Have TIF's Become the Preferred Financial Tool to Finance Economic Development?
Tax Increment Financing Allows Counties and Cities the Ability to Incentivize Land Development
Tax Increment Financing - has become an important financial tool here in South Dakota, more so in recent years as more cities become ever so burdened by liabilities, debts, and future obligations. The purpose of TIFS is to help spur economic development by encouraging landowners and property holders to invest in their own properties, while allowing them to recoup the cost of building out public roads, utilities, water supply, sewer systems, lighting, and clean up costs up front, while using property taxes to become the lead means to pay for those public amenities.
Tax increment financing district," a contiguous geographic area within a municipality defined and created by resolution of the governing body.
Some believe the Tax Increment Financing is a tax subsidy, however, by law, it is not. When you are asking the landowner (or property holder) to invest in his own property, use his own capital to clean up his land, rebuild on his land, let alone do all the things of which are attributed to public tax dollars, to be used by the public, all of which increase the value of one's property, the amount of the increased property evaluation as compared to the amount of the property value yesterday becomes the 'increment' of which the property holder can submit upon application reimbursement up to 25% of the increment itself.
What can Tax Increment Financing be used for - by law, it can be used for any such economic, community, and land development project that spur economic growth:
Any area, including slum area, in which the structures, buildings, or improvements, by reason of:
- Dilapidation, age, or obsolescence;
- Inadequate provisions for ventilation, light, air, sanitation, or open spaces;
- High density of population and overcrowding;
- The existence of conditions which endanger life or property by fire and other causes; or
- Any combination of such factors; are conducive to ill health, transmission of disease, infant mortality, juvenile delinquency, or crime, and which is detrimental to the public health, safety, morals, or welfare, is a blighted area;
Whereas any area which by reason of
- The presence of a substantial number of substandard, slum, deteriorated, or deteriorating structures;
- Predominance of defective or inadequate street layouts;
- Faulty lot layout in relation to size, adequacy, accessibility, or usefulness;
- Insanitary or unsafe conditions;
- Deterioration of site or other improvements;
- Diversity of ownership, tax, or special assessment delinquency exceeding the fair value of the land;
- Defective or unusual conditions of title;
- The existence of conditions which endanger life or property by fire and other causes; or
- Any combination of such factors; substantially impairs or arrests the sound growth of a municipality, retards the provision of housing accommodations, or constitutes an economic or social liability and is a menace to the public health, safety, morals, or welfare in its present condition and use, is a blighted area.
In order for American Citizens of the State of South Dakota to qualify for a T.I.F - they must own their land, or at minimum own real property within the county itself, let alone the city limits. As per South Dakota codified law, property tax dollars can be used to reimburse citizens of the State in order to spur economic, community, and land development as it relates to cleaning up blights upon the land, let alone clean up environmental disasters, land defects caused by Agricultural related issues, let alone to replace old worn down buildings, by upgrading and building new ones.
What is a Tax Increment - the difference in new value of your land tomorrow, minus the value of your land tomorrow. Property Tax is assessed on the value of your "land" which includes the basic land value assessment, plus the value of any buildings, structures, amenities on top of the land itself. This is the purpose of the County Land Equalization Division - to properly assess the value of your land, of which the property tax shall be assessed. While differences in Zoning conditions such as Agriculture, Commercial, Residential, Government Owned Land can lead to numerous variant of land values, you may also wish to obtain a independent valuation of your land yourself, while challenging the county's assessed value. This is the first step in determining the value of your land upon developing the land itself.
Second, you will want to work with your local planning department whether the County or City depending on which jurisdiction you are hoping to work with - SDCL 11-9-3 sets in motion the steps necessary in creating your Tax Increment District -
"The planning commission shall hold a hearing at which interested parties are afforded a reasonable opportunity to express views on the proposed creation of a district and the district's proposed boundaries. Notice of the hearing shall be published once, not less than ten nor more than thirty days before the date of the hearing in a legal newspaper having a general circulation in the redevelopment area of the municipality. Before publication, a copy of the notice shall be sent by first class mail to the chief executive officer of each local governmental entity having the power to levy taxes on property located within the proposed district and to the school board of any school district that has property located within the proposed district."
Not only do you want to meet with the planning commission itself, you will want to meet with each of the affected property holders in the area whom each own land or property in the general area of which you wish to develop, while putting forth a plan to both the property holders and the commission itself of the proposal and your desire to plan for in the future.
