COMMUTER TAX

SALT LAKE CITY CORPORATION

COLLEGE OF ARCHITECTURE AND PLANNING: CITY AND METROPOLITAN ECONOMICS PREPARED BY: JIM SPUNG NOVEMBER 11, 2012

Challenges Facing Salt Lake City: Should a Commuter Tax be Implemented?

EXECUTIVE SUMMARY Salt Lake City welcomes thousands of tourists, students, and commuters everyday increasing the daytime population from 184,660 to approximately 328,309 (not including students and tourists). Providing public safety and emergency response services for this large daytime population presents signi cant challenges because those services are largely paid for by the Citys stable resident base. In addition, some 54% of the land in Salt Lake City is non-taxable and the largest employers in Salt Lake City are nontaxable entities including the University of Utah, the State of Utah, the LDS Church and Salt Lake County Government (Mayors Recommended Budget, A-11& 12). Given this in ux in daytime population, the point-of-sale sales tax generated by these non-resident workers does not cover the cost for the necessary services. Salt Lake City spends approximately $280.00 per year providing services for each non-resident commuter. To put this into perspective, a nonresident would have to spend roughly $56,000 each year in Salt Lake City to generate the point-of-sale revenue to compensate for the services Salt Lake City provides them (Mayors Recommended Budget, A-11& 12). It is important to address this scal reality and formulate a solution to relieve the nancial burden of Salt Lake City. It is recommended the City impose a progressive commuter tax between 0.25% and 0.45% on non-resident workers wages to help o set the cost for providing services to those workers. is tax, as outlined in this report, is projected to pay entirely for the extra services the City provides (and possibly generate surplus revenue for the City) without placing a signi cant burden on nonresident workers. e nature of the commuter tax is explained further in this document.

Salt Lake City welcomes thousands of commuters everyday increasing the daytime population from 184,660 to approximately 328,309 (not including tourists and students).

NOTE: If the graphs and tables are too small to see in this document, please refer to the Appendix where they have been displayed on full pages. ank you.

COMMUTER TAX

COLLEGE OF ARCHITECTURE AND PLANNING: CITY AND METROPOLITAN ECONOMICS

INTRODUCTION More than 3/4 of Salt Lake City workers do not live in Salt Lake City (see Graph 1); subsequently Salt Lake Citys daytime population increases by 185,026 people excluding tourists and students (Mayors Recommended Budget, A-4). is increase in daytime population places a strain on the Citys public safety and emergency response infrastructure and sta which are maintained to protect a population of 315,000. is equates to 1.4 police o cers per 1,000 people (during daytime hours), or 2.4 police o cers per 1,000 permanent residents. Other Salt Lake County cities maintain an average of 1.2 police o cers per 1,000 permanent residents, nearly half as many. is higher average number of police o cers is necessary in order to serve and protect the signi cantly increased daytime population. e magnitude of this challenge is illustrated by the fact that approximately 50% of victims of crime committed within Salt Lake City are not city residents and approximately 50% of perpetrators of crimes committed within Salt Lake City are not city residents. It is also worth mentioning, that the Fire Department maintains an average of 2 re ghters per 1,000 permanent residents while other Salt Lake Counties have an average of 1.1 re ghters per 1,000 permanent residents, or nearly half as many. Something must be done to help o set the expense of providing such services to non-residents. As stated above, Salt Lake City spends nearly $280.00 per non-resident per year to maintain the level of service expected by citizens and visitors. Based on that gure, the City spends $40,221,720.00 annually for additional police and re protection. is equates to roughly 45% of the Police and Fire Departments total annual budget of $88,631,601 in the 2010-2011 scal year. Among this challenging nancial situation, the most signi cant challenge the City will face is the continued climb out of a recession which saw a reduction of sales tax and permit and interest revenue. is reduction in revenue necessitated large cuts to operations, programs and personnel; however the City must maintain its level of service without exceeding the adopted budget (Mayors Recommended Budget, A-11&12). e next section of this policy brief will analyze in greater detail who is working in Salt Lake City, i.e. their age, where they reside, and their income. is information will help one to understand what solutions are viable for this problem.

