by Howard Stephenson
City Creek Center, the LDS Church’s recently announced premier downtown redevelopment — will not be subsidized by taxpayers. I don’t know of any redevelopment project in Utah which requires more demolition and infrastructure improvements than this massive rebuild of 20 acres including three downtown city blocks. The improvement in the attractiveness of downtown as a place for all people to enjoy our capital city is immesurable. It dwarfs the improvements of Main Street Plaza and is a tremendous gift to all who will visit Salt Lake City.
Almost without exception, whenever significant developments occur in major Utah cities, the developers seek tax subsidies to assist with the projects. Provo’s Towne Center Mall, Ogden’s downtown redevelopment, South Jordan’s 106 South gateway, West Valley’s Valley Fair area redevelopment, and Sandy’s soccer stadium are just a few recent examples.
But amazingly, the single largest redevelopment project in state history will be done without taxpayer subsidies.
What does this mean for the project?
This means there will be no so-called “public-private partnership” or tax increment financing. No free infrastructure or diversion of tourism taxes. There will be no new taxpayer-funded parking facility or logic-barren claims by county and city officials that subsidies for locally-driven retail and entertainment to “grow” the economy.
Let’s hope this marks a turning point in Utah. If a retail project of this magnitude that requires expensive and extensive demolition and site preparation doesn’t need taxpayer subsidies, then other retail projects don’t either.
And yes, this development will be fully taxable like any for-profit properties.
History of RDAs
The acronym RDA stands for Redevelopment Agency and has to do with a city or in some cases a county agency which is empowered to use tax increment financing (TIF). The tax increment between the property taxes collected on the property before redevelopment and the property taxes collected on the higher value after the project is finished is available to the agency instead of the school districts, cities, counties, and special districts which would normally receive the money. The money is used to buy down the costs to the developers.
Utah’s statewide RDA growth rate in 2005 was significantly lower than the annualized RDA growth rate for the previous ten years. This is good news for taxpayers, school districts, and existing businesses that have to compete against companies receiving RDA subsidies. Will this trend of slower RDA growth continue? Maybe. This is not the first time RDA growth has slowed only to be followed by explosive growth in the following year.
In 2005, RDAs diverted $90.7 million from local governments, an increase of 4.25% over 2004,
according to data from the Utah State Office of Education (USOE). Go to
http://www.schools.utah.gov to see the USOE’s detailed file on RDA diversions.
The 4.25% growth rate is much lower than the annualized RDA growth rate of 11.0% for the previous ten years (1994 to 2004) and is slightly lower than the total property tax growth rate of 5.1% (including automobile fee-in-lieu but prior to adjustment for RDAs). Excluding automobile fee-in-lieu, which decreased from 2004 to 2005, property tax growth rate — unadjusted for RDA diversions — was 6.2%.
In response to RDA abuses, the Utah Taxpayers Association pushed and the Legislature passed bills in the 2005 and 2006 general sessions. Sen. Curt Bramble (R-Provo) was the sponsor of these reform bills. In 2005, the Legislature imposed a moratorium on RDAs, which covered most of 2005 and part of 2006. This moratorium partly explains the slow growth in 2005 (RDAs that were approved in the earlier part of 2005 were exempt from the moratorium). In 2006, the Legislature passed a bill that makes RDA approval more difficult.
However, RDA diversions do not necessarily occur in the year that the RDA was authorized since tax increments are usually not generated until the project is completed, which can be a year or more after the RDA was created. In other words, RDA diversions in 2006 may spike because of RDAs approved just prior to the 2005 moratorium and prior to the 2006 reform.
Cities use RDAs to subsidize business activity that in most cases would occur on its own somewhere in Utah without subsidy. Most RDA subsidies are used to incent retailers to locate in a certain city. Retail, particularly retail targeted to local customers, occurs on its own and does not need to be subsidized. Fortunately, the Legislature recognized this and passed reforms. Time will tell how effective these reforms are. Hopefully, we’ll see negative RDA growth rates in the future.