The planning commission shall designate the boundaries of a district that the planning commission recommends be created. The planning commission shall submit the recommendation to the governing body, whereas the governing body shall adopt a resolution that:
- Describes the boundaries, which may be the same as those recommended by the planning commission, of a district with sufficient definiteness to identify with ordinary and reasonable certainty the territory included. The boundaries may not split a whole unit of property that is being used for a single purpose;
- Creates the district on a given date;
- Assigns a name to the district for identification purposes. The first district created in each municipality shall be known as "Tax Increment Financing District Number One, City (or Town, or County) of __________." Each subsequently created district shall be assigned the next consecutive number.
Upon creating the district, and being rewarded with the "TIF" - you myself also present site plans, agree to build out all public roads, water supply and sewer systems, lighting infrastructure, providing a list of all expenses that are deemed to be public expenses of which the increment will be considered, paying for such amenities used by the public. The expenses may not exceed more than 25% of the increment itself, and wereas the County or City must establish a "Trust Fund '' in the name of the district in order to deposit all such tax proceeds, thus holding the funds for a period of up to twenty(20) years, of which the landowner/property holder may at anytime submit warrants to the local authority in order to recover project costs during that period, whereas by state law, sets the rules as what types of expenses can be submitted:
For the purposes of this chapter, the term, project costs, are any expenditures made or estimated to be made, or monetary obligations incurred or estimated to be incurred, by a municipality that are listed in a project plan as grants or costs of public works or improvements within a district, plus any incidental costs diminished by any income, special assessments, or other revenues, other than tax increments, received, or reasonably expected to be received, by the municipality in connection with the implementation of the plan.
Project costs include:
- Capital costs, including the actual costs of the construction of public works or improvements, buildings, structures, and permanent fixtures; the demolition, alteration, remodeling, repair, or reconstruction of existing buildings, structures, and permanent fixtures; the acquisition of equipment; the clearing and grading of land; and the amount of interest payable on tax increment bonds issued pursuant to this chapter until such time as positive tax increments to be received from the district, as estimated by the project plan, are sufficient to pay the principal of and interest on the tax increment bonds when due;
- Financing costs, including all interest paid to holders of evidences of indebtedness issued to pay for project costs, any premium paid over the principal amount thereof because of the redemption of obligations prior to maturity and a reserve for the payment of principal and interest on obligations in an amount determined by the governing body to be reasonably required for the marketability of obligations;
- Real property assembly costs, including the actual cost of the acquisition by a municipality of real or personal property within a district less any proceeds to be received by the municipality from the sale, lease, or other disposition of property pursuant to a project plan;
- Professional service costs, including those costs incurred for architectural, planning, engineering, and legal advice and services;
- Imputed administrative costs, including reasonable charges for the time spent by municipal employees in connection with the implementation of a project plan;
- Relocation costs;
- Organizational costs, including the costs of conducting environmental impact and other studies and the costs of informing the public of the creation of a district and the implementation of project plans; and
- Payments and grants made, at the discretion of the governing body, which are found to be necessary or convenient to the creation of a district, the implementation of project plans, or to stimulate and develop the general economic welfare and prosperity of the state. No payment or grant may be used for any residential structure pursuant to § 11-9-42.
All said and done, Tax Increment Financing has become the means for large municipalities to help develop lands within their limits in order to revitalize its economic footprint within the State itself, to help encourage private investment within the county, let alone the city itself in order to create new jobs, by convincing businesses to come to the city to provide for a better local economy, which will lead to more sustained income for the residents of the city, which then leads to more a housing developments, a better more focused desire to generate further, more local tax dollars in the future of which the city may utilize for future capital ventures.
In reality, Tax Increment Financing has become the means for Local Governments to borrow from the very landowners, property holders within that county, the city itself in order to encourage private investment in private properties, whereas those landowners then agree to provide the capital up front for such public amenities such as roads, utilities, infrastructure, public parking ramps, garages, other costs most commonly paid for with public taxes.
The greatest myth regarding TIFS is that these landowners, property holders, let alone the developers tend to profit from public taxes, but by law, they may only submit very specific expenses that are considered public expenses of the entire community, whereas the property holders must agree to stay within the rules, and guidelines set up originally by the site plans, whereas the city locks them into an agreement to provide for local jobs, housing, and all the amenities necessary to improve the economic footprint of the community itself.
