What is an RDA and what do they do?
Jun 24, 2019 11:52AM
By Bill Hardesty
A parcel of land south of the S-line between Main and State streets that is owned by the South Salt Lake RDA. It is projected the property will be sold this coming year. (Bill Hardesty/City Journals)
By Bill Hardesty | [email protected]
When you hear RDA, do you think of a band from the ’80s? Or, the latest supplement to prevent male pattern baldness? RDA or Redevelopment Agency is a separate and independent government body of the city.
Since an RDA is an entity it can:
- Sue or be sued
- Enter into contracts
- Buy, sell, hold and/or receive real or personal property
- Borrow money from other public entities
- Issue a bond to finance a project
- Impose eminent domain under certain conditions (Think urban renewal)
An RDA has its own budget. It holds their own meetings. It can have its own staff.
This is all clear. The confusing part is who are members of the RDA? A city council acts as the board of directors and the mayor (or their appointee) acts as executive director. This means that, for example, at 6 p.m. council members and the mayor are wearing RDA hats and an hour later they are wearing city council and mayor hats. This begs the question, why an extra level of government?
"An RDA is set up to promote economic development," Randy Sant, economic development consultant working with the South Salt Lake City RDA, explained.
State code allows an RDA to work quicker to create economic development. Sant provided the example of selling property. The RDA can sell it regardless of price. A city must prove they are selling at the same purchase value or with an increase value.
Promote Economic Development
Let’s use an example: There is a large parcel of land, such as where WinCo was built between Main and State streets. Acting as the city council/mayor, they decide the land should be used for economic development. In the next RDA meeting, acting as a board of directors and executive director, they create a Community Reinvestment area. This designation is a carrot to developers. The RDA is advertising incentives to the developer.
This can also work if a developer sees a piece of land and wants to develop it. They come to the RDA asking for the land to be designated a Community Reinvestment area. Thereby, getting some incentives to build.
The incentive helps the builder complete financing for the project. Let's say the cost for the project is $2,500,000. The developer through loans and capital can finance $2 million. They are $500,000 short. After a complicated process (described below), the RDA can guarantee the developer the $500,000 once the project is completed. This lowers the risk for the developer.
Keep this notion of incentives as you read the next section.
A community reinvestment area can be used for any development such as housing, retail, and industrial.
Tax Increment Financing
RDA are typically funded through tax increment financing. If there aren’t enough tax increment funds, a city can move some of the general funds of the city to the RDA budget. Currently, this is the practice in South Salt Lake.
Tax increment financing means using the difference between the original tax amount and the increased tax amount because of the development.
Let's use a simple example: The property tax bill for a parcel of land is $100. There are many taxing entities, such as Granite School District or Salt Lake County or South Salt Lake, that get a piece of that $100 pie. The developer comes by and believes if they build on the parcel, the property tax bill will go to $500. Now the taxing entities get a piece of a bigger pie ($500 vs. $100) Sounds good? But, wait. It is a bit more complicated.
Before the developer starts, the RDA speaks with each taxing entity. They tell them about the potential $500 pie, but to pay for their work of helping the developer and administrative costs, they make a deal with the taxing agencies. They say, for example, "If you allow us to take 50 percent of the $400 increase (i.e., $200) for 15 years, the developer will proceed." Still sounds like a good idea because the tax entities will slice up a $300 pie (original $100 plus the $200 increase) for 15 years and a $500 pie starting in year 16.
In turn, the RDA will take, for example, $50 of their $200 to pay for administrative costs. The remaining $150 goes to the developer at the completion of the project. Remember the incentive discussed above? The incentive is paid with the RDA's slice of the bigger $500 pie.
There are safeguards in the process if the value doesn't reach the projected value. One of the biggest safeguards is payments are made after the completion of the project.
South Salt Lake RDA and the budget
As part of the effort to cut the South Salt Lake budget, the RDA board reduced their budget by $400,000.
One plus helping with reduction is the RDA is getting an infusion of $700,000. When WinCo was built, they had a concern about a possible subterranean issue. As a result, the RDA escrowed $700,000 from the sale to pay for any necessary cleanup. Since there was no issue, the money was released from escrow.
"I told [Councilman] Mark [Kindred] I guess this year we will be okay ... but next year, if you are reducing our contribution so that you can pay for an ongoing expense which is salaries. If you do that to me next year, I am going to be in a world of hurt," Sant said.
The feeling of members of the city council is that the money is needed this year and with projected increase in sales taxes next year, they can restore the contribution level. Sant mentioned there are three community reinvestment areas, but he is not able to take any tax increment from them. Next year, the WinCo development will provide some tax increment funds.