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TRANSFER FROM THE BOUNTIFUL POWER FUND TO THE GENERAL FUND NOW EXCEEDS PROPERTY TAX REVENUES


Ronald Mortensen, Ph.D.

Co-Founder, Citizens for Tax Fairness

August 28, 2020


 

Note: On August 25, 2020, Ronald Mortensen, Ph.D. and co-founder of Citizens for Tax Fairness gave public comment on a proposed transfer of funds from the Bountiful City power fund to the city’s general fund. Below are the key points that he covered in his comments. An expanded version of his comments can found below. Following the public comment period, the Council voted unanimously to approve the transfer of funds.


 Key Points:


Power fund transfers necessitate higher electric rates and customer charges


Power fund transfers are an attempt to indirectly tax non-profits, governmental and other non-taxable entities


Bountiful routinely increases power rates and fees to avoid truth-in-taxation hearings


Bountiful’s power rates once were 25% - 40% below commercial power rates


Bountiful’s power rates are now roughly equal to or even higher than Rocky Mountain Power rates


2020 Customer Charge up by 20%; power rates up 10.5% for 68% of customers


Customer Charge hits small power users and poorest members of the community the hardest—75% or more of electricity bill  


Transfer from the power fund to the general fund increased by 11% in 2020—$2.5 to $2.8 million


Power transfer now contributes more to the general fund than do property taxes


Power transfer hides the true cost of city government


Power transfer allows elected officials to promote higher property taxes to fund a bond by arguing that property tax rates are among the lowest in the state


Bottom Line is that the both power bills and property taxes are paid by Bountiful residents


Kaysville stopped power fund transfers to the general fund


Is it time to consider ending the power transfer in order to to enhance transparency and control government spending in Bountiful?

 


Introduction


Well over a decade ago, Citizens for Tax Fairness questioned the process whereby Bountiful, Utah charges higher electric rates than would otherwise be the case in order to create excess funds that can be transferred from the power fund into the general fund. Citizens for Tax Fairness further noted that property tax increases require a truth-in-taxation hearing while there is no such requirement to raise power rates, customer charges, etc


 

Power fund transfers necessitate higher electric rates and customer charges


City officials assert that the power fund transfers can be made without increasing the amount that power customers pay for their electricity, but that is not the case.


Let’s say for example that the power company needs $100 per month to meet its operating expenses and to build reserves. Let’s also say that the power company has eight property tax paying customers and two non-property tax paying customers.


All ten customers use exactly the same amount of electricity so each pays $10 per month for a total of $100. In this, case there is no surplus to transfer to the general fund. However, if the $20 dollars paid by the two non-taxing entities or any smaller portion of their payments is transferred to the general fund in order to offset their exemption from pay property taxes, the power company no longer has the $100 it needs to operate.


Therefore, it has to raise rates to recoup the amount of the transfer. Assuming the full $20 is transferred, now each of the ten customers has to pay $12 for their electricity for a total of $120. The extra $20 is then transferred to the general fund leaving the power company the $100 it needs. The non-taxed entities only pay 20% ($4) of the total amount transferred while the other residents pay $16 of the transfer since there is not a separate, higher rate for non-profit and governmental entities.


If only $10 is transferred, then everyone pays $11 per month. The non-taxed entities pay $2 of the transfer and the other power customers $8 of the amount.


The bottom line is that all power customers are paying more than needed to fund the power company in order for the city to supplement its general fund without raising property taxes.


In the Public Notice of Funds Transfer, it is acknowledged that “The utility transfer helps keep property taxes in Bountiful low.” This was further emphasized on multiple occasions during the staff’s presentation to the City Council on the proposed transfer request. According to staff comments during a June 16, 2020 presentation, the transfer (2:31:00) “keeps property taxes in Bountiful low” and “For existing services, property taxes would need to be more than doubled if the Light and Power transfer was not in effect” In a subsequent August 25, presentation on the transfer, it was stated that without this transfer the city “would have to raise the property tax” and that this transfer “significantly reduces property taxes.”.The staff also reiterated that Bountiful had one of the lowest property rates in the state but that “property taxes would have to increase by 110% without the power transfer,” and that this transfer “significantly reduces property taxes.”


Power fund transfers are an attempt to indirectly tax non-profits, governmental and other non-taxable entities


According to Bountiful City officials, the transfers from the power fund to the general fund “provide a means for reimbursement of the general Fund for service provided to non-property tax paying groups such as non-profit organizations, churches, and governmental entities.”


Therefore, according to city officials, it is appropriate for the city to find ways to indirectly tax non-profits and other tax-exempt entities operating within the city limits. Of course, Bountiful residents largely fund these organizations and, therefore, they actually pay for the so-called “reimbursement” or “dividend.”


