For years cities have cajoled state and local school boards into giving property tax subsidies to retail developers by promising that these subsidies would yield higher property tax revenues in the long term. With only a few exceptions (see the August 2010 issue of The Utah Taxpayer for a more thorough explanation of those exceptions), redevelopment agencies (RDAs) merely redistribute where economic activity occurs, rather than increasing economic activity. A new performance report by the State Auditor’s office shows that, even accepting the cities’ (false) claims that RDAs create new economic activity, the cities’ fanciful promises often never come true.
A little background is necessary to understand this counterintuitive result. Utah’s property tax system, known as “Truth in Taxation” or TnT, guarantees each taxing entity the same amount of revenue this year as the entity received last year, plus all the additional revenue that comes from “new growth.” Theoretically, the additional revenue pays for additional services associated with the “new growth.”
The problem lies in the way Utah’s property tax system calculates “new growth.” While the meaning of the term “new growth” sounds relatively obvious, in property tax calculations “new growth” is a term of art. It represents the sum of the change in value from one year to the next of three different types of property: real, personal and centrally assessed.
Real property means land and improvements like buildings that can’t be moved. Personal property includes office supplies, desks, file cabinets, computers, as well as larger items such as a production line. Centrally assessed property includes mines, utilities, airlines and railroads.
Because “new growth” represents the sum of value changes in these three types of property, large decreases in personal and/or centrally assessed property can wipe out increases in the value of real property, such as a new mall or a new subdivision. For example, it’s entirely possible that as an RDA project ends, and the
property’s new higher value comes onto the tax rolls, an unrelated decrease in commodity values associated with a mine or another centrally assessed property could eliminate the increase in value of the now-ended RDA project.
In that case, the school district would have subsidized the development of the RDA project for years, yet collected no additional property taxes from the new, higher valued property associated with that project. And given the structure of Utah’s TnT system, the school district would forever lose the revenue that the former RDA project was supposed to generate.
The auditor’s report found two other significant problems with RDAs and property taxes. First, it noted that the Tax Commission has no way of tracking RDAs’ money flows. With rare exceptions, cities don’t report property tax revenue associated with the RDA and then transfer that revenue to the RDA. Instead, the records suggest the city never received it in the first place. As your Taxpayers Association has said repeatedly, this poor reporting makes it virtually impossible to track RDAs within a given city, and completely impossible to track state-wide. (The State Office of Education maintains the “best” publicly available database of RDAs statewide, though its structure does not lend itself to longitudinal or financial analysis.)
Second, the audit report noted that every year since at least 1987, the Tax Commission has inadvertently subtracted the value of RDA land from the property tax base twice. This double counting of the value of RDA land has lowered the property tax base by approximately $1 billion per year.
Salt Lake City Mayor Ralph Becker has seized on this error to argue that taxing entities have been shortchanged by millions of dollars per year. The error is real, but fixing it does not require taxpayers to shell out more money. Salt Lake City and other taxing entities have managed to provide excellent services with the money they’ve received. Mayor Becker’s desire to collect more taxes rather than lower property tax rates simply shows that no amount of money will ever sate his thirst for more taxpayer dollars.
Your Taxpayers Association is working with members of the Legislature’s Revenue and Taxation committees and a working group of officials from the RDA Association, city representatives and county representatives to resolve all these important issues. ♦