For over 50 years, Utah has used Tax Increment Financing (TIF) to fund development projects across the state. TIF projects have included infrastructure construction, the mitigation of blight, and the acquisition of parcels of land, but, at times, have lacked transparency and accountability, and have failed to outline or achieve any clear objectives.
The Office of the Legislative Auditor General presented a report at the September interim hearing of the Legislative Audit Committee that outlined some of the problems withTIF and gave several recommendations on how these might be addressed in statute. The Utah Taxpayers Association has historically opposed TIF since it allows cities and counties to create winners and losers among competing businesses and siphons money from taxing entities that taxpayers have to cover for with higher taxes.Therefore, given the continued use of TIF, we believe that the recommendations of the Office of the Legislative Auditor General ought to be implemented to protect taxpayers from some of these documented problems.
First, they recommend that guidance on managing unexpended TIF funds once a collection period expires be included in statute, as is the case in neighboring states of Colorado and Wyoming. Once a project has been completed or if excess tax revenue is created, these funds should be required to be distributed back to the taxing entities. In the study done as part of LAG’s audit, five of the ten projects studied had significant fund balances – in the case of Sandy City South Towne Ridge, collected tax revenues exceeded the budgeted amount by almost 293%. This puts an unfair burden on taxpayers and could be avoided by a simple statutory change requiring that funds be redistributed back to the taxing entities once the TIF collection period expires.
The second recommendation is that local agencies be legally required to make financial information publicly available for each project area, including receipts, expenditures, account balances and fund transfers. Currently, agencies are required by statute to report general TIF financial information (i.e. a summary of all TIF projects rather than individual projects) to the Go Utah database; however, more than 40% of agencies are non-compliant with this requirement, and no penalty is imposed. Additional accountability would allow for ease of auditing and oversight and reduce the risk of misuse of funds and deceptive practices. Given that taxpayers are paying for these projects, it is important that they have access to accurate and detailed information on how the money is spent.
LAG’s final recommendation is that local governments be required to conduct a thorough “but for” analysis before authorizing the use of TIF. This is the standard in other states and ensures that TIF is used sparingly and deliberately. Utah does require an analysis of the anticipated public benefit of developing the area but does not require agencies to provide evidence that redevelopment would not occur “but for” the incentive of TIF. Taxpayers would benefit from agencies being required to provide substantial evidence of the need for investment since it is likely that not all proposed projects would pass the “but for” test.
The use of Tax Increment Financing to fund development projects is problematic in several ways. However, increased statutorily required transparency in authorizing the use of TIF and accounting for financial transactions could mitigate some of the problems associated with this economic tool. Additionally, an amendment to the Utah Code which requires unexpended TIF funds to be redistributed back to taxing entities could minimize the cost to taxpayers.
Your Utah Taxpayers Association will be working on legislation during the 2023 session to make these needed changes.