TIF's - Quantity vs. Value Added

I would venture to guess that when city officials talk about TIF’s the general public doesn’t have a clue what “TIF” means. TIF is an acronym for Tax Increment Financing.

Tax Increment Financing is used as an incentive tool for development or redevelopment in areas of the city that have been difficult to development for whatever reason. Listen to the February 2012 Inside Town Hall program and you will hear former Economic Development Manager Erica Beck and Councilor Michelle Erpenbach talk about TIF’s.

The first TIF District approved by the city council was in 1989 and encompassed the entire downtown area. Historically, the city has used tax increment financing for the core of the community. The downtown area which was also defined The Urban Renewal Area was the first TIF because it was an area that had, for years, been the most difficult to re-develop.

The process for approving a TIF district requires the plan to first go through the Planning Commission. If the Planning Commission approves the TIF District boundary and plan it will then go to the City Council for adoption. The City Council approves the boundary of the TIF District and approves the project plan which defines eligible items (public improvements and associated expenses) and the projection on how long each district will last. TIF’s can last up to a maximum of 20 years. Typically, past TIF Districts have lasted 10-12 years. Just because a TIF District is created doesn't mean the plan will be implemented. 3 TIF District plans, #4 , #6 , and #9,  created in 2005, 2006 and 2008 respectively were never brought to fruition.

Property taxes are collected and disbursed to the county, the school district and the city. In a TIF District, the developer pays all property taxes every year and the portion attributable to the development that increased in value prior to the project is set aside in a special fund at the city. This fund may reimburse the developer for specific costs they have incurred in the project as per the plan. It is a reimbursement program where the developer incurs the cost and pays the bill prior to TIF reimbursement.

There have been a total of 15 Districts approved for tax increment financing, 8 of which are currently active. If you visit the city’s website, the Community Development/Economic Development page you will only see 4 active TIF districts listed when there are actually 8 active TIF Districts. One of those four listed on the city's website has been terminated although it still shows up as active on the website. Where are the other 5 districts and why aren’t they on the website?

The four "active" TIF Districts on the city's website are:

• #5 Cherapa created in 2005
• #7 Dunham's Minnesota Centre created in 2007 (First Bank & Trust/VeraSun)
• #8 Uptown at Falls Park (This TIF District was actually terminated when TIF District 12 was created in 2011 so it is no longer active. This TIF was incorporated into TIF District 12)
• #10 CNA Surety/Lumber Exchange created in 2010

The 5 TIF Districts created but not on the city's website are:

• #11 Bancroft Place Partners LLC (housing across from Redlin Elementary School created in 2011)
• #12 8th to North of 4th between Phillips and Main, excluding 1/2 block east of Phillips from the Albert House to just north of 4th. This district was created by terminating TIF District 8 above) created in 2012
• #13 Raven Industries created in 2012
• #14 Hilton Garden Inn/River Ramp Demolition created in 2012
• #15 Sanford Sports Complex area created in 2012

TIF’s are popular because it is a tool for local government to finance public investment in new private investment. It uses increased property taxes that a new development generates to finance certain public costs of the development. It also affords all taxing entities (city, county, school district) to maintain their current tax revenue during the life of the TIF.

At a recent Good Morning Sioux Falls program sponsored by the Chamber of Commerce, City Director Darrin Smith stated that in the past 18 months the city has approved six new Tax Increment Finance Districts which compared to 9 TIF’s approved between 1989 and 2009. He stated that although the city will continue to be selective on the TIF’s approved, the city wants to be aggressive in promoting economic development.

Establishing TIF districts is serious financial business. This financing tool should be used cautiously and conservatively with very specific criteria in place to justify the establishment of a TIF District. The danger with emphasizing quantity is all developers will want a TIF created, i.e. hotels, strip malls, cafes, bars and other commercial activity. The way Director Smith sounds, it’s a competition to see which administration can create the most TIF’s.

As I heard on late night TV one night, it's not the size of the boat but how it rides the waves that is important. In the case of TIF Districts, it's not quantity but whether the investment added dollars to the community that's important. It's not the number of TIF Districts you create that is important, it's the total value added in the development that's important. That is what the economic development czar should be talking about, not how many TIF Districts he has created lately.