News Release

August 11, 2021 (Salt Lake City) – The 2020 Census results confirmed what Utah residents already sensed: the Beehive State grew faster than any state in the country over the past decade, more than doubling the national growth rate. Growth brings opportunity, but it also brings challenges, as Utahns need an affordable place to live, water to care for basic needs, roads and other infrastructure to support a rapidly growing economy, clean air to breathe, schools and teachers to develop the workforce, and many other attributes of quality growth. In the coming years, Utah leaders must make significant investments if the state is to continue to prosper and preserve life quality. User fees – a payment charged directly to a service beneficiary cover the cost of a government good or service (as opposed to general taxes) – can help.

The Kem C. Gardner Policy Institute today released timely research on how user fees can help policymakers manage Utah’s growth-related fiscal challenges. Fees help government function more like a private market by aligning supply and demand, reducing subsidization, and creating greater transparency.

“Utah faces relentless growth, changing cost structures, structural economic changes, and funding tradeoffs,” said Phil Dean, a senior research fellow at the Gardner Institute and lead author of the report. “These changes require constant adaptation, innovation, and realignment of Utah’s fiscal systems. User fees are an important tool in the public finance toolbox.”

The research, which is documented in a report titled A Visual Guide to Tax Modernization in Utah: Part Two: User Fees, focuses on three areas where user fees are most relevant: transportation (motor fuel tax), water (metered pricing), and higher education (tuition and fees). Among the most important findings in the report are the following:

OVERALL

• Growth remains Utah’s constant companion – Utah’s population growth rate led the nation from 2010 to 2020, reaching 3.3 million people. Demographers expect Utah’s population to increase another 1.7 million by 2050, reaching approximately 5 million people.
• User fees can increase efficiency and fairness – User fees offer many attractive features because they align supply and demand (efficient) and reduce subsidization (fair).
• Utah user fees higher than the nation – User fees are generally higher in Utah than the U.S. as Utah’s young population and the presence of University of Utah Health (part of a public entity) result in higher education and hospital fees higher than a typical state. Utah relies less on fees for transportation and some utilities.
• Utah fees declining as a share of the economy – Total fees in Utah have declined as a share of personal income in recent decades. For example, from 2007 to 2018 Utah’s state and local transportation fees per $1,000 of personal income decreased from $8.36 to $5.03.

TRANSPORTATION

• Utah transportation funding relies extensively on general taxes – Fuel taxes at the state level declined from nearly 80% of total transportation funding in 1970 to 40% in 2020. This occurred primarily as sales tax earmarks (a non-user fee) have been used to fund transportation infrastructure.
• Transportation costs rising significantly – Since 2003 the Utah Highway Construction Cost Index has outpaced consumer price inflation by nearly a factor of five. These rising costs contribute to Utah’s transportation funding challenge.
• Decline in fuel taxes relative to the economy – Utah fuel excise taxes and highway tolls as a share of the economy have been cut in half, falling from 0.67% in 2000 to 0.34% in 2018.

WATER

• Utah water revenues rely significantly on sources not tied directly to water use – Of the approximately $1 billion in FY 2020 Utah water revenues, 36.5% came from monthly water user charges. The remaining 63.5% came from state- and local-level taxes and fees, impact and construction fees, monthly flat base rates, and other revenues not directly tied to the level of water use.
• Utahns overwater relative to plant requirements – A state data collection program showed depending on the location and whether or not water is metered that Utahns use 1.5 to 2.5 times the water needed to sustain turf vegetation. Greater awareness, supported by meaningful water pricing, could create significant efficiency gains, even with existing landscapes.
• Ample opportunities exist for more secondary water metering – An estimated 10% of Utah’s roughly 260,000 secondary water connections are metered. Most of those that are metered are still not charged based on consumption, but rather as a set connection fee. By metering water and pricing according to use, price signals can send powerful incentives to water users.
• Level-of-use water pricing encourages efficient water use – Water pricing studies conclude that, all else equal, a 10% price increase generally reduces water consumption by between 2.5% and 7.5%.
• Salt Lake City residents pay less on average for water than many peer cities – Average monthly residential water prices in drier western U.S. cities pay between two- and three-times less on average than Salt Lake City residents. There is significant variation among Utah cities and town in how water is priced.

HIGHER EDUCATION

• Tuition accounts for a higher proportion of higher education funding than the past – When comparing tuition and tax support, the percentage of Utah expenditures from tuition per full-time equivalent student has risen from 28% in 2001 to 50% today. The remaining portion comes from general tax dollars.
• Utah has comparatively low tuition, particularly among 4-year institutions – All Utah public institutions have tuition and mandatory fee costs below their comparison group average. Among 11 western states, Utah’s average undergraduate tuition and mandatory fees for 4-year institutions ranks nine out of 11, with only Nevada and Wyoming with lower fees. Two-year institutions in Utah, however, rank third highest among 11 western states, with only Washington and Oregon charging higher tuition and mandatory fees.
• Low income Utahns enroll in higher education at much lower rates – Income levels influence higher education enrollment. Within five years of graduating from high school, 56% of economically disadvantaged students enroll in college, compared with 74% of students not economically disadvantaged.

“All government revenue sources are not created equal,” said Phil Dean. “Different ways of paying for government services create differing economic effects. By making informed decisions on how best to fund vital services, Utah’s leaders can support greater prosperity and quality of life.”

The full document is now available online.