Flushing resident taxpayers down the drain

     
     Assembly Bill 291 enables the Clark County Commission to enact a quarter-cent sales tax increase to help pay for the second pipeline from Lake Mead and other water facilities. The bill was amended and passed out of the Infrastructure Committee and will be voted upon soon by the full Assembly.
      This tax, however, is not needed to complete the water project. The Southern Nevada Water Authority has said time and again that it will complete the project with or without the tax increase.
      The sales tax increase is presented as a good alternative for residents, because it would reduce increases otherwise needed in water rates or surcharges. But, unfortunately, the cost to residents of the higher sales tax and water rates combined is higher than the water rates would be without "help" from the tax. This is because there is a cost shift that subsidizes the proliferation of new housing for people moving into the valley. I'd like to explain why.
      The water authority says, "The funding plan that is presently in place recognizes that everyone should pay for reliability and water quality by having 21 percent of the project costs paid for through regional water rates (charged on top of local bills), and that growth should pay for growth by connection charges paying 79 percent of the total cost."
      This funding formula by the water authority obligates existing residents in the valley to finance 21 percent of the water project through increased water rates (called surcharges). Newcomers moving into the valley will pay for 79 percent of the project through connection fees imposed on all new housing.
      If AB291 becomes law and the county commissioners impose the quarter-cent sales tax -- all of the above changes. The water authority will then mandate that connection fees pay for only 52 percent of the project. The water surcharge will drop to 13 percent of the project and the new sales tax will pay for 30 percent. Also added to the new formula is a 5 percent "reliability surcharge," a small part of which will be paid by residents.
      Because 29 percent of sales taxes are paid by tourists and 71 percent are paid by residents, residents will now pay 71 percent of the 30 percent slice of the pie. Without the sales tax, they were only paying 21 percent of this slice.
      Confusing? I hope not. One can make more sense of this discussion by drawing a pie which will represent the total project cost, and then one can represent the above percentages as slices in the pie. The bottom line is that 71 percent of the 30 percent slice turns out to be 21.3 percent. So, residents must now pay 21.3 percent (as sales tax) plus 13 percent (as higher water rates) for a total of 34.3 percent of the project -- where they only paid 21 percent in the original formula that didn't include the sales tax. Add in the reliability surcharge, and we're over 35 percent.
      Since the taxpaying resident is getting flushed down the drain by the sales tax, who is benefitting? It's quite obvious. The big break is in the reduction of the connection fees for new residential housing, which now account for 52 percent of the cost of the project. Before the quarter-cent-sales-tax was enacted, they accounted for 79 percent.
      If we believe the previously mentioned quotation from the Southern Nevada Water Authority -- that " ... growth should pay for growth by connection fees paying 79 percent of the total cost" -- then under this new formula, utilizing a higher sales tax, current residents will essentially be subsidizing new housing for new people moving into the valley.
      Incidentally, one of the first rebuttals you will hear of my argument will advise you that 30 percent (or so) of new homes are purchased by current residents selling their older homes and upgrading to new homes, and the high connection fees will hurt these current residents. Not so. If new homes escalate $10,000 in cost, old homes will follow suit in a windfall for all current home owners -- this is basic economics. So with the sale of the old home and purchase of a new home, the connection fee will be a "wash."
      Yes, high connection fees may make it more difficult for first-time buyers, but if parents are not taxed to death, they just may be able to help their kids a little bit. I personally don't think it will be more difficult for first-time buyers, because my calculations indicate that connection fees will slowly increase and slightly exceed $10,000 for one year only (2027), and then the connection fee will diminish -- and I believe my calculations are too high. Now if the $10,000 connection fee in the year 2027 is corrected for an inflation rate of 3.5 percent per year, then the connection fee will only be about $3,500 in a 1997 dollars. I believe that is pretty close to today's connection fee.
      If you feel that AB291 is a bill you don't like, your state legislators would like to know your concerns. Telephone the Legislature at 384-2225 or 1-800-367-5967 and tell the person answering the phone that you are against AB291, and you want your message delivered to all legislators.