Jim Jensen
We have learned from sad experience that whenever politicians are placed in charge of other people’s money, it tends to be quickly depleted by their ambitious and careless spending, and they are soon pounding the table for another tax increase.
Historically we have elected representatives who smartly put constitutional and statutory limits on government’s ability to tax and spend. Unfortunately, very early on, enterprising policymakers figured out a way to bypass these inconvenient spending limits by creating “public infrastructure districts,” or PIDs for short. Also known as “special taxing districts” (STDs) or “special infrastructure districts” (SIDs), most alert voters are barely aware of these taxing entities. And that’s the way most politicians would prefer it.
These districts are typically a geographical boundary set up as an abstract layer of government, usually obscured from voters by off-year elections and very little, mundane publicity. The easiest place to spot them is on your property tax notice if you’re a homeowner. They go by names like “sewer district,” “mosquito abatement,” or even “cemetery maintenance” and have very small tax rates.
PIDs have an undeserved reputation for providing public infrastructure such as sewers, water conservation, or fire protection. In reality, only about 22% of PIDs actually construct public infrastructure. Most of them function like service-specific government agencies.
Most PIDs have the power to tax and spend, like cities. Sixty percent of districts provide a program or service with their own employees, and 30% do so indirectly through contractual agreement with a private-sector company. While they have contributed heavily to the overall growth of local government, they operate behind the scenes, and at a lower standard of accountability than counties, cities, and school districts.
The Phenomenal Growth of PIDs
Voters need to be much more aware of how these PIDs operate so they can be opposed whenever possible. According to an in-depth study of special taxing districts conducted by the Goldwater Institute a few years ago, the number of these taxing authorities is growing like a rapidly spreading cancer on our liberty.
PIDs are the fastest-growing form of government, and there are a lot of them. The rate of creation first accelerated during the New Deal environment of the 1930s. Many federal programs that started up then offered states and localities money tied to the creation of special districts. A second era of tremendous growth occurred in the 1980s.
PIDs are usually not subject to the typical taxing and spending limits imposed on governments by state constitutions and laws. Instead, they are used by local governments to throw off their fiscal chains. When the share of government spending by PIDs increases, overall per capita local government spending also increases.
While real per capital local government spending increased 59% between 1977 and 2007, real per capita special district spending more than doubled (118%). If special district spending were a line-item in an average local government’s budget, it would be the third largest spending item.
According to Census Bureau data, the number of special districts nationally grew by 210% between 1952 to 2012, while other types of local government increased by only 5%. Non-education special districts now account for over 40% of all state and local government entities.
PIDs in Utah
Utah, for example, has over 800 special taxing districts. (Follow this link to see an updated public list of all the districts and their tax rates.) When combined with Utah’s counties, cities, and school districts, the state has over 1,100 formal political subdivisions. And that doesn’t count HOAs, which act like another layer of unaccountable government with taxing authority that typically provide practically no discernable service or benefit.
Compared to other states, Utah is in the middle of the pack, ranking 28th on the number of special districts per capita (10.9 per 100,000 people). But when it comes to the percentage of these districts with taxing authority, Utah ranks 6th at (72.3%) Our neighbor, Arizona, suffers from only 4.7 districts per 100,000 people, but over 99% of them have taxing authority.
The reason this is more important to Utah voters now is because lawmakers have created some big PIDs in the last few years, and they have a tendency to be unaccountable to voters: the Utah Inland Port Authority, which we have already shown to be mismanaged; the Military Installation Development Authority; the Point of the Mountain State Land Authority; and the Utah Lake Authority. All four of these ominously named PIDs were granted the authority to raise money in Utah Code 63C-25-101.
Why are these special taxing so attractive to local politicians? Likely because of their ability to issue tax-free debt on behalf of a project that mainly enriches private interests. Yet most of them simply provide services like a business, but at a higher cost and less efficiently.
Public-Private Collusion
Speaking of enriching private interests, a heated debate is taking place in Utah this year as a bill was introduced that allows real estate developers to create their own taxing districts (Please keep in mind SB22 passed last year which amended PPPs laws). Proponents of the bill argue that since the cost of housing is too high, developers could decrease the cost of raising capital by issuing bonds to be paid back through special district property taxes. That savings would then ostensibly be passed on to homebuyers in the form of reduced home prices. It was not the only problematic bill McCay ran this session around PIDs- take a look at SB228.
