Bill would force Utahns to pay for the water they use by ending property taxes for water projects

Sen. Daniel McCay wants to reduce water use in the state by making customers bear the costs of the water they consume.

(Trent Nelson | The Salt Lake Tribune) Irrigation in Moab on Thursday, July 15, 2021. A bill unveiled Wednesday in the Utah Legislature would end water districts' reliance on property taxes to support water development projects.

For months Utah Sen. Daniel McCay has been assembling legislation to end the common practice of subsidizing water projects through property taxes, but the Riverton Republican has gotten little feedback or support from Utah’s water-development community.

His aim is to reduce water use in Utah, which is facing water shortages after years of unrelenting drought, by requiring customers, both residential and agricultural, to bear the costs of the water they use through rates. Basic economics suggests that if it costs more to draw a unit of water from a tap or pivot, people will use less and be more conscientious when they are washing dishes and watering the yard, McCay told an interim legislative committee Wednesday, where he unveiled the fruits of his work.

McCay’s bill would prohibit water districts and cities from using property taxes to pay for water projects starting Jan. 1, 2023.

While winning kudos from taxpayer and conservation advocates, the bill is drawing fire from water districts, which see the measure as a threat to their bond ratings and ability to pay for water projects, such as the Bear River and Lake Powell pipeline.

The criticism prompted McCay to pull off the gloves and punch back.

“What they’re telling you is they want to socialize the cost of conservation but privatize the benefits,” fumed McCay, who co-chairs the Revenue and Taxation Interim Committee. “That is actually some of the worst tax policy I’ve ever heard anybody advocate for at this lectern. Period. It is both morally and socially irresponsible.”

He complained “stakeholders,” that is Utah water districts that levy property taxes, have declined his invitation to discuss the legislation. But that didn’t stop these districts from sending a lobbyist to Wednesday’s hearing to rain on the proposal.

As presently drafted, the bill would force a big increase in water rates and undermine conservation investments, according to Mark Stratford, general counsel for the Jordan Valley Water Conservancy District.

“This is not the way to go, to just say let’s eliminate property taxes and put everything on [water] rates, partially because projects aren’t always paid for by the people who are going to use them,” Stratford told the panel, speaking for Prep 60, a consortium of Utah districts pushing for $32 billion in new water development.

“Many projects are constructed in anticipation of growth and the property tax helps to support payment for those projects for the people who will eventually be using it, as opposed to the people who are currently customers.”

Stratford argued that Utah is hardly alone in tapping revenue sources other than water rates. Arizona, California, Wyoming and Colorado use property taxes and Nevada uses sales taxes, he said.

“So all of these other states see that having a broad base of available revenues is important in order to build, maintain and replace these systems,” Stratford said.

But conservation activists challenged these claims.

Collecting $160 million a year, Utah really is an outlier when it comes to taxing property for water, according to Zach Frankel, executive director of the Utah Rivers Council. Utahns enjoy some of the lowest water rates in the nation, while Utah’s per capita water use is near or at the top.

The council is preparing a report that surveyed 350 water suppliers across 10 Western states, examining their reliance on property taxes for water. Utah comes out way on top, according to Frankel.

“Property tax lowers the price of water and leads to this really high waste. We found that just five water suppliers in Utah are collecting about $130 million in property taxes,” Frankel said. “One hundred water suppliers we studied across six or seven states combined, in aggregate, were only collecting $83 million.”

While the Utah League of Cities and Towns opposed McCay’s legislation, it won a warm nod from the Utah Taxpayers Association.

“This moves the needle in the right direction,” said the group’s executive director Rusty Cannon. “At this point in many areas of the state, your uses of water have absolutely no impact on you financially and that’s not right. So if we want to conserve, user fees are the right way to go and a better general principle of taxation.”

McCay pulled his bill from the taxation committee’s consideration to refine it ahead of January’s general session. But judging from the parting words of some committee members, the measure enjoys robust bipartisan support.

We act as though there is a surplus [of water] and rather than charge people what is the real cost of water, we’ll disperse that cost into their tax bill and pretend like a drought doesn’t exist,” said co-chair Rep. Casey Snider, R-Paradise. It is time that we have a serious discussion on how we pay for water and how we charge for water in the state.”