by Howard Stephenson
In one of the most egregious cases of Redevelopment Agency (RDA) corporate welfare, Holladay City, Salt Lake County, and Granite School District recently approved an economic development agency (EDA, a type of RDA) that will divert $13.6 million away from these taxing entities and all 40 school districts in the state. The Utah State Office of Education was the only opposition on the tax entity committee.
This diversion of property tax dollars is an example of the ill-advised policy of using property tax increments to subsidize economic activity – construction of an office park in this case – that will occur without incentives. The subsidies for the Olympus Economic Development office park are one of the most egregious abuses of tax subsidies in recent memory.
The Holladay EDA allocates the $13.6 million diversion as follows:
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- $10.3 million to the developer, Mill Rock Park Associates
- $697,860 (5%) to administer the EDA
- $2.7 million for low income housing
Granite School District officials say the District supported the EDA because a portion of its increment will not be taken by the developer. However, 100% of the statewide basic levy for education — $2.386 million over 15 years – will be diverted to the developer. The diversion of the basic levy increment harms all school districts, including Granite. Currently, more than $12 million are diverted every year from the statewide basic levy to subsidize RDAs and EDAs.
Subsidizing office parks is not economic development. The overwhelming majority of office park tenants – lawyers, realtors, accountants, insurance agents, etc. – are businesses that serve local customers and will locate in Utah anyway. Supporters of office park subsidies have justified these subsidies because some of the tenants of the subsidized park are from out of state. However, just like retail, construction of office parks occurs on its own without subsidies or incentives. The real issue is not whether the tenants are from out of state but whether the customer base of the office park tenants is local. If the customer base is local, the businesses will come to Utah without subsidy.
The developer claims that the subsidies are needed in order to compete against an existing office park in Salt Lake County, convincing evidence that this project is not about bringing new jobs to Utah or Salt Lake County. (Don’t shed too many tears for the competing office park as they were subsidized by an EDA also). If the development cannot stand on its own without the subsidy, then the development should not occur.
Surprisingly, the tax entities approved the EDA subsidies even though one of the buildings was 85% complete and the pads for the other buildings were already in place.
Most of the public debate on inappropriate subsidies for economic activity that will occur locally on its own has focused on RDAs. SB184 sponsored by Sen. Curt Bramble did not address the EDA issue. Economically, the difference between RDA and many EDA subsidies is not significant. With EDAs, cities do not have to pretend that blight exists. EDAs cannot be used to subsidize retail, but they are frequently employed to subsidize economic activity that will occur on its own, like office parks.
RDAs Debated at Conference
Recently, Utah Taxpayers Association vice president Mike Jerman and Sandy City economic development director Randy Sant debated the issue of RDAs at the recent Utah Taxes Now Conference.
Jerman showed that RDAs and EDAs divert $98 million from school districts and other local governments annually, most of which is used to subsidize economic activity that will occur in Utah without subsidy or incentives. Jerman noted that the annual growth rate in RDA/EDA diversions is roughly double the rate of property tax growth, indicating that the erosion of the property tax base is getting worse with time. Jerman argued that cities’ main motivation in using RDAs is not to fight blight but rather to take sales tax dollars from other cities. Sant argued that cities rely on sales taxes and retail sales activity is an important part of the sales tax base. Sant also noted that blight definitions were tightened in 1993.