"But if it is believed that these elementary schools will be better managed by...any other general authority of the government, than by the parents within each ward [district], it is a belief against all experience." --Thomas Jefferson


Sunday, January 23, 2011

Why Your Property Taxes are Going Up: Vineyard URA

If you live in the Alpine School District, your property taxes are going to go up. Due to the recent passage of the Vineyard Urban Redevelopment Agency (URA) project, the county will automatically adjust the tax rates and increase your property taxes and mine. The question was whether a commercial entity should receive tax breaks for the next 35 years in exchange for developing a blighted property.  This may be a good idea for the people of Vineyard, the developer and, possibly, the state of Utah, but it is a bad idea for the taxpayers of ASD. 

First, let me give you some background.  There are two types of development projects CDA's (Community Development Agencies, like Adobe or Micron) and URA's (like Geneva).  The main difference is a URA must develop a blighted area; whereas, a CDA does not.  A URA allows a development group to not pay their normal tax rate (above a certain threshhold, for a specific time period) and instead use that money to develop their property.  A committee (TEC) of all the taxing entities (City, County, School District, State Office of Education, etc.) is formed, and must agree to the proposal by a 2/3 majority.  In theory, we give tax breaks to a development group to improve an area in the short term, with an increase in taxable value and community and economic improvement as the long-term gain.

The Vineyard URA comprises the former Geneva Steel property.  It includes areas that are contaminated and structures that would be costly to remove.  The developer has said without the URA monies, they would simply have to fence about 700 contaminated acres and leave it alone.  Some local legislators feel that without this money, we would have a big eyesore for decades.  The developers and city of Vineyard agree. But it is a gamble as to whether or not, in 35 years, that property would be developed.  In short, is this a necessary process to clean-up the former Geneva property, and allow everyone to eventually benefit? 

Whenever I am faced with a decision, I try to decide which principles apply.  For me, government has no place picking winners and losers in commercial activities. Some people's politics may allow for government to be involved in commercial development.  Mine, do not.  If we give tax breaks to one group of taxpayers, why not to all the taxpayers? Having said that, we are forced, by law, to be involved.  So, from a pragmatic point of view, I need to find the best benefit I can to both the schools of the district and to you, the taxpayers.

Here's how it works.  Let's assume the property is worth $1 million and ASD gets 1% in property taxes, or $10,000/year.  With the URA, ASD will still get their 1% every year of the URA from the developer. But if in 2 years, the property value increases to $10 million, ASD gets $10,000 but the developer retains $90,000 to reinvest in development of the property, and so on.  At the end of the URA period, say the property is worth $1 Billion, then ASD would get their 1% or $10 Million.  Every year after that, the property is treated the same as any other property for tax purposes. 

The school board felt this URA was a bad idea for the following reasons. (Read the official response here.)

First, the state legislature mandated that instead of using current property value, the URA had to use the property value from 2006.  Why is that important? Because the Geneva property value has gone up. By using the 2006 value, the legislature gave this developer a greater tax break.  The consequence is that everybody else in the Alpine School District must now pay higher taxes to make up the difference. We were told that part of the reason for the 2006 base year was to allow the developer to have 'seed money' for the development.  If the base year were not set by law to 2006, there would be no additional burden on the taxpayers.  It would just be additional revenues that would be forfeited.

Second, 35 years is a long time.  No one can predict what will occur over the next 35 years.  ASD is  growing and has needs right now. Do we honestly think the greatest demand for that property's revenue won't be for 35 years in the future?  Children who are being born now, will have graduated from ASD schools, and be sending their kids to those same schools before the benefit of this project will appear.  It is projected that ASD will lose a total of $200M in revenue over the 35 years.  A Daily Herald article says ASD will receive $16 million/year from the Geneva site after the 35 years.  $200 M lost / $16 M year = 12 years to make up the lost revenue after year 35.

Third, the URA includes residential areas.  These residences will have children who will attend school in ASD.  Even though ASD will not receive any funds for those children, ASD will need to accommodate them in district schools.

Finally, ASD had two independent financial consultants and the Utah Taxpayers Association run the numbers.  All three said the total amount, length of time and rollback of the base year prevented them from recommending that ASD sign on to this project. A representative from the Taxpayers Association said it would cost $150 million to remove the blight. This would allow the developer to correct the problem areas, leaving them with usable property. Remember, the URA was for $300 million. The tax payers are financing $150 million of the actual development instead of simply making the property usable.   (For a good article on reclaiming the blight, but not subsidizing the development, go here.)

