Developers frequently ask school districts to assist in the redevelopment of land. The developer typically asks the school district to provide property tax rebatesto the developer’s project, which decreases the costs of the project, making it more economically feasible (or profitable). The justification given for the tax rebate is that the project will generate more tax revenue in the future for the school district, so the school district should “invest” in the project by giving the developer a tax rebate.
Possibly the largest such tax rebate in the history of Utah ($300 million) has recently been requested from
Alpine School District by Anderson Development through the town of Vineyard for the proposed redevelopment of the old Geneva Steel site. Based on my read of the Utah Taxpayers Association’s review of the request, I believe the Alpine School Board should support approximately half of the proposed $300 million rebate through a redevelopment agency (or “RDA”), but the second half is not justified and should be rejected by the Alpine School Board.
When evaluating a proposed redevelopment project, school boards should ask two questions. First, does the land have negative value? That is, would a developer have to pay someone to transfer ownership in the property? If the answer to that question is, “Yes,” then an RDA may be appropriate.
The second question is this: if the RDA is not approved, will the transactions on the redeveloped site take place in the greater community? If the answer to this question is, “No,” an RDA can also be appropriate. Unlike most RDAs, the Geneva RDA has elements relating to both questions.
The former Geneva site is riddled with useless infrastructure, from deep concrete bunkers to tainted dirt. These relics of the steel plant have imposed negative value on the property. Based on Anderson Development’s projections, about $150 million worth of the improvements contemplated in this RDA are necessary to bring the site to a condition comparable to other greenfield sites. That much of the proposed RDA is appropriate, and should be approved. Without such approval, the land could remain any eyesore for generations to come, and harm the economic development of Utah County.
But Anderson Development is apparently not content with that level of taxpayer investment. They want the Alpine School Board and other taxing entities to grant another $150 million in taxpayer subsidies for their project. This additional investment by the taxpayer is not justified because the transactions contemplated by that investment will occur in the greater community, whether or not this Geneva RDA is approved.
Over the 40-year term of this RDA, Anderson Development hopes to build office parks, retail space and housing. Whether labeled as residential, office space or storefront, all the development contemplated in this portion of the Geneva RDA is retail. Tax subsidies do not stimulate retail economic activity; rather, they rearrange which city reaps the sales taxes associated with the retail activity.
If the Alpine School Board participates in the second $150 million of the Geneva RDA, the district will get nothing in return. Consumers won’t increase their spending because of the new retail location.
Every transaction in the proposed Geneva RDA will occur somewhere in the greater community without that subsidy. The transactions may be in Lehi or Orem, but they will occur. In other words, if the Alpine School Board approves the second $150 million request, they will essentially be shifting millions of dollars from existing cities and businesses in the Alpine School District to the city of Vineyard and Anderson Development. So, while this request clearly makes sense for both Vineyard and Anderson Development, it does not make sense for all the other cities and businesses in the district.
The plight of the Cottonwood Mall illustrates the folly of retail RDAs like the second half of the Geneva RDA. Almost two years ago, the Granite School Board approved an RDA to subsidize the redevelopment of the Cottonwood Mall.
The Cottonwood Mall proposal would have used nearly $100 million over 20 years to facilitate retail, office space and residential units.
Although the subsidies were approved, no redevelopment of the Cottonwood Mall has taken place. The reason for the failure is simple:
tax subsidies do not change the amount of consumer spending. They merely move an economic transaction from one place to another. They spur no new economic activity.
In summary, the Alpine School Board should separate the proposed Geneva RDA into two $150 million pieces. The piece that eliminates the site’s negative value is appropriate, and the Alpine School Board should participate. The second piece, which subsidizes economic activity that would happen without the subsidy, is inappropriate, and the School Board should reject it.
• Joel Wright, of Cedar Hills, is an attorney.