Utah’s local governmental entities gave away more than $213 million in 2020 in tax increment financing (TIF), with nearly 53% of that money being taken from school districts.
Each year, taxing entities across the state give millions in foregone property tax dollars in order to incentivize development in designated areas, as set by CRAs.
What are CRAs?
These areas are outlined and funded through community reinvestment agencies (CRA). These were formerly or otherwise known as redevelopment agencies (RDA). CRAs are created by a municipal legislative body, with the intent of spurring development in a designated project area. Community reinvestment agencies have the ability to collect and reallocate existing property taxes in order to encourage development in these outlined project areas.
Once approved for creation, the CRA and associated project areas are slated for economic development, whether that be retail, commercial, or residential. CRAs have funded projects from stadium and arena construction and renovations to solar farms to car dealerships.
Following the creation of the CRA, the CRA can propose property tax incentives, called tax increment, to lure developers into the area. These CRAs generally are in effect for 15-20 years, but many are extended, particularly in urban areas.
In addition, project areas may now live on in perpetuity, thanks to passage of Senate Bill 65 from the 2021 General Session. More on that a little bit later.
CRAs became common across the U.S. more than half a century ago to eliminate blight and brown fields, which could have never been cleaned up because of low or negative market values. This blight lowered the value of surrounding properties and the general community. The legitimate purpose of CRAs was to use the property taxes generated from the incremental difference in value of the property between its negative value and value after improvements to pay off the costs of the cleanup.
However, the tool for eliminating blight slowly became a tool to grant financial favors for the development of pristine properties which needed no subsidies. At its worst point, cities were using tax increment financing to win the location of large retail establishments such as shopping malls, big box stores, and auto malls. Cities learned that their budgets could be advantaged from the massive increase in sales tax revenues, however TIF for retail developments haven’t created a single new retail job or resulted in increased sales of a single new car or gallon of milk. TIF used for retail simply redistributed where those sales took place.
While cities chase retail for sales tax revenue using TIF, this leaves school districts and students in the classroom totally out of luck. School districts do not receive any of this additional revenue brought in from brick and mortar retail as sales tax revenue is not directed to education.
These incentives come directly from the taxing entities that collect property tax, which include school districts, cities, counties, and special districts. So, essentially, these incentives are funded by taxpayers.
How Do Project Areas Start?
However, tax increment is not automatically collected once a project area is proposed by a city or county. The taxing entities that collect tax from the CRA property must agree to approve the funding of the area, since tax revenue will be earmarked from their respective property tax revenues to the newly created development. These tax entities include cities, counties, school districts, water districts, public safety, and other special service districts.
In the past, a committee made up of these taxing entities would vote, and if a majority of these entities approve, tax increment revenue will be diverted and can be used as investment. This investment may include covering the costs of building infrastructure.
Following the passage of SB 65 (2021), the structure of approval of project areas has changed into more of a contract basis, also known as an interlocal agreement.
Rather than an entity being able to oppose a project area and potentially ending the possibility of other entities providing tax increment financing, a singular entity can choose not to participate and give up their property tax revenue, while allowing other entities to sign on if they choose.
What are the arguments for and against CRAs and Tax Increment Financing?
This begs the question: why are cities, school districts, and other taxing entities so willing to give up their own precious tax dollars to CRAs for 15-30 plus years?
Your Taxpayers Association asks elected officials that are reviewing an option of approving a CRA and tax increment financing whether the land in question would be developed without the need of utilizing precious taxpayer dollars, particularly those from school districts. School districts paid 53% of all tax increment in 2020. In many circumstances, we believe the use of CRAs is unnecessary to stimulate development in an area.
Cities often argue in support that increased property values when (and if) the specific project area expires would lead to increased property tax revenues for those entities after the expiration date. Many school board members say they voted to give up the tax increment because they want to “get along” with the cities in their district boundaries.
As construction or redevelopment of the project area begins, theoretically, property taxes on the land will increase. That money can then be returned to the area for future investment.
What are the Numbers?
What does Utah’s picture look like? In 2020, taxing entities gave up $213,517,674 in property tax revenue from all of the project areas in the state. In 2020, 17 out of 29 counties and 24 out of 41 school districts were participating in some form of tax increment financing.
Here’s a breakdown: $134,818,268 million of that statewide $213 million was paid by entities in Salt Lake County, which also accounts for the largest amount of active project areas. Salt Lake County has 80 project areas within its boundaries, according to the most recent available data. Salt Lake County’s Regional Development Department recently published a tool that will allow citizens to find each CRA within the county on a map, and learn more about it.
