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School Districts Take $469 Million from Students Under Pressure from Cities and Counties That Are Looking to Spur Economic Development

In June’s meeting of the Economic Development and Workforce Services Interim Committee, legislators looked into the relationship between school districts, community reinvestment areas, and tax increment financing. 

A year ago, a report from your Taxpayers Association revealed that school districts paid more than $90 million annually in tax increment financing to community reinvestment areas. Now, a legislative committee is looking at that relationship and whether precious school resources are being used appropriately for these types of deals. 

As a reminder, a community reinvestment area is created by a city or county legislative body to incentivize economic development, whether that be retail, commercial, or residential. CRAs have funded projects from stadium and arena construction and renovations to solar farms to car dealerships.      

Following the creation of the CRA, the legislative body can propose property tax incentives, called tax increment, to lure developers into the area. These incentives come directly from the taxing entities that collect property tax, which include school districts, cities, counties, and special districts. 

However, tax increment is not automatically collected. The taxing entities that collect tax from the CRA property must individually vote to approve the funding of the area, since tax revenue will be earmarked from their respective property tax revenues to the newly created development. This investment may include covering the costs of building infrastructure. 

Because of the complex relationship between the local school districts and the state, some state revenue is used to backfill local education dollars that are used in TIF. 

Over a five-year period, 47% of the total $468,972,612 (inflation-adjusted)  was reimbursed by the state through income taxes, which primarily funds the weighted pupil unit. That means more than $250 million of school district revenue was lost to CRAs. 

Interestingly, many of the school districts that pay millions, even after reimbursement from state money in TIF to CRAs are also some of the lowest funded per-pupil spending in the state. Sen. Dan McCay pointed this out while using the Taxpayers Association’s 2019 School Spending Report. For example, Tooele School District, which is the lowest per-pupil spending in Utah in FY 2018, paid out more than $17 million in TIF, but only $7,689,815 was reimbursed by the state. 

Even more glaring is Murray School District, which spends about $700 less per-pupil than the statewide average, and only received 26.7% of the money it sends to CRAs back. 

Sen. McCay argued that students are directly paying for economic incentives, and there’s a policy call to be made whether that is the correct action to take. 

Legislators questioned why school districts are so eager to give away millions in their funding source to provide for economic development, which they may not receive benefits from for decades. 

Many presenters tried to answer this question, but Terry Shoemaker of the Utah Schools Boards Association claimed that many school boards want to play nice with their local communities, and can sometimes feel pressured into accepting deals that they otherwise would question. Mr. Shoemaker said that other entities ought to involve school districts earlier in the conversation, to ensure that school boards have an opportunity to voice their opinion and make revisions in order to protect school dollars. 

During his presentation, Mr. Shoemaker mentioned that changes in the law have allowed school districts more flexibility by placing a CRA as an interlocal agreement that an entity can sign on to if they choose, rather than a majority vote through the Taxing Entity Committee. 

Another one of the recommendations the School Boards Association made to the committee is to limit the number of years school districts participate in a CRA. Many CRAs are often extended past the agreed upon deadline, which prevents school districts from receiving the benefits from the investment they made through the TIF. 

While no final recommendations were accepted by the committee, the conversation is ongoing.  We will continue to monitor this issue as we head towards the 2020 Session and beyond. 

Revenue and Taxation Interim Committee

The June Revenue & Taxation Committee received an economic update from Juliette Tennert of the Kem C. Gardner Institute. She noted that of the 50 states, Utah has the greatest economic diversity at 96.9 on the Hachman Index of Economic Diversity.  Utah’s industrial structure mirrors the U.S.

Tax Commissioner Rebecca Rockwell reported on sourcing and distribution of local option sales taxes in light of the Wayfair decision which triggered sales tax collections on out-of-state remote sellers.

Tax Commission Chair John Valentine made recommendations on how income of nonresidents should be taxed.

Staff Counsel Andrea Valenti Arthur reported on the income-based property tax circuit breaker eligibility and Christine R. Gilbert presented a draft legislation relating to the relationship of the Tax Commission and the counties in administration of property tax relief. No action was taken for lack of a quorum.



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