Since the very first T.I.F being rewarded by the City of Sioux Falls in the year 1989, the city itself has organized efforts within the community to help finance and develop more than 20 so called districts. All for a number of different reasons, but in no less than fifty percent of the T.I.F Districts created, affordable housing has been the predominant goal in working together with local landowners, property holders in convincing them to come forward to invest in the lands that lie within the city limits. The very same group of individuals who usually purchase municipal bonds sold by the city @ 2-5% interest, T.I.F's tend to allow the city to do all the same types of projects at 0% interest, while utilizing a small portion of the future property tax dollars to pay for, and reimburse the very people being asked to invest in the community itself.
The City of Sioux Falls has fourteen active T.I.F Districts within its city limits, each specific district which are as follows are listed below, with a description of their stated purpose and costs to the city:
- TIF #7 known as the Minnesota Center was established to remove and replace the former Kindler-Pontiac Building, rebuilding the sidewalks, utility easements, while reconstructing a new commercial building which today has become the First Bank and Trust Building. The project cost of $1,020,000 covered the demolition costs, rebuilding of the sidewalks, improve and widen the alleyway which connects Dakota Ave to 8th Street.
- TIF #10 is known as the CNA Surety District - was established to redevelop the former Schoeman's Lumber yard located on the east bank of the Sioux River between 8th Street and 9th Street. Its goal was to clean up, demolish old buildings while reconstructing new commercial development, updating the landscape along the river greenway, while providing more modern public parking. The total project costs was to be $4,750,000 dollars.
- TIF #11 known as the Bancroft Development in order to reinvest capital dollars in the city core, of which the property to be developed is located between East 8th Street and East 10th Street and between Blauvelt and Mable Avenues - the purpose of this project is to rebuild the central core in order to improve traffic flow, pedestrian walkability, to rebuild old buildings, and to enhance all property within the district itself, the total project cost is to be $475,000 dollars.
- TIF #12 the Uptown Dekalb Development along North Main Avenue, which all capital would be used to demolish and replace old buildings, reconstruct both commercial and residential properties in order to clean up blight, and to increase the visibility of the northern part of Downtown west of the Sioux River, and to preserve historic footprint in northern downtown. While it replaced TIF #8, it restated the focus of redesigning the core area with new vision. Much of the development was to be done along the eastern side of N. Main Avenue between 8th Street going north to 3rd Street. The total project cost was to be $$3,000,000 dollars.
- TIF #13 known to the residents of the city as the Raven Corporate District was created to invest private capital on the Raven's property along the western side of the river between 6th Street and 7th Street. It was part of restoring the historic features of the York Building, while rebuilding the river greenway along the river itself. Total project was to cost $3,500,000 dollars.
- TIF #14 known as the Hilton Hotel development along the Sioux River along 9th Street. The project was to usher in private capital to demolish and replace the former "River Ramp" by cleaning up blight along the river, while continuing to invest in the former Schoeman's Lumber Yard area. What will become the Hilton Hotel, the project costs were to be $4,100,000 dollars.
- TIF #15 to be known as the Sports Complex, was created in 2012 to allow for private investment of capital off of Benson Road and west of the Diversion Channel and the Airport. It would later be pave way to build the Sanford Sports Complex, while taxes would be used to build out the
- existing city owned sport facilities, and to redevelop the area costing roughly $10,200,000 dollars.
- TIF #16 known as the Whittier Heights district, was adopted to repair blighted areas of the territory, to improve walkability, drivability, and to demolish and rebuild outdated and rundown structures in the area. The total project is to cost $2,000,000 when complete.
- TIF #18 will be known as the Phillip Avenue Lofts, situated along northern Phillips Avenue across from Sioux Steel, the project was intended to improve both commercial and residential properties providing both affordable housing and economic development along uptown Sioux Falls. The total project cost to the city is to be $4,000,000 dollars.
- TIF #20 is known as the Washington Square located along S. Main Avenue across from the Washington Pavilion which was used to redevelop the blighted area on the corner of N. Main and 12th Street. Mainly to replace the existing parking lot, was seen as to spur economic development of both commercial and affordable housing, as well as providing newer parking facilities, and amunities across from Washington Pavilion. Total project costs to the city are set to be $7,000,000 million dollars.
