Education Empowerment

Teacher Salaries, Tax Breaks, and TIF

Amidst all of the discussion about the Utah Fits All Scholarship, there’s one question worth inserting into the conversation. If local school districts already have the authority to give teachers a raise, why haven’t they already done so?

The short answer is that school districts struggle to allocate funds to increase teachers’ salaries. And why do they struggle? The answer partially lies in properties scattered throughout school district boundaries.

To illustrate, imagine a vacant property on the edge of your town in an industrial park. It contains a dilapidated metal structure surrounded by a damaged parking lot. The property doesn’t provide jobs and the property tax revenue the city and school district receive is a paltry $400 per year. Meanwhile, the city needs to upgrade its sewage treatment plant, the school district is asking for more funding, and the fire department needs new trucks.

Now imagine a large company has expressed interest in acquiring the property to build its headquarters. It recognizes your city would be a great place for its employees to live. It will provide jobs, and — because the headquarters will be valued at millions — local governments stand to receive hundreds of thousands of dollars in property tax revenue. All the company is asking for is permission to redirect almost all of the money it would pay in property taxes for the first ten years to a special fund that can be used for its own purposes. After that ten-year period, the company agrees to pay the full property tax amount. In short, the offer will bring in much, much more than the $400 per year the city and school district are currently receiving.

Should the city and school district take the deal? Seems like a clear win, right?

It wouldn’t be a win, if any of the following would happen:

  1. The company will build in your city even without the tax deal.
  2. Another business, who also recognizes your city’s strengths, would similarly improve the property without the tax deal.

If either of these would happen, then the tax deal would (in effect) take funds needed for sewage treatment, fire trucks, and teachers’ salaries and redirect them to pay for parking garages, landscaping, and developer incentives.

If this scenario seems contrived, it’s not, and high-stakes scenarios like this are being debated by city councils, school boards, and governments throughout Utah. These tax breaks are enabled by Utah State Code Title 17C, administered by redevelopment agencies (themselves creations of cities and counties), and made possible through a tool called Tax Increment Financing (TIF).

If Tax Increment Financing was used to rehabilitate areas blighted from environmental disaster or were limited to reimbursing the cost of demolishing old buildings, it could be tolerated — or even supported. However, considering that Tax Increment Financing is routinely authorized for a variety of projects, it’s no surprise that Utah’s Office of the Legislator Auditor General concluded an audit and made recommendations for TIF reform. Local governments would need to:

  1. Perform a robust study to determine if TIF is necessary to justify the development.
  2. Make TIF fund balances and expenditures publicly available.
  3. Provide guidance on what to do with unused funds.

These recommendations are welcome, and it is encouraging that state lawmakers on the relevant committees would like to codify these recommendations.

However, it’s worth reflecting on why TIF is so commonplace. For starters, many businesses are well aware of TIF, and it’s corporate policy to request it. The pressure is also high on local officials to accept the proposals. After all, who would want to be responsible for not welcoming a successful business into their community? Combine these facts, and there is massive incentive for these deals to continue.

Hopefully, the reforms being considered will become law and ensure that TIF is used judiciously. If it’s found that TIF is continually used for projects that would have happened anyway, there’s a case we should join Arizona and stop their use altogether. Lastly, if the issue is that our taxes are too high to attract businesses, we should lower taxes across the board and not just for companies savvy enough to negotiate tax breaks such as TIF.