Tuesday, May 31, 2005

RDA Subcommittee Meets

The state legislature's Tax Reform Task Force subcommittee on RDA's met on May 26 and began their discussions. Lincoln Shurtz with the Utah League of Cities and Towns reported on the meeting, noting that much of the session was spent on the local option sales tax distribution and the associated tax incentive structure.

Lincoln wrote, "The question one must ask is why does the legislature care about this issue? Well, the legislative perception is that cities and towns have a very different vision of economic development than the state does. The perception is that cities exclusively focus on retail business to increase the 'point of sale' portion of the sales tax at the local level as economic development, while the state is focusing on high-paying job creation as economic development."

While there is some truth to this view of things, I think it is somewhat inaccurate because there are a number of economic development professionals working for local government who know very well the distinction between these types. The problem comes about because the state legislature, over the years, has created an environment in which cities have had to rely more and more on sales tax to fund the service demands. The cities have thus taken one of the few incentive tools available to local government to do just that.

But good economic development professionals recognize that this is not true "economic development." The state has just not given local governments much in the way of incentives or tools to encourage basic sector business and job growth.

This is why I say we must take a good, hard look at what it is we are trying to accomplish and craft some tools to help it happen. I think there are those in the legislature who understand this, but there is such a 'witch hunt' attitude among some legislators with regard to RDAs, it will be hard to really accomplish something worthwhile.

Lincoln goes on, "(Legislators) assume that a change in the current sales tax incentive structure may align local governments with the state when it comes to economic development.

"The recent RDA legislation also highlighted the issue of sales tax distribution as legislators drew major distinctions between tax increment financing for 'economic development projects' and 'retail-centric' projects. Many feel that changes to the distribution formula would solve many of the issues that were highlighted in the RDA debate -- mainly the issue of whether tax incentives should be given to retail projects that offer no net economic gain to the state."

Such an approach will only work if local governments are given other ways to finance local services besides the heavy reliance on sales tax. To simply change the distribution forumla and think this will solve things is like thinking that by taking an anti-histimine, you've cured your cold. The real problem is still there, you've only dealt with one of the symptoms.

On a related note, the Utah Intergovernmental Roundtable Annual Summit this year on Aug. 5 will have as its topic, "RDAs in Utah: Is Consensus Possible?" For more information, see www.cppa.utah.edu/uir/

Stay tuned for more on this topic!


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