Salt Lake City spends nearly $280.00 per non-resident per year to maintain the level of service expected by citizens and visitors; which adds up to nearly $40,221,720 dollars per year

Graph 1: e Number of Resident and Non-Resident Workers in Salt Lake City by Count and Percent (2010 U.S. Census).

WHO IS COMMUTING? e majority of non-resident Salt Lake City workers are between the ages of 30-54 yrs. and nearly 43.9% of those workers earn $3,333.00 or more per month (See Graphs 2 and 3 on page 3). is means most workers who are commuting into Salt Lake City are middle-aged and middle/upper-class Utahans. In addition, the largest share of non-resident workers live south of their job, which makes sense given Salt Lake Citys geographical location with respect

COLLEGE OF ARCHITECTURE AND PLANNING: CITY AND METROPOLITAN ECONOMICS

COMMUTER TAX

to the rest of the Salt Lake Valley (See Graph 3 on page 4). ough a better jobs/housing balance is a long-term solution, implementing a commuter tax seems to be themost viable shortterm solution. e reason so many workers commute from southern cities is because of the jobs/housing imbalance which exists in so many of the Salt Lake Valleys bedroom communities. For example, there are 47,963 workers living in West Jordan RESIDENT AND NON-RESIDENT WORKERS BY AGE IN SALT however there are only 24,299 jobs in West Jordan.
LAKE CITY: 2010 CENSUS 106,019

120,000 110,000 100,000 90,000 Number and Percent Share of Workers 80,000 70,000

is equates to 0.5 jobs per working resident, contrasted to Salt Lake Citys 2.8 jobs per working resident. It seems nearly all those living in suburban communities do not have the opportunity to work in their own community because there simply are not enough jobs; therefore it is necessary they commute where the jobs are located. Employment sectors must also be considered, as many who live in the suburbs may be specialized in a skill that is dominantly in a larger city. ough improving the jobs/housing balance would help improve the situation, it does not entirely eliminate non-resident workers, as there will always be workers who travel outside their city limits for employment. In contrast, Salt Lake City has an abundant number of jobs, given the current resident population, and needs more housing. is would allow more workers to live in Salt Lake City, and ultimately closer to their place of employment. More housing would also increase the property tax and sales tax revenue for Salt Lake City, both of which would help alleviate the current problem of an abundance of non-resident workers in Salt Lake City. Given this information, the best approach for Salt Lake City to decrease its spending for public safety and emergency response equipment, sta , and infrastructure is to introduce more housing in the city. As mentioned above, more housing would increase the revenue generated by property tax and sales tax, as well as permit and interest revenue. is is a long term solution; however it would eliminate the need to increase taxes for current residents or impose a commuter tax on nonresidents in order to maintain the desired level of service for such services. ough a better jobs/housing balance is a longterm solution, implementing a commuter tax seems to be the most viable short-term solution for this challenge Salt Lake City faces. e following section will discuss the nature of the commuter tax, who will pay for it, how the tax is calculated, and how

16-29 yrs. 60,000 50,000 40,000 58.1% 30-54 yrs. 55+ yrs.

45,021

31,463
30,000 20,000 10,000 0

20,033 13,533
51.6% 34.8%

24.7% 17.2%

22,462 11,361
27.5%

5,288
13.6%

54.3%

7,554
18.3%

LIVE IN BUT DON'T WORK IN SLC

WORK IN BUT DON'T LIVE IN SLC

LIVE AND WORK IN SLC

Graph 2: Resident and Non-Resident Workers by Age in Salt Lake City (2010 U.S. Census).
120,000 90,000 110,000
80,000 100,000 70,000 90,000

RESIDENT AND NON-RESIDENT WORKERS BY AGE IN SALT EARNINGS OF RESIDENT AND NON-RESIDENT WORKERS BY COUNT AND LAKE CITY: 2010 CENSUS PERCENTAGE IN SALT LAKE CITY: 2010 CENSUS 106,019
80,035

66,073

Number and Percent Share of Workers

80,000 60,000 70,000

50,000 $1 to $1,250 per month 16-29 yrs. $1,251 to $3,333 per month 30-54 yrs. $3,333 or more per month 55+ yrs. 43.9%