ASD's two members on the TEC voted against the URA.  The two reps from Vineyard City, one of two from Utah County (one didn't show), one from the Utah State Board of Education, and the member representing all the other misc taxing agencies voted in favor of the proposal.  As such, ASD's taxpayers are obligated to go along.  (Incidentally, an article in the Daily Herald incorrectly implied ASD was in favor of the proposal.)

If you agree this is a good proposal, then you need to do nothing.  If you disagree, you need to contact your legislators and share this information with your neighbors.

From the legislation, it appears that a resident of Vineyard City can appeal this URA decision.  Do you know anyone who lives in Vineyard City?  I think this decision should be appealed.

Also, there is proposed legislation this session rolling back the URA/CDA approval process from 2/3 majority to a simple majority.  This bill would result in even more unfair situations similar to the Geneva property. ASD would be forced to participate in more URAs at the additional cost burden to the average resident.  I would recommend you contact your legislators to oppose this legislation.  They need to understand the current situation in which you can be taxed without your consent and without an appeals process.

To me this is a case of government redistributing your tax dollars. ASD, or rather you and I and our schools, will be on the hook for many of the 'tax breaks' over this period of time.  My question to you is "Will it be worth it?"

*Sen. Curt Bramble, a proponent of this project, authored legislation that changed how CDA's and URA's operated. For the most part, I agree with the legislation. It changed the approval process from a simple majority to a 2/3 majority and gave the school districts more autonomy and say.  It also greatly limited the definition of a blighted area. In the past, a broken fence or a dead tree limb could be construed as blight. For a URA, all taxing entities must participate. For a CDA, taxing entities must opt in to participate (Rep. John Dougall's legislation); they are excluded by default from CDA projects.  What I disagree with is additional legislation (Bramble) setting the base tax year for this particular project to 2006 (one year after the site was acquired).

8 comments:

  1. Excellent analysis. I agree with your core principle that it is not the business of government to pick winners and losers. That sure clears the air on a lot of issues that can otherwise appear to be foggy.

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  2. Thanks for taking the time to write this up.

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  3. Great analysis. As alluded to by Rod Mann, above, it shouldn't require this kind of analysis to know that this is a bad deal.

    True principles ring true every time, in every circumstance.

    If a bunch of politicians and bureaucrats are deciding that a private development should move forward at the cost of the taxpayers, because they believe it will ultimately benefit those taxpayers, then it's a bad deal, every time.

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  4. Where are we suposed to find extra income to fund a development that no one can describe? This is NOT THE TIME FOR NEW TAX BURDENS! Have you seen the recent price increases for food, gasoline, clothing, etc? Stop the bloodletting!

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  5. Great explanation, it helped me understand the concerns about this proposal. I have a couple of questions after reading this:

    1. Mitigation expense forecasts notoriously underestimate mititgation costs. The very roundness of the 150 million estimate from UTA screams that the numbers were drawn out of thin air. With the way these projects typically go, I wouldn't be surprised if the mitigation expenses reach 300 mill, which would mean the tax relief just covers mitigation.

    2. Could you provide figures for your claim that the property is worth more now than in 2006? My property, and that of most Utahns, is worth less in 2011 than it was in 2006. Using 2006 as a baseline might actually be in ASD's favor.

    3. Why isn't the Geneva entity on the hook for more of the mitigation, since it was their business operations that left the property blighted?

    Thanks,

    Mark

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  6. Thanks for the analysis. I completely agree as well.

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  7. @MarkS: I assume by 'mitigation expense' you mean the reclamation of the land. The use of 'mitigation' by the developers was different that what you mentioned here. I do not know why Geneva was not on the hook for more of the clean-up. I can only speak to the URA proposal.

    As for the difference in property values between now and 2006, your assumption would be correct if no development had taken place. The figures from the latest information supplied by the developer as part of the URA proposal show 2006 Base Value at $120,131,398. The incremental value (as of 2011) is listed at $124,106,974 for a total property value in 2011 of $244,238,372. The incremental value is the total amount of current property value that is now exempt from taxation as part of the URA. I am filing a GRAMA request with the County Assessor to get their exact figures.

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