by Howard Stephenson
Senator Curtis Bramble (R-Provo) will be sponsoring legislation this year to prohibit city abuses of so-called redevelopment agencies (RDAs). The Utah Taxpayers Association is teaming up with the Utah Association of Counties and the Utah School Boards Association in lobbying aggressively for this bill. All three groups have identified this bill as one of their highest priority bills for the upcoming legislative session.
What are RDAs and why do city fathers claim they benefit Utah taxpayers?
RDAs were originally designed to convert “blighted,” economically depressed neighborhoods typically in inner cities to productive, economically vibrant areas. RDAs are frequently known as tax increment financing (TIF). The tax increment refers to the increased property tax due to the developer’s investment.
For example, if the property tax of a “blighted” parcel is $100,000 prior to development and increases to $2,500,000 after development, the tax increment would be $2,400,000. Normally, local governments such as counties and school districts would receive 100% the property tax increment.
However, under RDAs, most of these “incremental” property tax revenues are diverted back to the developer to cover infrastructure costs, costs usually paid by the developer anyway.
Cities claim that RDAs are needed in order to create jobs and stimulate the economy. Cities also claim that these additional property tax dollars are “incremental” which means that school districts and counties are not really losing money anyway because these projects are generating so-called “new” tax revenues.
Why must the RDA racket be stopped?
The cities’ claims about RDAs are completely without merit when RDAs are used to subsidize retail activity or other types of economic activity that relies on local customers.
Subsidizing retail through RDAs simply shifts jobs and tax revenues from one Utah community to another Utah community. No net jobs are created, and no net tax revenues are generated that would not have otherwise existed without the RDA subsidy. Not one additional pair of shoes or loaf of bread has been sold in Utah due to RDAs.
Cities are using RDAs to steal sales tax revenues from each other and are using school district and county property tax dollars to do this.
Retail will occur without RDA subsidies. Retail activity is driven by location and consumer demand and therefore does not need to be subsidized. People have been selling goods and services to each other for thousands of years, long before RDAs were established.
So-called “incremental” tax revenues from RDA-subsidized retail businesses are not new money that school districts can do without. These so-called “incremental” revenues are either shifted from existing retail businesses or are revenues generated by population growth, revenues that local governments need to address the costs associated with population growth.
RDAs are nearly never used to address “blight.” Thankfully, Utah has very little blight. Unfortunately, blight is a subjective term and attempts to legally define blight are typically meaningless. Cities have designated open fields in Draper and middle class neighborhoods in West Valley City as blight.
Other problems associated with RDAs
One tax entity, cities in this case, should not be able to take tax property tax dollars from another tax entity, typically school districts, without their authorization. School districts generally oppose RDAs but are usually outvoted since school districts have only two of the eight votes on the tax entity committee even though school districts collect 55% of property taxes statewide.
RDAs grant preferential property tax treatment to one competitor compared to others. Many existing retailers are not subsidized by RDAs but have to compete against new retailers who are frequently subsidized by RDAs.
Diversion of property tax dollars to RDAs has increased in recent years at a rate that is nearly double the rate of total property tax revenue growth.
What will Bramble’s bill accomplish?
Bramble’s bill will prohibit cities from using RDAs to subsidize retail and other business activity that is patronized by local customers. The bill would eliminate RDA subsidies for the following types of businesses:
• General retail including big boxes and strip malls
• Office and professional parks
• Auto dealerships
• Movie theatres
• Stadiums (i.e. SLC proposal to use RDA money for soccer stadium)
Due to increased awareness by the public and by legislators concerning RDA abuses, the Utah Taxpayers Association is confident that significant RDA reform will occur this year.