60,000
40,000 50,000

58.1%

36,395 45,021
32.6%

40,000 30,000 30,000 20,000 20,000

10,000 10,000 0 0

31,463 22,462 15,370 15,347

17.2%

11,931 13,533
30.7% 34.8%

16,031 20,033 10,892

41.3% 51.6%

24.7% 19.9%

10,660 11,361
25.8% 27.5%

5,288 28.0%
13.6%

54.3% 37.1%

7,554 37.1%
18.3%

LIVE IN IN BUT BUT DON'T DON'T WORK LIVE WORKIN INSLC SLC

WORK DON'T LIVE IN SLC WORKIN INBUT BUT DON'T LIVE IN SLC

LIVE AND WORK ININ SLC LIVE AND WORK SLC

Graph 3: Earnings of Resident and Non-Resident Workers by Count and Percentage in Salt Lake City (2010 U.S. Census).

COMMUTER TAX

COLLEGE OF ARCHITECTURE AND PLANNING: CITY AND METROPOLITAN ECONOMICS

the city will bene t from such a tax. THE COMMUTER TAX e commuter tax option is designed to be an e cient taxing policy, or in other words, those earning more income will contribute proportionately more than those earning less (See Table 1 on page 5). As shown in Table 1, nonresident workers in the lower income brackets will contribute a smaller share of their income towards the tax while those earning more will contribute a larger share. In any regard, the tax will be very small, and may be classi ed as a perfect tax, or one in which behavior of those taxed does not change. is is because the tax will be at most 0.45% of ones wages, almost negligible relative to ones total income. e maximum amount one would be taxed in the higher income bracket would be $45.00/month or $540.00/year. e lowest amount one would be taxed in the lower income brackets (assuming they make $200.00/month or more) would be $0.60/month or $7.20/ year.

DIRECTION WORKERS LIVE FROM THEIR JOB IN SALT LAKE CITY : 2010 CENSUS
80,000 75,000 70,000 Number and Percent Share of Salt Lake City Workers 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 5.6% 3.1% 4.1% 3.2% 18.7% 13.6% 16.3% 35.3%

NORTH

NORTH EAST

EAST

SOUTH EAST

SOUTH

SOUTH WEST

WEST

NORTH WEST

Graph 4: Direction Workers Live From

eir Job in Salt Lake City (2010 U.S. Census).

For statistical purposes, let us assume each workers wages fall in the middle of their respective earning brackets. is still provides the City with $36,719,971.20 in revenue, only $3,501,748.80 shy of completely covering the expense of providing is tax structure is estimated to generate between services for non-resident workers. is is a $27,442,864.80 and $64,162,836.00 in revenue for substantial improvement compared to what the It is safe to assume the tax revenue the city. e smaller gure assumes all workers City is currently spending. generated from the commuter tax wages are at the lowest end of their respective will cover the cost of the additional income group, the larger gure assumes all workers It is safe to assume the tax revenue generated public safety and emergency wages are at the highest end of their respective response services complete, if not from the commuter tax will cover the cost of the income group. As mentioned previously, Salt Lake create a surplus. additional public safety and emergency response City spends $40,221,720.00 annually to provide services completely, if not create a surplus. is services for non-residents; therefore we may progressive commuter tax will signi cantly, if not assume the tax would at the very minimum leave completely, remove the nancial burden from Salt $12,778,855.20 for the City to pay annually, or at Lake City, while only taking a very small percent the very maximum create a $23,941,116.00 surplus. of each non-residents wages. It is likely this tax It is not likely each non-resident workers wages will be accepted by those non-residents when are in the lowest or in the highest of their income they consider the relatively small amount they bracket. It is also important to note that the highest are contributing annually for the services they are income bracket tops out at $3,333.00/month; so receiving. is can be described as a balancedit is possible many workers earn far more than budget incidence, where those paying are bene ting this gure, which would increase the overall tax from the goods and services received. revenue.