- TIF #21 to be known as the Cascade - in continuence of rebuilding and developing northern Phillip Avenue, the project is to again clean up blighted areas along 3rd Street and Phillips Avenue the former industrial use area, to user in new commercial and residential properties, while updating and modernizing Uptown Sioux Falls. The total project is expected to cost the city $5,500,000 dollars.
- TIF #22 known as Foundation Park is located in Western Sioux Falls north of I-29 and west of I-90 to repair blighted land, rebuild, and create an Industrial Park to house the new Amazon building, along with other industrialized outfits. Mainly used to attract new commercial business to the city, the total project cost to the city is to be $94,000,000 dollars.
- TIF 24 to be known as the Sioux Steel District will clean up blighted areas once known as Seney Island, the Sioux Steel Property, while in the name of historic preservation, rebuild upon the land a new modern commercial and residential, and retail center to include a hotel and public parking ramp which will cost the city roughly $21,500,000.
- And lastly, TIF #25 is to be the Cherapa II district which will completely repair and redelope the area between 8th Street and 9th Street along the east bank of the Sioux River, ushering in new retail development, more public parking, and retail space. The total project is expected to cost the city $25,300,000 dollars.
Rather than pledging future sales and property tax dollars to future debts owed by the citizens of the city, T.I.F's have become the means of investing in the community, whereas you place in charge of all future developments in economic, community, and land in the hands of the very American Citizen of this State, of whom have uniquely vested interest in the land itself, and by doing so, you increase the total value of all properties within the city itself, whereas the goal is to attract better jobs, more residents, new improved amenities, let alone new economic tax growth of the city, in order to provide for all the awesome attributes required to build a wealthy city in the future.
But at the same time, if the City hands out to many TIF'S, it can also be seen as overstating the land values, which then leads to increased land assessments, all of which may lead higher 'land values' which may indirectly affect the cost of living as it relates to population of families calling the city home. So there must be some even degree of quality planning as to avoid the ever rising costs that taxation may have on the working family.
The more quickly the City expands its borders, the need to develop land becomes greater and more necessary to procure those investments in the city, as more and more landowners agree to annex their properties into the city limits, they then become vested property holders of the city itself, all of which gives them increased voting power within that city itself. And with that power, the greater need to balance out the over all interests of both the average common resident and the very property holder owns the land itself. The City planning department, let alone the planning commission, let alone the city council must all work together to balance out the need to protect both the landowner and the common resident who choose to calls the city home today.
As for Sioux Falls, fast growing city, well planned for, and well managed, it has a total Net Position of $2,141,249,-39 billion dollars - that figure alone represents the total proceeds left-over where you agree to dissolve a city, paying off all the expenses, liabilities, debts, future obligations to both city employees, the creditors, etc, while collecting all the receivables. The net position represents the proceeds that would paid back to the landowners, property holders who remain behind after the city is dissolved, but that does not happen until a city falls below 250 residents, and as great as 'we' plan for and manage the City of Sioux Falls, we can assure the residents, that day will not be anytime soon. Truth be told, the City of Sioux Falls is a very wealthy city, well managed, and well operated, and well staffed, not only that, it has a residency very concerned for every aspect of the city itself. And T.I.F's have become huge financial asset here in the city, allowing the very 'property holders' the tools necessary to invest in their properties, to increase the asset value of the city itself.
A recent article I read, written by and explained thoroughly by Leighton Walter Kille of the Journalist Resource (informing the news), he writes:
Traditionally, cities have issued two types of bonds: general obligation and revenue bonds,” the author writes. “General obligation bonds are backed by a city’s property tax base and, because a city is legally obliged to repay them, are counted by rating agencies as debt. In contrast, revenue bonds are not backed by a city’s property tax base and therefore do not impact a city’s credit rating.” Because TIF-backed securities are based on future revenue, they receive more favorable ratings from credit agencies and weigh less heavily on cities. This fiscal advantage is just one of the factors that has encouraged their use.
You may review the article by clicking on the following source links at Crony Capitalism and Social Engineering The Case against Tax-Increment Financing by Randal O’Toole and, also at Tax increment financing, economic development and the financialization of urban politics to educate yourself further on effects of Tax Increment Financing.
Love them or hate them, Tax Increment Financing is here to stay, and have become a leading, predominant factor in cities developing themselves into stronger, more economical footprints within their states. TIFS have become the more favorable means of capital investment in public buildings, places, roads, and infrastructure, and there seems to be no end in sight.