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Good news: RDA growth rate slows to 4.25% in 2005

RDA growth rate in 2005 was significantly lower than the annualized RDA growth rate for the previous ten years. This is good news for taxpayers, school districts, and existing businesses that have to compete against companies receiving RDA subsidies. Will this trend of slower RDA growth continue? Maybe. This is not the first time RDA growth has slowed only to be followed by explosive growth in the following year.

In 2005, RDAs diverted $90.7 million from local governments, an increase of 4.25% over 2004, according to data from the Utah State Office of Education (USOE). Click here to see the USOE's detailed file on RDA diversions.

The 4.25% growth rate is much lower than the annualized RDA growth rate of 11.0% for the previous ten years (1994 to 2004) and is slightly lower than the total property tax growth rate of 5.1% (including automobile fee-in-lieu but prior to adjustment for RDAs). Excluding automobile fee-in-lieu, which decreased from 2004 to 2005, property tax growth rate -- unadjusted for RDA diversions -- was 6.2%.

In response to RDA abuses, the Legislature passed bills in the 2005 and 2006 general sessions. Sen. Curt Bramble (R-Provo) was the sponsor of these reform bills. In 2005, the Legislature imposed a moratorium on RDAs, which covered most of 2005 and part of 2006. This moratorium partly explains the slow growth in 2005 (RDAs that were approved in the earlier part of 2005 were exempt from the moratorium). In 2006, the Legislature passed a bill that makes RDA approval more difficult.

However, RDA diversions do not necessarily occur in the year that the RDA was authorized since tax increments are usually not generated until the project is completed, which can be a year or more after the RDA was created. In other words, RDA diversions in 2006 may spike because of RDAs approved just prior to the 2005 moratorium and prior to the 2006 reform.

Cities use RDAs to subsidize business activity that in most cases would occur on its own somewhere in Utah without subsidy. Most RDA subsidies are used to incentivize retailers to locate in a certain city. Retail, particularly retail targeted to local customers, occurs on its own and does not need to be subsidized. Fortunately, the Legislature recognized this and passed reforms. Time will tell how effective these reforms are. Hopefully, we'll see negative RDA growth rates in the future.

Hey, you posted this on a Sunday. Don't you guys believe in keeping the sabbath day holy? You guys must be Libertarian.

As long as cities derive a significant portion of their revenues from sales taxes, and Utah continues to allocate sales taxes based on point-of-sale, RDAs will continue to be used and potentially abused as cities fight for the revenues these new developments will generate. RDAs are just symptoms of the counter-incentives found in the tax structure.

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