Hey Friends, We’ve all seen the chatter on the infamous TAJ about the proposed sales tax increase that the Board of Trustees voted to approve earlier this week. The Board’s proposal is set to go to a vote of the people on July 13th; however, the public discourse on this topic is heated and polarizing. The Trustees are holding a public forum on Tuesday, May 11th at 6 pm, and I hope you all will show up to voice your opinion. Here are the thoughts from your humble local blogger.
Let’s start with a point where we can all agree. There is little debate that the City’s crumbling water and wastewater infrastructure needs significant upgrades. We absolutely need these $10 million improvements to help current residents struggling with limited water pressure and sewer backups. Of the 1,194 rooftops in Jones, only 528 have active water meters. The rest of residents must rely on well water and septics, which the homeowner is responsible to maintain. This means only 44.2% of homes are actually using City water. However, the root of this problem lies in the City’s inadequate fee structure. The Jones rates are woefully low compared to the cost for providing this service. The best way to provide stable government is to ensure that fees match with the services that are provided. While I understand that a $44/month increase in a water bill is inconvenient for the 44.2% of Jones homes who use water and wastewater, it is the actual cost of the service provided. They should bear some of the costs. However, as the Trustees pointed out on Tuesday night, this would be irresponsible to rapidly increase rates for those customers. This is why a blended approach to financing is both more equitable and responsible.
Something to consider. An incremental rate increase, in my humble opinion, seems to be the best option for the City and residents. Instead of jumping all in at the $44 needed to cover services, what if the Board considered a $5 monthly fee per year increase for the next five (5) years? By calculating this potential revenue with only the current number of water utility customers (528), this could amount to $4.4 million over the proposed 30-years of project financing. This number is truly understated, because it does not capture the new rooftops that the City will be servicing with utilities. While this estimate is certainly not going to cover the full cost of the $10 million project, it is surely a good start.
There are some other wonderful options for providing additional funding for the town to make these improvements. I recently emailed a former colleague of mine, OSU professor Dr. Brian Whitacre, who oversees the Community and Economic Development program through the OSU Extension. He stated, “I would recommend [Jones] look into USDA Rural Development’s Water Loan & Grant Program. These are available to towns with populations less than 10,000, and can be a combination of loans and grants.” Also in my research, I discovered that the City of Oklahoma City’s Water Utilities Trust uses bond funding for their capital improvements (2020 OKC Supplemental Disclosure – Page 77). Once again, I would recommend a blended model of funding, with rate increases, grant funding, and/or bonds.
If these other sources are considered, it may be possible to fund the rest of the debt service with a smaller sales tax increase instead of the proposed 1%.
OK. Here is where we strike into some of the controversy. I do not believe a sales tax increase is the best solution for for funding this project. A sales tax increase will hurt overall retail sales in our community. In 2013, two OSU professors did a study of this exact scenario, raising the sales tax rate from 4% to 5%. I have listed the full study at the bottom of this article for you to read in its entirety, but here is the synopses. Rural municipalities with greater than a 4% sales tax rate negatively impact their retail sales. Translation: This will take away revenue from our local businesses. Here is an excerpt from the study:
At rates above 4 percent, however, there is substantial loss in sales….They are at the point that a penny increase in sales tax rates from 4 to 5 cents is expected to increase revenues by only 0.74 cents instead of 1 cent.Brorsen & Lansford, 2013, p. 12
Based on the numbers provided in the Brorsen and Lansford study, my husband and I did a quick analysis of the Jones sales tax (Please note that these numbers were sent to Dr. Whitacre for his review, and he agreed that our analysis was correct). I have attached these calculations below for your reading pleasure. Our conclusion is that if Jones adopts a 1% sales tax increase, then local retail businesses (think the Hardware Store, Shuffs, Jorge’s, etc) will have a combined loss in revenue of $1.2 million in just one year! Over the course of the 30-year proposed rate increase, this will cost our local businesses over $35 million. A $10 million infrastructure project should not impact local businesses at that level.
If Jones adopts a 1% sales tax increase, then local retail businesses will have a combined loss in revenue of $1.2 million in just one year!
Over the course of the 30-year proposed rate increase, this will cost our local businesses over $35 million.
It is also worth noting that any increase over 4% has a negative impact on underlying sales, but a 0.50% increase would disrupt local business far less than a 1% increase (see Figure 3 in the Brorsen/Lansford study).
In conclusion, I think we can all agree that these infrastructure improvements need to happen. However, City leaders, businesses, and voters need to count the full cost of raising sales tax and should consider a blended approach to fund these repairs. Stay tuned later this week, as Mayor Ray Poland has promised to share his thoughts with The Jones Journal regarding the proposed sales tax increase.