The Utah Neighborhood Development Act assists local communities to (1) redevelop or rehabilitate blighted areas and (2) create economic benefits through job creation and capital investment. RDA's are granted authority to issue tax increment bonds and, in limited instances, exercise the power of eminent domain. RDA's can create project areas for purposes of eliminating blight and/or for economic development. The RDA can only exercise the power of eminent domain in those project areas established because of serious blight conditions. Even in those instances, the power of eminent domain expires after five years.

When providing financial assistance in the form of tax increment, a Taxing Agency Committee consisting of representatives from the various taxing entities in the county must approve the use of tax increment. The Committee consists of two members appointed by the City, two members appointed by the County, two members appointed by the School District, a representative approved by the State School Board, and one member appointed by the other taxing entities to serve as a nonvoting, ex-officio member of the committee.

Generally, RDA's must expend tax increment in the project area in which it is generated. However, in the instance of housing, RDA's may expend up to 20% of the tax increment outside of the project area in which it is generated if it is used for Citywide affordable housing needs.

Tax Increment Financing

Tax increment financing is a financial tool used to help bring about redevelopment in situations where redevelopment would not otherwise occur because of financial or other constraints.

Tax increment is the new property tax revenue generated by redevelopment, i.e., the net difference between the taxes generated within an area before redevelopment and after redevelopment. These revenues would not exist if the redevelopment did not occur.

Hypothetical Example: Elected officials have determined it to be in the best interest of the community for a new subdivision to be developed at a former elementary school site. The subdivision would help to revitalize this older part of town, restoring confidence in the future of the area and stimulating private investment. The site is well located with regard to existing streets, and shopping areas. Nevertheless, the expense of razing the old school building increases the total development cost to the point where it is not competitive with similar development on raw suburban land. A way must be found to finance demolition of the school separate and apart from what could be raised through sales of building lots in the subdivision.

Assume that the cost of demolition is $100,000. Also assume that the homes in the subdivision, once built, would generate a total of $16,700 per year in property taxes, on property that currently generates no taxes.

A redevelopment project area consisting of the school site could be formed to obtain tax increment for the project. The tax increment available once the subdivision is built out would be the difference between the before- and the after-redevelopment property taxes: in this case, ($16,700 minus zero =) $16,700.

Knowing that this much tax increment would be available in future years, the redevelopment agency would seek up-front financing to demolish the building. If it could borrow the needed $100,000 at 10 percent interest, using the $16,700 available tax increment to make annual principal and interest payments, it could pay off this loan over ten years. With tax increment financing the redevelopment of the old school site could proceed.