November 26, 2003
Re: Moratorium on RDAs
Contact: Mike Jerman, Vice President, 972-8814 (office), 808-8814 (cell)
Notice of Press Conference

The Utah Taxpayers Association will be conducting a press conference on Monday, December 1st, 2003 at the Salt Lake County building (north) at 10:00 am. December 1st is the deadline for paying property taxes. Usually, property taxes are due on the last day of November, but this year November 30th falls on a Sunday. The Utah Taxpayers Association annually conducts press conferences on property tax day and income tax day, April 15th.

Utah Taxpayers Association Calls For Moratorium on RDAs

“RDA growth is out of control, and the legislature needs to address this issue, preferably by imposing a moratorium on all new RDAs or by changing the formula for allocating sales tax revenues”, said Mike Jerman, Vice President of the Utah Taxpayers Association. RDAs now consume nearly 5% of all taxes paid on real and personal property, up from 3% in 1993. Since 1993, RDA tax diversions have grown 173% while the remaining property taxes charged on real and personal property have grown by 70%.

Utah’s tax burden as a percent of personal income is the 9th highest in the nation, and RDAs unnecessarily add to this burden by increasing property taxes and then funneling these increases to developers who do not need to be subsidized.

Property tax revenues continue to increase at a healthy rate despite the tough economic times of the past two years. Since 1998, statewide property tax revenues, including automobile fee-in-lieu, have increased at an annualized rate of 5.7%, slightly higher than inflation and population growth combined. However, most taxpayers would be surprised that a portion of their increasing property tax bill is being diverted to subsidize retail activity. “When a property owner looks at his tax bill and sees that the school district is receiving $800, he probably does not realize that the school district is probably getting only $760 of this. Commercial projects developers receive most of the difference”, Jerman said. In 2003, more than $72 million in property tax dollars will be diverted from schools, counties, cities, and special service districts. Developers receive approximately 80% of this amount while the low income housing trust fund receives the rest.

“Retail is driven by location and market demand, and there is no rational economic basis for subsidizing this type of activity” Jerman said. Cities use RDAs to steal retail business from each other in order to increase city sales tax revenue. However, one city’s gain is another city’s loss, and this inappropriate diversion of taxpayer dollars is a zero-sum game when viewed from a statewide perspective.

When a city approves an RDA, taxes for all property owners in the impacted tax entities are increased and are diverted to the subsidized development.

Sen. Greg Bell (R-Farmington) will be sponsoring legislation this year that will change the formula for distribution of sales tax revenues. Currently, 50% of sales tax revenue is allocated based on point of sale and the remainder is based on population. Under Bell’s proposal, this formula would be changed so that 25% of sales tax revenue will be allocated based on point of sale and 75% will be based on population. This will reduce the incentive of cities using tax dollars to bid against each other for retail, and the Taxpayers Association will be lobbying legislators to pass this bill.

In 2003, diversions of tax dollars to RDAs increased 7.3% while tax dollars for school districts increased at a slower but still impressive rate of 6.4%.

“Incentives for businesses to locate or expand in Utah make sense if those businesses offer high wages and have the option of locating elsewhere. However, retail is location-driven and pays low wages. These diversions are inappropriate uses of precious tax dollars, and the legislature must address this problem in the upcoming session” Jerman concluded.