Tax Increment Financing
During the 2016 Legislative Session, SB 151 was introduced and passed providing a rewrite to Utah’s Community Development Act. SB 151 is the latest in a number of pieces of legislation that have altered Utah’s system of tax increment financing.
Tax increment financing involves taking a cut of taxes generated from the property value of an assigned community development area and reinvesting those revenues into the area in the form of subsidies of infrastructure to incentivize development.
Tax increment is a tool used by both Utah cities and counties and is closely tied with municipal and county redevelopment agencies. The worth of tax increment financing has long been debated with proponents arguing that it provides a valuable tool in rehabilitating blight and encouraging economic development, and critics arguing that its primary use is for municipalities to steal retail from one another resulting in no net economic growth.
This article will not attempt measure the value of tax increment financing as public policy (you’re welcome to call the author directly for my unfettered opinion on the subject). Instead, the article will consider just how big a tool tax increment financing is in Utah.
In 2016, there were communities in 17 of Utah’s 29 counties using tax increment with 61 total municipalities engaging in tax increment financing. In some counties this consisted of a solitary city while in others, the majority of municipalities had some sort of tax increment footprint (in Salt Lake County, for example, all but two cities were collecting tax increment). These numbers are not much different than those over the past five years. As figure 1 shows, there have been 61 cities in Utah using tax increment in three of the past five years.
In addition to the 61 cities using tax increment in 2016, eight counties utilized it in 2016 as well. (This works out to roughly 25 percent of both cities and counties in the state.)
The next question regarding tax increment financing should be just how much property value is included in tax increment. According to the Tax Commission’s Certified Tax Rate database, five percent of Utah’s property value is included in existing community development and renewal agencies—that works out to $11.8 billion! Of that, 96 percent of the value is included within municipal agencies.
Please don’t misunderstand; these numbers don’t suggest that a whole five percent of property taxes in the state are diverted into tax increment financing, rather five percent of property value is included within community development and renewal agencies. The actual amount of property taxes diverted is likely much lower as most CDRA projects divert only a portion of the property taxes collected within the project.
Still, given the fact that 96 percent of five percent of Utah’s property value is contained within municipal community development and renewal agencies’ project areas, it does make one wonder how much additional property taxes are being diverted to Utah’s cities. The most current Annual Statistical Report prepared the Property Tax Division of the Tax Commission figures Utah’s counties account for 19 percent of the property tax burden in the state while Utah’s cities make up 14 percent of that burden. If we included tax increment financing in that calculation, those numbers would definitely be closer.
If you have a subject you’d like UAC to explore in a future Counties by the Numbers article, please email Arie Van De Graaff at firstname.lastname@example.org.