Reports + Archives
UNDERSTANDING THE AUDIT
The RDA is required by Utah Code Section 17C-1-604 to conduct, approve, and publish an independent audit of its financial condition. The primary purpose of this audit is to report the amount of tax increment collected by the RDA for each project area; the amount of tax increment paid to each taxing entity; the outstanding principal amount of bonds or loans; the amount expended for acquisition of property, site improvements, public utilities, or other public improvements; and the RDA’s administrative costs. While the last few pages of the audit provide some information on a project area basis, the majority of the audit combines revenues and expenses from all RDA activities.
While the audit serves these functions well, the final report does not reflect many of the nuances of the RDA’s finances. In the past, this has caused confusion among those reading the audit without a full understanding of other RDA-related obligations and requirements.
In particular, the audit’s reference to “unrestricted cash,” without explanation, can be misleading. The term “unrestricted,” while having a very specific meaning in accounting parlance, carries an unfortunate implication that the funds are completely available for any purpose, which is not the case. There are three primary limitations on the use of “unrestricted cash” by the RDA:
1. PAYMENT OF DEBT SERVICE AND TAX INCREMENT REIMBURSEMENTS THROUGH PREVIOUS AGREEMENTS.
Some of the funds included in the total dollar figure represented as “unrestricted cash” are already committed through various contracts and agreements the RDA has executed. For example, the RDA periodically enters tax-increment reimbursement agreements with private developers, whereby a portion of the increased property taxes associated with a particular development will be refunded to that developer, in exchange for the developer’s provision of some public benefit, such as structured public parking, restoration of an historic building, or creation of public spaces or plazas. The funds for payment of this obligation must be budgeted each year, and, until the payment is made, those funds remain in our accounts as “unrestricted cash.” Technically, the RDA Board could elect to spend those funds for some other purpose, but doing so would entail defaulting on the RDA’s agreement with that developer. Likewise, the RDA sometimes enters Interlocal Agreements with other agencies, such as Salt Lake City, that obligate it to make ongoing payments totaling a certain amount. The funds for those payments remain as “unrestricted cash” until the payment is made.
2. PROJECT AREA RESTRICTIONS
The annual audit treats all of the RDA’s funds as a single account. But state law requires that funds generated in an RDA project area be spent within the boundaries of that area, subject to a few narrow exceptions. Therefore, while the total pooled cash of the RDA is characterized by the audit as “unrestricted,” it is, in fact, available only to be spent in the project area where it was generated. The RDA carefully tracks the funds collected by the project area of origin, and treats each project area as a separate and distinct account, ensuring that funds generated from a particular area are expended only within that area. While the RDA’s budget process described above clearly allocates expenditures by project area, the annual audit does not make this distinction, sometimes creating the inaccurate impression that the full cash balances of the RDA could be spent on a single project in a single project area.
3. ALLOCATIONS OVER TIME — SAVINGS-BASED APPROACH.
Another detail that is not articulated in the annual audit is the RDA’s practice of budgeting funds for large projects over time, and then paying cash for the projects when sufficient funds are accumulated to proceed. This savings-based, or cash-based approach is very conservative, and enables the RDA to tackle large infrastructure projects without having to assume debt. Because tax increment proceeds are often viewed by banks as unpredictable, borrowing against future revenues is often not possible, and, even if possible, loans are not offered on favorable terms. Therefore, the RDA’s established practice and policy is to allocate funds as available a little at a time.
This process of accumulating funds for a project often leads to large cash balances in RDA accounts. A good example is the repair and renovation of the Gallivan Utah Center. Beginning in the early 2000s, the RDA anticipated that in approximately 2008-2010, the RDA would need to undertake significant repairs and renovations to the Gallivan Utah Center. Beginning in 2006, the RDA Board allocated funds each year to be saved for that renovation project, ultimately accumulating the more than $7 million needed to complete the design and construction. Those funds were always characterized by the audit as “unrestricted cash.” Again, the saved amounts could technically be allocated by the Board for some other use, but doing so would reduce or eliminate the funds needed for the renovation and repair project.