In addition, implicit in their reimbursement argument is the notion that the payments for power made by property tax exempt entities aren’t really needed by the power company and can be distributed to the “shareholders,” i.e. general fund, without any impact on power rates, customer charges or other related fees. However, as has been shown above this is simply not the case.


Bountiful routinely increases power rates and fees to avoid truth-in-taxation hearings


The fact is that Bountiful’s elected officials routinely increase power fees and surcharges in order to maintain or increase the amount of the power transfer to the general fund. These increases are easier done than holding the much dreaded truth-in-taxation hearings required in order to raise property taxes.


  •  In 2005, a new Customer Charge was initiated at a rate of $1.54/month; now it is $12 a month—a 779% increase.
  • In 2019, a separate $2.00 street light fee was implemented in order to supplement power fund revenues. Prior to that street lights were funded out of power fund revenues.

  • Since 2005, power rates have gone from .0755/kwh to .1022/kwh – a 35% increase

So, while the city prides itself in keeping property taxes low, it has steadily increased power rates while implementing a customer charge and street light fee in order to transfer ever more money from the power fund into the general fund. This, in turn, has allowed the city to increase spending without raising property taxes.

 

This slight-of-hand allows city officials to pretend to be fiscally responsible when in fact just the opposite is true—spending continually increases, construction delays and substantial cost overruns are covered up and paid for with power company funds and fees, and a million dollar plus ice ribbon is paid for in cash using reserve funds which are all too often treated as slush funds to cover up poor management by the city’s elected officials.


Bountiful’s power rates once were 25% - 40% below commercial power rates  


It’s important to note that many years ago Bountiful prided itself on the fact that its power rates were 40% below those of Utah Power and Light. In 1990, the Desert News Reported “Even with this latest [14%] increase, which will raise the rate from 4.9 cents per kilowatt-hour to 5.6 cents [to meet anticipated higher energy costs and to help fund city council salary increases], the rate is still 25 percent lower than that charged by Utah Power & Light.”[i]  In the ensuing years that 25% differential has been virtually totally erased.

 


Bountiful’s power rates are now roughly equal to or even higher than Rocky Mountain Power rates 


According to city officials, in 2020 Bountiful City Power customers will pay between 3.6% and 6 % less than Rocky Mountain Power Customers. However, Bountiful Power customers miss out on rebates and incentives for home energy upgrades[ii] offered by Rocky Mountain Power that can be worth hundreds of dollars.  


And Rocky Mountain Power passes the savings realized from the reductions in federal corporate income taxes on to its customers in the form of credits that have the effect of reducing the utility company’s electrical rates. The initial credits were expected to cut the average user’s total bill by 3.45% or $32 per year.[iii] Bountiful Power is exempt from corporate income taxes.

 


Customer Charge up by 20%; power rates up 10.5% for 68% of customers


In order to help fund the increase, the mandatory, flat-rate Customer Charge for 2020-21 was increased by 20% from $10 to $12 or from $120 per year to $144 per year. In addition, power rates were adjusted and, according to the City, the 32% of residential customers who average 400 Kwh per month or less saw their Kwh charge reduced by 13.5% to $.08/Kwh effective July 2020. The 68% of residential customers who average more than 400 Kwh per month will pay 10.5% more per Kwh ($.1022) effective July 2020.

 


Customer Charge hits small power users and poorest members of the community the hardest—75% or more of electricity bill




This Customer Charge hits small power users and the poorest members of the community the hardest. For example, a person, without solar panels or air conditioning, using 196 Kwh pays $15.68 for electricity and a $12 Customer Charge for a total of $27.68. In addition, they pay a city energy and sales tax of $1.78 (11.35% of the electricity charge). A person using 700 Kwh pays $71.54 for electricity and a $12 customer charge for a total of $83.54 before taxes.[iv]


The Customer Charge for a person using 196 Kwh is equivalent to a 77% surcharge on the electricity used. When the city energy tax is added on, the person is paying 88% of the total bill in charges and taxes. If a person uses 400 Kwh, the customer charge comes to 37.5% of the total bill. For someone using 700 Kwh, the customer charge is 17% of the total bill. 


Transfer from the power fund to the general fund increased by 11% in 2020—$2.5 to $2.8 million


Last year’s (2019-2020) transfer from the power fund to the general was $2.5 million; this year (2020-2021) it is roughly $2.8 million – a $300,000 or 11% increase at a time when many rate payers have been hard hit by the economic downturn due to COVID-19. In fact, during the past 20 years, the transfer has increased from $1,886,295 in 2001 to $2,752,123.00 in 2020—a 46% increase.


