero based or some other non-incremental budgeting process.


· Property tax deferral of any type and in any form.
· Special provisions for select groups.
· Unequal valuations for similar properties.


Anonymous said...

Thank you Ron Mortensen and D.Bell who so eloquently speaking and writing for us all. Please keep on the issue and know that we are grateful.

I do know that D.Bell is also a war veteran himself who has dedicated his career to our country and fought for our freedom. Also, his own father died fighting for country too. He is certainly committed to this issue and I think that all of us can just say thank you.

Minor Machman said...

I touched and humbled and re inspired. Thanks for the kind words.

Anonymous said...

I notice that nearly 50% of our property taxes go to schools, a big chunk of our income taxes go to schools and I heard that most of the liquor tax goes to the school system. Is anyone talking about this? It is the elephant in the room that people are afraid to talk about openly. It may be time to shift some of the school taxes out of the property tax system and into the income taxes. One way to do this would be to start reducing the number of deductions allowed for children. Has anyone broached this issue as one of the elements to put into the mix? This is just another issue that needs to be considered along with the other suggestions.

Minor Machman said...

This is a good one and one that I give credit to Gage Froerer for already either taking on or considering. He wants to strip the School Districts out of Property Taxes all together. Yet it is not on his "list" of proposed tax solutions? And from what I am learning there is a move afoot by the legislature to scrutinize all the taxing agencies to see if they can't be somehow controlled or combined as they are in fact totally out of control. Weber Basin Water Conservancy District for example just raised the tax rates even though they were receiving record windfalls from ridiculously over assessed property. The reason..."Oh we just havn'e done it in a while and we need to do work on Rockport (East Canyon?), Causey and Pineview Dams. Didn't we just endure three years and 20 Million dollars of work on Pineview Dam? Outrageous! These people must go. 56% rate and 170% actuall dollar increase over last year... How does that make you feel?