COLLEGE OF ARCHITECTURE AND PLANNING: CITY AND METROPOLITAN ECONOMICS

COMMUTER TAX

CONCLUSION In closing, it is important to address the issue that Salt Lake City face. e City provides services to non-resident workers; which increases its cost of government. e best solution to this problem is long-term; which entails providing more housing within city limits for workers and their families. is would increase property values, increase sales tax, as well as eliminate the need to raise taxes on ough steps can be taken to current residents or impose a commuter tax on modify zoning ordinances, density non-resident workers. In a sense the City would requirements, and other land use policies to allow for more housing; be converting those non-resident workers in to resident workers. ough steps can be taken to the best short-term solution is modify zoning ordinances, density requirements, adopting a commuter tax. and other land use policies to allow for more housing; the best short-term solution is adopting a commuter tax. is tax would be progressive in nature and would only tax non-resident workers wages between 0.25% and 0.45%. is tax is projected to pay entirely for the extra services the City provides (and possibly generate surplus revenue for the City) without placing a signi cant burden on non-resident workers.
WORKER MONTHLY INCOME $ $ $ 200.00 1,251.00 3,334.00 to $ to $ to $ 1,250.00 3,333.00 5,000.00 $ $ TOTAL WORKFORCE INCOME 7,279,000.00 82,657,323.00 to $ 45,493,750.00 % TAX ON WAGE 0.15% to 0.25% to 0.35% to 0.25% $ 0.35% $ 0.45% $

Nelson, Aurthor C. 2012, Power Point Lectures Presented in CMP 6322 Fall 2012. Downloaded from e University of Utah Canvas Website Fall 2012, CMP 6322. Ulbrich, Holly. 1989, Public Finance: In eory and Practice; Chapters 11, 12. Downloaded from e University of Utah Canvas Website Fall 2012, CMP 6322

APPENDIX e following pages contain larger graphs and charts which illustrate the data explained in this policy brief.

DEDUCTED BIWEEKLY/WORKER 0.30 to 3.15 to 11.55 to $ $ $ 3.10 11.50 22.50 $ $

AMOUNT DEDUCTED ANNUALLY/WORKER 7.20 75.60 to $ 74.40 $ $ to $ 276.00 to $ 540.00

TOTAL ANNUAL TAX REVENUE 262,044.00 4,995,118.80 to $ 2,707,788.00

to $ 220,221,309.00 to $ 400,175,000.00 to $ 665,890,059.00

to $ 18,236,148.00 to $ 43,218,900.00 to $ 64,162,836.00

$ 266,836,690.00 $ 356,773,013.00

$ 277.20

$ 22,185,702.00 $ 27,442,864.80

TOTAL

Table 1: Commuter Tax Policy Showing Worker Monthly Wage, % Tax, Amount Deducted, and Total Revenue for Salt Lake City. (Census 2010 and authors calculations).

SOURCES Census 2010, On e Map Website, U.S. Census. Accessed Nov. 5, 2012 at: http://onthemap.ces. census.gov/ Fisher, Ronald. 1996, State and Local Public Finance; Chapters 3, 5, 6, 16, 17. Downloaded from e University of Utah Canvas Website Fall 2012, CMP 6322. Mayors Recommended Budget: Fiscal Year 20112012. Salt Lake City Corporation; Salt Lake City, Utah. Accessed Nov. 5, 2012 at: www.slcclassic. com/ nance/2012budget/mayorbudget2011.pdf

DISTANCE AND DIRECTION SALT LAKE CITY WORKERS LIVE FROM THEIR JOB: 2010 CENSUS
35,000

30,000

25,000

Less than 10 miles 10 to 24 miles 25 to 50 miles Greater than 50 miles

NUMBER OF JOBS

20,000

15,000

10,000

5,000

NORTH

NORTH EAST

EAST

SOUTH EAST

SOUTH

SOUTH WEST

WEST

NORTH WEST

NUMBER OF RESIDENT AND NON-RESIDENT WORKERS IN SALT LAKE CITY BY COUNT AND PERCENT: 2010 CENSUS
240,000

223,880
220,000 200,000 180,000 160,000 NUMBER OF WORKERS 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0

186,440

182,503

100%

81.5%

41,377

18.5%

Total # of Salt Lake City Residents

Work in Salt Lake City

Work & Live in Salt Lake City

Work In But Do Not Live in Salt Lake City

120,000 110,000 100,000 90,000 Number and Percent Share of Workers 80,000 70,000

RESIDENT AND NON-RESIDENT WORKERS BY AGE IN SALT LAKE CITY: 2010 CENSUS

106,019

16-29 yrs. 60,000 50,000 40,000 58.1% 30-54 yrs. 55+ yrs.