Power transfer now contributes more to the general fund than do property taxes


According to the city’s Fiscal Year 2020-2021 Budget Presentation, the city’s property tax rate remains at 0.000789 with projected revenue of $2,571,519 (13% of the general fund budget). The power transfer will be $2,752,123 (14% of the general fund budget). The property tax would have to be double the current rate were it not for the power transfer. That would make Bountiful the third highest property taxing municipality in the county rather than the lowest as now the case and it would no longer be able to tout that it has one of the lowest property tax rates in the state.


Power transfer hides the true cost of city government


The transfer of millions of dollars annually from the power fund to the general fund hides the true cost of city government from Bountiful residents and it eliminates the need to hold truth-in-taxation hearings which are required to raise property taxes. In fact, as clearly stated by city officials, if the power transfer were not in place, property taxes would have to be more than double their current rate—in order to sustain current levels of spending.


The transfer also allows the city to generate tens of millions in reserve funds that they can draw from to pay cash for projects such as the multi-million dollar town square (plaza), a multi-million dollar new city hall (later cancelled), the renovation of the existing city hall and to cover what may well be significant construction cost overruns on these and other projects.



Power transfer allows elected officials to promote higher property taxes to fund a bond by arguing that property tax rates are among the lowest in the state


By artificially suppressing property taxes by constantly increasing power rates and charges, city officials are able to state that Bountiful has one of the lowest property tax rates in the state. They can then tell voters that a proposed property tax increase to pay for a general obligation bond that will be on the November 2020 ballot is just a minor increase in property tax rates.


What city officials won’t tell voters is that they have already increased their electric charges by 20% and that electic rates have increased by 10.5% for the majority of rate payers in order to transfer an additional $300,000 per year from the power fund into the general fund in order to keep property tax rates artificially low. They also won’t tell voters that if the city was not overcharging for power in order to transfer a total of $2.8 million from the power company to the general fund, that Bountiful’s property taxes would be among the highest in Davis County and in the state.


Bottom Line is that both the power bills and property taxes are paid by Bountiful residents


The bottom line is that Bountiful Power’s bills and the city’s property taxes are both paid by its residents. So whether the power rate is raised to increase the power transfer to the general fund or whether property taxes are increased to bring more funds into the general fund, the effect is the same. Residents pay more.


Based on past practices, it is certain is that Bountiful power rates will keep ratcheting up in concert with Rocky Mountain Power rates. This will allow the city to continue artificially suppressing property taxe rates and to support ever greater city government spending. Since Rocky Mountain Power has already announced that it will increase rates each year from 2021 to 2023 Bountifu residents can be assured that the city will continue to increase its power rates as well.


Kaysville stopped power fund transfers to the general fund


In 2013, Kaysville residents voted to end transfers from their power fund to the general fund. Prior to the vote, Art Morley, spokesman for Kaysville Citizens for Responsible Government, said “city administrators have been using power fund money to hire police officers, among other expenditures. If Kaysville were using money from its general fund and needed more for city operations, it would have to raise property taxes, which would require a public hearing. By transferring money from the power fund, customers are paying for the expenditures through rate increases without being told the reason for the bump.”


The proposition that passed read:  “All revenues of Kaysville Power Department and/or the Power Fund shall properly be restricted solely to the direct operations of the Kaysville Power Department and not used for any other purpose. The Kaysville Power Department shall maintain an emergency fund as established by the governing body. All revenues above operation expenditures and the emergency fund shall be redistributed on an annual basis to the customers of the Kaysville Power Department based on their proportionate use per annum.”


Currently Kaysville’s Customer Service Charge ($8.00) is 33% lower than Bountiful’s. Kaysville’s rate for the first 1,000 Kwh $0.08613 per KWH whereas in Bountiful the rate for everything above 400 Kwh is $.1022—a 19% difference. The rate for all Kwh in excess of 1,000 charged by Kaysville is $0.09717—a 5% difference.[v]


Is it time to consider ending the power transfer in order to enhance transparency and control government spending in Bountiful?


Theoretically, if Bountiful were to follow Kaysville’s lead and end the power transfer, power rates and/or the Customer Charge would drop by the amount necessary to reduce power company revenues by the $2,752,123 currently being transferred to the general fund and property taxes would be doubled to offset the loss of the $2,752,123 power. Citizens would pay the same amount but in different, much more transparent ways and the city would have the same amount of revenue.


Spending growth would be restrained because Truth-in-Taxation hearings would be required before the city could increase property taxes. And, everyone, including churches and schools would pay less for the electricity once they stopped subsidizing the city’s general fund.




[ii] Lighting, Plumbing and water heating (Up to $550 cash back on heat pump water heater), Heating and cooling, New homes, Weatherization (cash back .10 sq. ft.)



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