Salt Lake City Councilman Dan Dugan believes the arrangement provides “no benefits to any entity other than the developer at the expense of the sovereign power of the municipality.” Source: SLTrib
Setting aside the visceral reaction one has to a city councilor talking about “sovereign power,” Dugan is correct. The price of a home is not closely tied to the cost of building it. The exact same million-dollar home built on a quarter-acre sandlot in Draper, would sell for a fraction of that if it was situated on a 5-acre wooded lot near a lake in, say, southwest Missouri. To insinuate that we should allow developers to tax homeowners so they can pass that savings on to homebuyers is disingenuous at best. Why should property owners be burdened with subsidizing the purchases of home buyers?
This bill would essentially “create a new class of political entity that would not be governed by elected officials in the creation of those entities and would have property tax authority,” said Cameron Diehl, executive director of the Utah League of Cities and Towns. This is a blatant misuse of the special district taxing authority.
When the legislative and executive branches openly conspire to bypass constitutional spending limits, taxpayers are going to be shafted. When Utah Governor Cox was asked whether too much power was being transferred to private developers by the state, he snapped back, “We need development. There is no other way.”
The last thing you want to hear anyone in business or government say is that their idea is the only option to solve a problem.
Low Visibility and Accountability of PIDs
Special districts have very low accountability to voters. The people in charge of them are generally appointed, not elected. Not surprisingly many of them are unqualified to efficiently manage the district or the services it delivers.
When there are elections related to the matters of a PID, they are frequently held during off election years, and many times not even on the standard election day. Elections are not widely announced, or held during the summer, making it much easier for well-funded and organized special interests to control them.
The tactic of obscuring PID-related election issues in Arizona, for example, led to roughly 2 percent of all registered voters in Maricopa County—fewer than one in 45 residents—approving a special taxing district empowered to assess property taxes on every homeowner in the county.
As expected, when accountability to voters decreases, so does the quality of services provided. Studies analyzed by the Goldwater Institute show that PID services are no better, or sometimes worse than, those provided by municipal governments or the private sector.
In each of these studies, the fire protection services provided by a special district was more expensive on a per capita basis than that provided by a city or county government. “Low efficiency levels and poor quality of service are a recurring, robust, and significant pattern in the studies that have been published,” the Goldwater analysis shows. The weight of the evidence suggests that generally “special-function districts are less efficient and provide no better service.”
Corruption Thrives in Darkness
Local governments are so anxious to bypass spending limits, that they are willing to waste taxpayer dollars to do so. This was shown in an audit of special districts in Utah.
In 2017, the State Auditor surveyed 27 districts of the (at that time) nearly 500 entities that spend $3.5 billion dollars per year, and found what you would expect from unaccountable, nearly invisible government agencies.
- 78% had what auditors characterized as “serious problems.”
- 63% had a culture that ignored oversight and accountability.
- 59% had missing or weak internal controls.
- 48% had a board or staffers (or both) who lacked the qualification and training to protect against fiscal abuse.
The auditors also looked at 50 other districts and found that:
- 66% did not submit budgets to state auditors on time or at all.
- 44% did not comply with open meetings laws.
- Only a few complied with law to post contact information for board members.
Operating in darkness also led to what you would expect.
- The Mapleton Irrigation District finance officer allegedly stole over $100,000.
- The Utah Communications Authority paid more than $800,000 in personal expenses by officials.
- The Unified Fire Authority self-dealt and misused public money; auditors told the agency to attempt to get a half a million dollars in reimbursement.
- The former executive director of the Utah League of Cities and Towns charged $57,000 in personal expenses to his business credit card; auditors questioned another $130,000 in charges because they lacked documentation showing that they were for business purposes.
Conclusion
With the state legislature considering granting taxing district power to private developers, it’s safe to say the special interests are compromising our state government. We should be moving in the opposite direction to make special districts more accountable and limit the creation of special districts to necessary purposes. Adding a new district simply to lower the costs of doing business is not an acceptable use.
The constitutional and statutory caps placed on local borrowing and spending should be amended to apply to special districts as well. More transparency measures should be implemented, and special district tax and bond elections should always take place alongside all other elections in November.