by Howard Stephenson
by Howard Stephenson
|Taxpayers and proponents of RDA reform were dealt a serious setback in November when Alpine School District, Utah County and Pleasant Grove decided to subsidize a hotel and convention center in Pleasant Grove. Subsidizing economic activity that will occur on its own in Utah is an unjustifiable use of tax incentives.
Taxpayers will be subsidizing the project through a diversion of property taxes ($21 million, more than half of this from Alpine School District), sales taxes ($2.7 million from Pleasant Grove),
Unlike the Salt Palace Convention Center which competes against convention centers in major cities throughout the U.S. and Canada, a convention center and hotel in Pleasant Grove will compete against local hotels and convention centers in Utah. Activity at the hotel and convention center will be driven primarily by local companies hosting conferences and conventions. Pleasant Grove will not be competing against Orlando and San Francisco for destination tourism, despite claims to the contrary.
In the 2006 general session, the Legislature changed Utah’s redevelopment (RDA) law. The change, among other things, required a 6 -2 supermajority vote before school district property taxes could be used without the school district’s approval. This change from a 5 – 3 majority to a 6 – 2 supermajority was intended to prevent school districts– which have two votes of their own plus one from the Utah State Office of Education (USOE) — from getting steamrolled by city and county leaders who wanted to use tax increment financing to subsidize development projects. The 2006 change also created community development agencies (CDA) which totally exempted school districts from participating in subsidies unless they opted in. Despite this change, Alpine School District and USOE volunteered to give millions to private a developer. As it turned out Alpine School Board voted to give up 85% of its share of property taxes on the project for 23 years. Utah County Commissioners gave up 75% for the same time period plus subsidies from the transient room tax.
Strange timing for tax give-away
Utah County and Alpine School District approved the tax give-away just weeks after voters approved major tax increases in Alpine School District and Utah County. Utah County voters, at the request of Utah County commissioners, approved a ¼ cent increase in local sales tax rates. Alpine School District voters, at the request of the district, overwhelmingly approved a $230 million bond and an increase in the voted leeway.
Should ALL new businesses in Utah County get this type of treatment?
Proponents of the subsidy argue that the new hotel, convention center and associated businesses are “new” economic activity so whatever taxes are generated there would be “new” money which could be funneled back to the developer without negatively impacting local taxpayers and local government services. However, this reasoning would justify granting tax incentives to ALL new businesses in Utah, which means that new businesses would not be expected to cover increased county and school district costs associated with growth.
Drinking the Kool-Aid: Alpine School District and Utah County fall for the same old false claims of “economic development”
Proponents of the project talked about increased economic activity due to a new hotel, convention center, and related businesses on land that is currently vacant. However, the vacant land is located in a prime area that will be developed one day on its own, and, as previously stated, the economic activity that will occur at the new hotel and convention center will occur on its own in some fashion somewhere in Utah.
But what about convention centers like the Salt Palace Convention Center?
The Salt Palace Convention Center competes against convention centers throughout North America and brings in business from out of state. A large share of convention activity at the Salt Palace is activity that does not necessarily have to happen in Utah. It can go elsewhere.
In contrast, a majority of visitors at the Pleasant Grove convention center will be customers and sales representatives of companies located in Utah, which means that these visitors would be coming to Utah anyway even if government does not subsidize a convention center. If hotel and convention center space is tight, then the market will respond by building hotels and conference centers on its own.
What really is economic development?
To promote economic development, state and local governments should be focusing on what really matters: increasing productivity of Utah’s businesses and workers and increasing exports of goods and services which brings income and wealth into the economy. Visits by out-of-state tourists also bring money into the Utah economy, but government should not be subsidizing or incentivizing tourist venues in the name of economic development unless such incentives actually increase the number of out-of-state tourists beyond what would occur on its own without the subsidy.
Davis County already made this mistake
Several years ago Davis County gave simlilar subsidies for a convention center – hotel complex which, it was claimed, would not take away business from existing hotels and convention centers. Since then, due to poor performance of the complex, the Davis County facility is aggressively stealing conventions and conferences from other parts of the state and has advertised outside catering which competes head to head against taxpaying catering services.