Daily Herald regarding the Freedom Plaza Project Area in Downtown Provo

The front-page story in the July 7 Daily Herald regarding the Freedom Plaza Project Area in Downtown Provo has the potential for causing confusion about what the Redevelopment Agency Board ( i.e., the Municipal Council) actually did in its July 6 meeting. The headline ("Provo Approves Tax Breaks for Convention Center Block") misses on two points. I'm worried that some may misinterpret our intentions and would like to provide the following by way of information:

The headline ("Provo Approves Tax Breaks for Convention Center Block") misses on two points. First, Provo did not approve any tax breaks. Provo merely established the Freedom Plaza Community Development Project Area as a designated area of the City where governmental entities which levy property taxes in Provo may, if they so choose, agree to allow their tax increment to be used. (See explanation of tax increment and tax increment financing below.) Each taxing entity will decide entirely for itself whether to allow its increment to be used or not. If a taxing entity decides to allow a portion of its increment to be used for a period of time, this will happen via an interlocal agreement between the taxing entity and the Provo Redevelopment Agency.


Second, Tuesday night's action did not involve the convention center block. The convention center is a County project, which will not pay property tax, but which will stimulate additional economic development in the Downtown and throughout the community. Tuesday's action pertains to the block north of the convention center.


The article goes on to quote redevelopment attorney Randall Feil as saying tax increment financing makes a development safer for the developer. However, the main point of Mr. Feil's comments was that tax increment benefits are performance-based, i.e., taxing entities give up increment only insofar as a development project actually takes place and creates new tax base. Where there is no new development, there is no tax increment paid out, and taxing entities give up nothing. In this way, tax increment financing is a low-risk proposition for taxing entities. Furthermore, tax increment financing is designed to fill project financing gaps and thereby make important projects happen that otherwise could not happen.


It is important to bear in mind several purposes that the 560-stall Freedom Plaza parking structure will accomplish. First, it will provide about 200 stalls of parking allocated to the convention center. The cost of these 200 will be covered essentially by a $2 million cash contribution to the project by the Provo Redevelopment Agency. Second, the structure will provide about 150 stalls needed to bring a new hotel to the downtown. This hotel will create jobs and spin off other economic benefits to the area's people and to the governmental entities which provide education and other public services in the community. Third, because people staying at this new hotel will frequently be attending convention center events, the 150 hotels stalls will benefit the convention center as well as the hotel. Fourth, the other 210-or-so stalls in the parking structure will enable additional new development on this block and surrounding blocks, thereby stimulating still more economic growth. At times, some of these same 210 stalls will also benefit the convention center.


The Provo Redevelopment Agency has established the Freedom Plaza Project Area in the belief that Freedom Plaza offers major opportunities to enhance the Downtown, to stimulate economic development in the community, and to grow the tax base. However, as the Provo City School District, Provo City, Utah County, and the Central Utah Water Conservancy District each independently decide what tax increment, if any, to commit to Freedom Plaza, they will need to consider what benefits the project will bring over the long run, and what level of their participation is necessary in order for the project to occur.


Tax Increment Financing


Tax increment financing is a tool introduced to Utah by the State Legislature about 40 years ago to assist in revitalizing the State's declining inner-city areas. Since then, it has also become a popular means of promoting economic development in communities all across Utah and other states.


Here is how it works: the amount of property tax paid on any given property is based on the value of the property. When value increases, the tax paid to the city, county, school district, etc. increases. Tax increment is the net increase in property tax on a given property which is attributed to new improvements made to the property. (Tax increment does not involve an increase in the property tax rate.) For example, if a shed on parcel of land is torn down and replaced by an office building, the tax increment is the difference in the property tax generated by the office building versus the shed.


With tax increment financing, the government agencies which levy the property tax agree in advance to forego all or part of this tax increment for a time and allow the increment to be used to offset the costs of the development which will generate the tax increment. Central to this is the understanding that the tax increment is needed to induce a valuable project to go forward. Usually, the increment is made available to cover some extraordinary development cost of the project. Such extraordinary costs may include a parking structure in order to avoid using up scarce downtown land for surface parking, or the added expense of buying land and existing buildings in a downtown setting, or maybe special infrastructure costs.


Not every deal warrants the use of tax increment financing. But where the taxing entities determine that it can achieve a valuable long term benefit, tax increment financing can be an important tool for improving the community.