By Bill Hardesty | [email protected]

With a growing city, finding funds for infrastructure improvements can be difficult. Dennis Pay, South Salt Lake City engineer; Alex White, SSL Community Development director; and Aaron Wade, an attorney with GilmoreBell, presented information to the SSL City Council about Public Infrastructure Districts, a new zoning option to finance city improvements. 

What is a PID?

Two years ago, the state legislature created PIDs. Senate Bill 228 allows cities and counties to create PIDs to pay for public infrastructure for new development or redevelopment. The PID overlays any current zoning districts and creates a new revenue stream, rather than a reallocation of existing funds by the city.

A PID is an independent political subdivision with the power to bond to raise funds and levy property tax or impose direct assessments to retire the bond. However, only property owners within the PID are affected. 

In most cases, the PID issues limited tax bonds, which have a fixed rate and generally a 30-year term. In turn, a PID often imposes a 12.5 mill rate on property owners. The mill rate is the amount of tax payable per dollar of the assessed property value. One mill is one dollar per $1,000 of assessed value. With a taxable value of $220,000, the annual taxes would be $2,750. 

A critical requirement for a PID is all affected property owners must agree to create it. However, since it is used for development, usually there are only one or two property owners.

A board governs each PID, and any PID debt is not a liability to the city. Initially, the board is comprised of property owners and maybe city council members, but eventually transitions to an elected board of residents within the PID.

The PID board has broad power to finance public infrastructure. However, the city can place limitations when the PID is created. For example, a PID can only fund a specific infrastructure. The city can also set a limit on the amount of property tax collected.

How to pay for a sewer

Pay mentioned the need for sewer improvements due to growth and high density in the downtown area. With an estimated $10 million price tag, the city has a few options to raise funds.

One option is the city raises the $10 million by issuing a general bond that adds to the city's liability, and every taxpayer in the city pays to retire the bond. The city can also create a special assessment area, but again the city is at risk.

"We didn't want the taxpayers of the city to pay for development," White said. 

Another option is to use Tax Increment Financing (TIF). The city council and mayor, in their capacity as a Redevelopment Agency (RDA), often use this option. When a vacant property is developed, it will be assessed at a higher value. Think $100 becoming $10,000. The growth is called the Tax Increment. As an incentive for the developer to develop the property and build needed infrastructure, the RDA will agree with the developer to use TIF. 

This is done, for example, by agreeing with the developer that for the next 10 or 20 years after the construction is finished, they will get 75% of the increment. In other words, all taxing entities split the remaining 25% for the next 10 or 20 years rather than getting the entire amount of property tax for the development. 

For RDAs and cities, the problem with this option is that all taxing entities, such as Salt Lake County, the Salt Lake County Library System and Granite School District, need to agree to the deal. Without 100% buy-in, the deal is off, and the city loses the development and a new sewer.

A PID might be the answer. The entity raises the $10 million for the sewer improvements. The city isn't at risk. Only property owners within the PID pay the extra property taxes, and the city benefits from a new sewer.