45,021

31,463
30,000 20,000 10,000 0

20,033 13,533
51.6% 34.8%

24.7% 17.2%

22,462 11,361
27.5%

5,288
13.6%

54.3%

7,554
18.3%

LIVE IN BUT DON'T WORK IN SLC

WORK IN BUT DON'T LIVE IN SLC

LIVE AND WORK IN SLC

90,000

EARNINGS OF RESIDENT AND NON-RESIDENT WORKERS BY COUNT AND PERCENTAGE IN SALT LAKE CITY: 2010 CENSUS 80,035

80,000

70,000

66,073

60,000 $1 to $1,250 per month $1,251 to $3,333 per month $3,333 or more per month 40,000

50,000

36,395

43.9%

30,000

32.6%

20,000

16,031 11,931 10,892

41.3% 28.0%

19.9%

15,370 10,660
25.8% 37.1%

15,347

10,000 30.7% 0

37.1%

LIVE IN BUT DON'T WORK IN SLC

WORK IN BUT DON'T LIVE IN SLC

LIVE AND WORK IN SLC

250,000

NUMBER OF JOBS BY CITY IN THE SALT LAKE METROPOLITAN AREA: 2010 CENSUS
223,880

225,000

200,000

175,000

150,000

125,000

100,000

84,929 62,203 41,750 39,619

75,000

50,000

31,876

25,000

24,299

23,113

20,896

19,697

16,623

0 Salt Lake City West Valley City Sandy Murray South Salt West Jordan Lake Millcreek CDP, UT Draper (Partial) Taylorsville Cottonwood Other Places Heights

150,000

WORKERS BY CITY IN THE SALT LAKE METROPOLITAN AREA: 2010 CENSUS

128,258
125,000

100,000

80,231
75,000

52,615
50,000

47,963

43,690 29,594 28,372 21,951 21,537 16,856 16,708

25,000

0 Salt Lake City West Valley West Jordan City Sandy Taylorsville Millcreek CDP, UT Murray South Jordan Riverton Cottonwood Other Places Heights

DIRECTION WORKERS LIVE FROM THEIR JOB IN SALT LAKE CITY : 2010 CENSUS
80,000 75,000 70,000 Number and Percent Share of Salt Lake City Workers 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 5.6% 3.1% 4.1% 3.2% 18.7% 13.6% 16.3% 35.3%

NORTH

NORTH EAST

EAST

SOUTH EAST

SOUTH

SOUTH WEST

WEST

NORTH WEST

WORKER MONTHLY INCOME $ $ $ 200.00 1,251.00 3,334.00 to $ to $ to $ 1,250.00 3,333.00 5,000.00 $ $

TOTAL WORKFORCE INCOME 7,279,000.00 82,657,323.00 to $ 45,493,750.00

% TAX ON WAGE 0.15% to 0.25% to 0.35% to 0.25% $ 0.35% $ 0.45% $

DEDUCTED BIWEEKLY/WORKER 0.30 to 3.15 to 11.55 to $ $ $ 3.10 11.50 22.50 $ $

AMOUNT DEDUCTED ANNUALLY/WORKER 7.20 75.60 to $ 74.40 $ $

TOTAL ANNUAL TAX REVENUE 262,044.00 4,995,118.80 to $ 2,707,788.00

to $ 220,221,309.00 to $ 400,175,000.00 to $ 665,890,059.00

to $ 276.00 to $ 540.00

to $ 18,236,148.00 to $ 43,218,900.00 to $ 64,162,836.00

$ 266,836,690.00 $ 356,773,013.00

$ 277.20

$ 22,185,702.00 $ 27,442,864.80

TOTAL