Unsurprisingly, the taxing entity in Salt Lake County that paid the most of their property tax revenue in tax increment financing to project areas was the Salt Lake City School District. SLC School District paid an astonishing $21,052,899 in tax increment financing in 2020, which is roughly $1,000 per student.
That’s 9% of all tax increment paid in the entire state, paid by a single entity. SLC School District did not only pay the most in the county, but in the entire state.
Salt Lake County itself paid $20.9 million and Jordan School District is next highest at $19.9 million.
According to calculations done by the Utah Taxpayers Association, in 2020, Utah County has $29,135,558 in tax increment financing payments, with Alpine School District accounting for more than $16 million of that total. That’s the fourth highest in the state.
Vineyard, with a population of 12,570, also has a CRA which spends nearly $3 million. That’s the second highest amount paid in the entire county.
While Salt Lake and Utah counties account for the significant chunk of statewide tax increment financing, other highly populated counties also participate. All entities within Davis County pay $13,178,222; within Weber County pay $9.7 million, and within Cache County pay $2.9 million.
However, it’s not just highly populated, urban counties that participate in CRAs. Many southern Utah counties have CRAs, which range from solar farms to ski resorts to more traditional office and retail projects. Entities within Washington County paid $2.95 million, but entities in Iron County paid much more.
Iron County has many more project areas within its boundaries than its neighbors, including projects for ski resorts. Iron County entities paid $5,490,346 in 2020, with 59% of all that money paid for by Iron County School District ($3,247,668).
Even Rich County, population 2,389, has a CRA which spent $99,193 in 2020. Interestingly, that’s 9% of the total amount of property tax the county is budgeted to receive in 2021.
What is Senate Bill 65, and What Did it Change?
Senate Bill 65 changed how CRA project areas are approved, and allows project areas to essentially live on in perpetuity.
In the past, approved project areas must have an attached expiration date that all participating entities agreed to. These project areas generally ended after 20 – 30 years. Once the expiration date came, the newly created property tax revenue would be collected by the entities into their general funds, and away from the economic development/CRA budgets.
However, under SB 65, end dates may no longer apply, since revenue generated from a specific project area could essentially be transferred into another project area within the CRA’s/city’s boundary.
For example, Salt Lake City could create a new project area around 17th South and State Street for a certain period of time. Once that time is over, instead of the property tax revenue going back to the city, the CRA board (usually the city council) could transfer that money into another area, say 13th South and State Street. In theory, this creates a constantly moving and almost citywide project area that would take TIF money from all participating entities until the entire city was redeveloped according to the CRA board’s plans. This would not give any money back to the participating entities until the CRA board felt it had accomplished every single thing it wanted to with these taxing entities’ virtually blank checks.
In addition, SB 65 also allows CRAs to directly levy a property tax for the purpose of economic development. This is a major and dangerous shift in policy that in the past, would have used existing property tax revenue. While no entity has yet to propose levying a tax for the purpose of economic development, your Taxpayers Association will be watching carefully and opposing any new increases for the purpose of CRA use.
As mentioned above, SB 65 also provides for a new process in the approval of project areas. Project areas are now created via interlocal agreements, rather than a public vote by all participating entities.
Your Property Taxes and CRAs
$213 million is a lot of money that is taken from entities’ general funds for the purpose of economic development. When that money is taken away from schools, public safety, and other general fund purposes, it must be made up someplace.
Sometimes, that’s your wallet. While no city will ever admit to raising taxes because they are giving millions away in tax increment financing, it’s hard to definitively say that missing revenue (from TIF) is not a reason that entities propose an increase to your property taxes.
As an example, the Central Utah Water Conservancy District just approved a tax increase in August. The increase is expected to generate an estimated $4,672,124 over 2020’s adjusted budget revenue. However, in 2020, the Central Utah Water Conservancy District paid out $5,579,086 in tax increment financing to CRAs and the project areas within their boundaries.
Where Does Your Taxpayers Association Stand on CRAs?
Your Taxpayers Association does not immediately oppose all types of CRAs and tax increment financing. The Association stands by CRA usage in the case of blight, or if the land is likely to not be developed on its own and create new economic activity for the state. We call it the “but for” test. Essentially, would the economic activity “but for” the incentive?
However, even in these circumstances, we encourage all elected officials that are considering tax increment financing proposals to negotiate the best options available to protect taxpayers, public safety and other city needs, and school budgets.