Feature Story
RDAs, CDAs and EDAs…When Used Properly, Incentives are Essential to Economic Development

"Put a lid on RDAs," the Deseret News editorialized in February 2005. "Retail stores are not economic development."

Not long ago, redevelopment agencies (RDAs) were shrouded in controversy. In some parts of the state, RDAs were focused on attracting retail projects and the sales taxes that came with them -- rather than eliminating blight -- often wielding eminent domain authority in their efforts to make way for strip malls and big box stores, at the expense of property owners.

Incentives offered by the RDAs were in the form of tax increments -- from property taxes collected above the assessed property value at the time of the creation of an RDA project. Such incentives were often the bane of school districts, which receive over 50 percent of their funding from property taxes, and county governments, which also rely heavily on property tax revenue.

EDAs and CDAs
Public protests about abuses spawned a legislated moratorium on the use of RDAs and eminent domain. The Utah State Legislature later reinstated, but indeed put a lid on RDAs and controversial eminent domain tactics. Today RDAs are practically obsolete, says Sandy City Economic Development Director Randy Sant. That's not to say cities and counties can't award tax incentives. For the most part, RDAs have been replaced by economic development areas (EDAs) and community development areas (CDAs) -- more rational approaches to community redevelopment.

"These are often the only tools available to local governments if they wish to create an incentive for a new project, " adds EDCUtah President and CEO Jeff Edwards. "What’s more, the state incentive program now requires that local incentives be offered before the state can act. "

The challenge, says Edwards, is convincing taxing entities, like school boards, that it is in their best interest long-term to support such incentives. For example, it can be argued that the property being considered for a new factory will remain vacant if the incentive is not created. In this way, no new tax revenues will be generated to help anyone. If the project is supported, taxing entities cannot collect the full amount of the new revenue created in the early years, but do reap substantially more tax revenue in the future when the project is built and is paying much higher taxes on the new facility.

Job Creation
Unlike RDAs, Sant says EDAs must have the primary purpose of job creation. EDA projects do not have to conform to blight requirement imposed upon RDAs; however, they do require the formation of an eight-member voting approval board or committee, which must be comprised of representatives from the city, the school board, the county, the state school board, and one person representing all other taxing entities. An EDA incentive project must be approved by six of the eight committee members.

CDAs also do not have to conform to the blight requirement, nor do they require the formation of an eight-member committee like EDAs; however, CDAs must obtain an opt-in from any taxing entities affected by the redevelopment project. Therefore, a taxing entity such as a school district has a choice as to whether it will participate in the CDA project or not. What's more, CDAs allow a city to pass sales tax revenue to the development agency without the completion of a "10-8-2 study", which refers to a redevelopment study requirement of the Utah Code, chapter 10, section 8, paragraph 2. Within a CDA project, the tax increment and period granted are all negotiable.

Examples
Sant says Rio Tinto Stadium was developed as a CDA project by Sandy City. Consequently, the Jordan School District and Salt Lake County were able to opt out rather than participate in any tax incentives provided to the stadium developers. "The taxing districts believed that the stadium should be funded by private money," he adds.

The new airport under construction near St. George is another example of a CDA project. Sant says St. George City created a CDA to redevelop the old airport on the black hill above town, once the new airport opens. The old airport will be revitalized as a mixed use development via tax incentives offered through the CDA. Construction at the old airport is expected to have a significant impact on the city in terms of jobs created and housing.

Whether a county or community creates an RDA, CDA or EDA depends on the project. Sant says CDAs can be created much more quickly; however, EDAs are often more appropriate for industrial parks and other major commercial developments. Riverpark Business Park in South Jordan was developed as an EDA project, as was the Intel Corporations facility in Riverton. Meanwhile, the Reckitt Benckiser project in Tooele County was supplemented by incentives offered through a CDA project there.

Economically Competitive
Edwards says EDAs and CDAs provide opportunities for counties and communities to effectively target development subsidies for businesses that create high-quality jobs. "Furthermore," he adds, "incentives are essential to keep Utah cities and counties economically competitive with other states."

Recruitment incentives, be they offered through EDAs, CDAs or state programs, are often cited as "corporate welfare" and a detriment to the state's education system. In a recent op-ed column published in the Salt Lake Tribune, Salt Lake Chamber of Commerce President and CEO Lane Beattie noted that the state's recent incentive offer to Goldman Sachs to expand its regional presence in Utah will trade $47 million of incentives to generate at least $157 million in new tax revenue over a 20 year period -- "a net gain of $110 million or a remarkable 234 percent return on investment. Of that revenue, over $100 million goes directly to the education fund."

What's more, he noted, it is a risk-free situation for Utah taxpayers: "Goldman Sachs will pay all applicable taxes and receive the incentive based on eligible dollars only after meeting the requirement. The state doesn't give back a dime until it receives a dollar and the dime comes from Goldman Sachs in the first place. Only taxes paid by Goldman Sachs will be used to fund this incentive."

Tax dollars and economic development resources must indeed be administered prudently and well. Nonetheless, Utah is fortunate to have well-crafted incentive programs, both at the community and state level.