Tax Increment Dollars -- Lost or Not?

There's been major debate raging locally which I promised to address. Mayor Godfrey says we must commence construction of the Rec Center project before the end of the year; otherwise millions of tax increment dollars will be lost forever. Opposing forces say "no, these monies won't be lost; they'll just fall back to "the general fund."

Both sides are partly right and partly wrong on this. This post will be my effort to clarify this muddy situation.

The present argumentative impasse is a result of legislation enacted by the 2005 Utah legislature. As you'll recall, the legislature made major but interim modifications to Utah RDA law, including a ban on the use of the power of eminent domain by RDAs.

It was a true battle royal, with Utah cities lobbying for the preservation of their formidable RDA toolbox; while counties, local taxing districts and individual property rights advocates fought to strip as many powers from city entities as possible.

The consequence was disjointed legislation seemingly made in hell. Part of the result was Utah Code Section 7B-4-1003.

The statute is a real doozy, as contorted government code sections go. But a careful reading solves the puzzle about why the Ogden City Administration is pursuing a "recreation center" project, and explains why Mayor Godfrey is mainly right when he contends that millions of dollars of tax increment money from at least ten Ogden projects will be "lost," in the event that the High Adventure Recreation Center project isn't commenced by December 31, 2005.

In deference to local entities (like Ogden) who'd set up RDA projects prior to July 1, 1993, the 2005 Utah legislature set up a sliding scale of tax increment allocation between local RDAs and other taxing entities. Ogden city has at least ten of those. The following section governs the diminishing portion of tax increment that RDAs were generally permitted by the legislature to keep, based on the age of each project:

(i) (A) for the first through the fifth tax years, 100% of tax increment;
(B) for the sixth through the tenth tax years, 80% of tax increment;
(C) for the eleventh through the fifteenth tax years, 75% of tax increment;
(D) for the sixteenth through the twentieth tax years, 70% of tax increment; and
(E) for the twenty-first through the twenty-fifth tax years, 60% of tax increment; or (ii) for an agency that has caused a taxing entity committee to be created under Subsection 17B-4-1002(1), any percentage of tax increment up to 100% and for any length of time that the taxing entity committee approves.

In doing this, however, the legislature left local RDAs an "out" -- a way to keep unto themselves more tax increment money than otherwise allowed by the above code sub-sections. Under provisions of subsections 3(b) et seq. of the statute, local RDA entities threw out a "carrot on a stick," allowing pre-July 1993 RDAs to recapture up to 100% of tax increment dollars, provided they commenced construction of a "recreational facility," prior to December 31, 2005:

b) Notwithstanding the tax increment percentages and time periods in Subsection (2)(a) and Subsection 17B-4-403(1)(m)(i), an agency may be paid additional tax increment for a period ending 32 years after the first tax year after April 1, 1983 for which the agency receives tax increment from the project area if:
(i) the additional tax increment is used to pay some or all of the cost of the land for and installation and construction of a recreational facility, as defined in Section 59-12-702, or a cultural facility, including parking and infrastructure improvements related to the recreational or cultural facility, whether or not the facility is located within a project area;
(ii) construction of the recreational or cultural facility is commenced on or before December 31, 2005; and
(iii) the additional tax increment is pledged on or before July 1, 2005, to pay all or part of the cost of the land for and the installation and construction of the recreational or cultural facility, including parking and infrastructure improvements related to the recreational or cultural facility.

That's why Mayor Godfrey's administration is hammering the Rec Center project. It's an effort to keep RDA tax increment money from 10 pre-July, 1, 1993 RDA projects within the Ogden RDA framework. He's right. If the Rec Center project isn't commenced by the end of the year, all tax increment dollars, including millions of dollars of those that will accrue in future years, will be lost to Ogden city forever.

Now for the "other" side of the argument. The local anti-development Luddites contend that these dollars won't actually be lost; they'll merely be returned to what they vaguely refer to as the "general fund." They're halfway right on that. What will happen, in the event that the Rec Center project isn't commenced by December 31, 2005, is that current Ogden City tax increment dollars, and those to accrue in future years, will fall back to Weber County, in trust, to be disbursed under the standard statutory scheme that would operate in the absense of a local RDA: Schools: 50%; Ogden City 25%; individual county taxing districts: 25%. They're completely wrong, though, when they say these dollars will directly fall back to any government entity's "general fund."

Parenthetically, it must be pointed out that local school districts will not suffer even in the event that the Rec Center project is commenced prior to the end of the year. Schools are explicitly held harmless, notwithstanding commencement of the Rec Center project per subsection 3(b)((c) of the statute, which provides, "(c) Notwithstanding Subsection (3)(b), a school district may not, without its consent, be paid less tax increment because of application of Subsection (3)(b) than it would have been paid without that subsection."

That's it in a nutshell. The Mayor's right when he argues that millions of dollars of accruing tax increment from 10 Ogden projects will be lost in the event of a failure to commence the project prior to January 1, 2006. The Luddites are technically correct when they argue that the dollars "will not be lost," although they're completely off-base when they say the monies will directly fall back to any "general fund."

Questions? I've spent several hours trying to distill this. It wouldn't break my heart to try to further explain it to anybody who needs more details.

Comments? Post them here, if you please.