Friday, January 24, 2014

TIF'S and Elected Officials

TIF’s (Tax Increment Financing) are getting some attention recently because Councilor Jamison wants all investors disclosed on future TIF applications because of the recent disclosure that Mayor Huether’s wife was an investor on the Bancroft Place Apartment TIF approved by the City Council in 2011. 

City administrations generally used TIF’s in areas of the city, namely in the downtown area, that was blighted or in need of urban development and where private investment probably won’t happen without government intervention. TIF’s can certainly be a good thing for a community. They can revitalize an area and keep it from deteriorating into decay and bring a whole area down into urban decay.

What is the definition of tax increment financing? Here's a definition:  It is a financing procedure utilized by local governments for redevelopment and improvement projects located in the city's jurisdiction. The cost of improvements is assessed to future tax revenues by the taxing authorities that levies taxes against the property. The local level is responsible for determining how much the increase in property tax due to the improvements will be used to repay the construction costs. 

It would appear the Community Development Director and the City Council has expanded the use of TIF outside the downtown area core area with the approval of the Sanford Sports Complex and the Costco/Apartments TIF.  What are the criteria for the creation of a TIF in the city of Sioux Falls? If you look at Chapter 37 of Sioux Falls City Code of Ordinances, you will not find any criteria for the creation of a TIF. All the ordinance says is that the Community Development Department is responsible for evaluating the application, provide a recommendation to the Planning Commission and City Council for consideration, create a project plan and district boundary maps and present the request at all public hearings. Pretty darn vague and open for interpretation.

Nobody knows who the investors are in a TIF. All the public knows is who the owners are in the TIF application. Who knows if one of the elected officials is part of the deal? Hence, the proposal by City Councilor Greg Jamison to ask the City Council to consider changing the ordinance to require all investors named in the TIF Application.

When asked about it, the Mayor inferred that former Mayors Hanson and Munson probably did the same type of investment thing when they were in office which they both denied publicly in an ARGUS LEADER article.

 In a January 2, 2014 ARGUS LEADER article, Councilors voiced their opinions regarding the news that the Mayor’s wife was an investor in one of the active TIF’s:

Council seems divided on idea
Councilors are mixed on the idea.
Councilor Kermit Staggers sides with Jamison. He said city officials should not be invested in local development projects.
“We have to keep in mind when people are involved in investing in a project that has a TIF, they’re getting a government benefit, and the public should be aware of that,” he said during council discussion this fall.
Councilor Kenny Anderson Jr. also voiced his agreement. “I just feel if you’re asking for public money, we should know who you are,” he said.
Councilor Dean Karsky said that when the council decides whether to approve a TIF, it should be judged on its merits as a worthwhile project regardless of who is invested.
He doesn’t see a problem in public officials being among the investors and said there is enough oversight with eight votes on the council and eight sets of eyes watching the process.
“If people have money to invest and they want to invest in our community, I say more power to them,” Karsky said.
Councilor Jim Entenman agreed that the council is watching the TIF program very closely and making sure it is not abused, but he said it’s not necessary that developers disclose all of their investors.
“I don’t think we’re trying to hide anything,” he said.
She wouldn’t want to discourage investors from signing on to TIF projects, Councilor Michelle Erpenbach. She also said she wouldn’t want to discourage real estate investors from running for public office.
“We always want a wide variety of people,” she said. Councilors Rex Rolfing and Sue Aguilar did not immediately return calls.
The fact is, the mayor and city councilors, per the Conflict of Interest ordinance, specifically Chapter 35 of Sioux Falls City Code of Ordinances says different:


   (a)   No officer or employee of the city shall knowingly have a financial interest clearly separate from that of the general public in any contract, transaction, zoning decision or other matter which is subject to an official act or services from the city. This provision shall not apply if the interested officer or employee discloses by written communication to his or her immediate supervisor, director and the appropriate elected official(s) and they reply with unanimous consent to the financial interest or if the person serves on a lay board and discloses to the city council the full nature and extent of that interest and disqualifies and/or removes himself or herself from consideration or future participation in the matter in any respect.
   (b)   The foregoing conflict of interest prohibition shall not apply if an interested officer or employee does not or will not act in the regular course of his or her duties and responsibilities, directly or indirectly, for the city as to inspection, any related performance issues or any operational oversight or work with the matter in question. Also, this prohibition may not apply if the interested officer or employee is an employee of a business involved in the matter in question and the officer or employee has no ownership interest in the matter and will not receive a fee or compensation related thereto.

Clearly, current TIF ordinance language does not speak to criteria or investors. Ordinance language in Chapter 37 should address criteria.  However, the conflict of interest ordinance (Chapter 35.028)  does speak to acting in an official capacity on matters where the official might have a financial interest. It is mindboggling to read the councilors responses to the disclosure about the mayor’s wife’s involvement in an approved TIF.  Do they not comprehend ethics or conflict of interest when they are elected officials?

Do I think all private investors should be disclosed on a TIF application? Probably not. However, I do think if the Mayor, City Councilors or any member of their immediate family is an investor in a TIF application, it should be clearly identified in the TIF application when it is evaluated by the Director of Community Development and considered by the Planning Commission and approved by the City Council.

Even better, how about elected officials just remember the conflicts of interest ordinance and follow it. Involving themselves in a financial matter where they must act in their official capacity as a Mayor or City Councilor is clearly a conflict of interest. Former Mayors Hanson and Munson knew it was a conflict of interest.

If the mayor and city councilors can't see that, then one has to wonder what they actually think ethics and conflict of interest means as an elected official.  They are different than other private investors because they must act in their official capacity as elected officials to approve the financial deal with the city. If you want to be a deal maker and invest in real estate property and ask the city for a financial subsidy, then don't run for public office. 

Active TIF projects (Source: ARGUS LEADER)
Year approved
Cherapa Place office building
$4.4 million
Jeff Scherschligt
Minnesota Centre office
Jim Dunham
CNA office building
$8.55 million
Al Schoenenman
Bancroft Place apartments
Michael Crane and Cary Shaw
Dekalb Lofts, Tri-state office and Larson Square
$2.86 million
Craig Lloyd, Tom Seuntjens, Norm Drake, Paul Cink
Raven headquarters renovation
$3.5 million
Raven Industries
Hilton Hotel/River Ramp
$4.1 million
Craig Lloyd, Chris Thorkelson, Paul Hegg, Kristin Hegg-Zueger, Steve Westra
Sanford Sports Complex
$10.26 million
Sanford, Inc.
Whittier Heights Development
$2.04 million
Dunham Company
Costco and apartments
$5.9 million
Costco Wholesale Corp. and Dakota Point Apartments LLC (John Archer, agent)
Phillips Avenue Lofts
$4.09 million
Craig Lloyd, Tom Seuntjens, Norm Drake, Paul Cink

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