by Howard Stephenson
Redevelopment Agencies, otherwise known as RDAs, are expected to siphon off $48.8 million from school districts in FY2005, according to an analysis by the Utah Taxpayers Association. Overall, RDAs will receive $98.2 million that would have otherwise gone to counties, cities, and special service districts as well as school districts. Most of this amount is being used to subsidize retail in nonblighted areas under the guise of “economic development.”
RDAs utilize a concept known as tax increment financing (TIF). The tax increment refers to the increased property tax due to improvements to the property. Normally, local governments like 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.
The share of statewide RDA diversions that come from school districts is 49.7%, slightly lower than the 55% of statewide property taxes received by school districts. The disparity is due to a combination of factors. First, a disproportionately large share of all RDA diversions – 40% occurs in Salt Lake City. Second, Salt Lake City School District accounts for only 40% of property taxes paid in Salt Lake City. The school district’s lower than average share is because Salt Lake City’s rate and Salt Lake County’s rate are higher than the rates for cities and counties statewide.
Since the statewide ratio of WPUs per student is roughly 1.3 to 1, the reduction of $76.97 per WPU translates into roughly $100 per student per year. Unfortunately, the RDA problem is getting worse. In the past ten years, RDA diversions have grown at 12.3%, more than double the rate (5.5%) of total statewide property tax collections. (Note: property tax revenue growth has been reduced by legislative decisions to reduce property taxes: two reductions in the statewide basic levy and a reduction in county property tax revenues in exchange for imposing a 0.25% county option sales tax increase. Without these legislative actions, which were unrelated to Truth-in-Taxation, annualized property tax growth rate would be close to 7.7%).
RDA Diversions Impact Minimum School Program Funding
More than $12.4 million in property taxes will be diverted to RDAs from the Minimum School Program (MSP) in FY2005. The MSP is the primary funding mechanism for public education in Utah, accounting for 68% of all K-12 operation and capital spending in Utah.
Had school districts actually received the $12.4 million in property taxes, spending per WPU would have been $19.30 higher, or roughly $25 per student.
A fundamental component of the MSP is the statewide basic levy for education. The levy is applied at the same rate statewide and is used to equalize funding between school districts. The more funding a local school district receives from the application of the statewide basic levy to the local school district’s property tax base, the less state income tax dollars that school district receives.
An RDA in one school district impacts all school districts since that school district ends up receiving more state income tax dollars than it otherwise would have, had there been no RDA diversion of basic levy property tax revenues. RDAs occur in twenty-seven of Utah’s forty school districts. Naturally, the thirteen school districts without RDAs as well as charter schools are the biggest losers, but most of the remaining twenty-seven school districts are net losers to the handful of districts where RDA diversions are exceptionally high. Districts with negative adjusted diversions either have no RDAs or have disproportionately less RDA diversions than other districts. RDA abuses to the MSP are most prevalent in Salt Lake, Park City, Ogden, Logan, and Rich districts.
There is legislation being considered this year at the Utah Legislature to correct the abuses of RDAs. HB 307 by Representative John Dougal would allow school districts to opt out of RDAs. SB 184 would prohibit RDAs from being used for retail activities and soccer stadiums.