Cottonwood Heights' First New Tax Since Incorporation

Cottonwood Heights' First New Tax Since Incorporation
Posted on 06/29/2015

By Mayor Kelvyn Cullimore Jr.

 In June, the Cottonwood Heights City Council adopted the municipal budget for fiscal year 2015-16. This was the 12th city budget adopted since incorporation. For the first time, it was necessary to adopt a new revenue source to meet present and future budgetary demands. That new revenue source is a municipal energy tax.

A municipal energy tax is equivalent to a city sales tax of 6% on electric and natural gas bills. It is a tax implemented by every city in the state of Utah with a population of 15,000 or more – with the current exception of Cottonwood Heights. Since incorporation, city leaders have diligently avoided any increase in existing taxes or implementation of any new tax. But after 11 years of operations with flat revenue, expenses have caught up, and it is fiscally prudent to implement this new revenue source to assure that city services are not diminished.

The new tax becomes effective with the usage of electrical and natural gas service in October 2015.

A municipal energy tax is a broader-based revenue source than other kinds of taxes. It captures any and all users of such utilities in contributing to the services received by the city. Property tax is only assessed to those who own taxable property in the city. A municipal energy tax broadens the tax base to include all institutions, businesses and residences that consume these resources. Like sales tax, the municipal energy tax is greater on those who are larger consumers.

City revenues for the past 11 years have remained fairly constant. Here are the major revenue sources upon which our city budget has traditionally relied:

Property Tax - $6.5 million per year (Has not varied in the past 11 years)

Sales Tax - $4 million to $5 million per year (high point was 2014 with $5.2 million and the low point was 2009 with $4.1 million)

Gasoline Tax - $900,000 to $1.1 million

We supplement this income with other minor revenue sources such as business license fees, Cable TV franchise fees, grant money, and court revenue. Our revenue budget, exclusive of grants has averaged about $15 million per year, every year. Unfortunately, our expenses have not remained constant.

Adding a municipal energy tax provides a stable source of revenue for future city planning. It will become a “fourth leg” of revenue that should generate approximately $2.4 million per year. Cities are also permitted to assess a telecommunications tax of 3.5 percent. All cities in Utah with a population over 15,000 assess the telecommunications tax – except Cottonwood Heights (although Washington City assesses two percent of the 3.5 percent maximum). It is likely that this revenue source will be considered in future years should additional revenues be deemed necessary. Until then, we remain unique in not assessing this tax.

What has triggered this need for additional revenue? It is a combination of many factors. Obviously, inflation over the last 11 years has had a significant effect in eroding the purchasing power of our flat city revenues. Typically, a city will allocate its budget first to cover basic municipal services such as police, fire and road maintenance. Once the basic needs are covered, the balance is allocated to capital projects such as major road improvements, storm water projects, parks and trail development or other such projects. Over the past few years, the amount the city has been able to allocate to capital projects has diminished to the point where we have limited resources to develop community amenities or respond to major public works needs.

Some planned long term capital projects have a greater cost in the relative short term, but likely generate long term benefits. Those include the construction of our new city hall, which is expected to increase costs approximately $500,000 per year in the short term, but ultimately the city hall will be paid for and taxpayers will benefit from lower occupancy costs for decades to follow. We also plan to develop a new public works yard which will help lower costs of providing such services in the long term.

Imposing a tax increase or a new tax is always a last resort. The city council takes very seriously the fiduciary responsibilities of managing the tax dollars entrusted to our use. We also take seriously our duties to provide a high level of service and to make prudent financial decisions to assure those services are not jeopardized. The adoption of this energy use tax will help strengthen our budget and sustain our operations for many years to come.