Foray into TIF brings questions, critics
Two projects using the new economic incentive could give a glimpse at the future of development in Columbia.
By Sara Semelka Thursday, July 16, 2009
More than a year ago, the Columbia City Council approved a measure that allows developers to capture tax revenue generated by their projects to help offset costs. This concept of public financing for private developments — known as tax increment financing, or TIF — mostly flew under the radar until this spring, when two projects seeking to use TIF worked their way through the application process.
Now taxing entities such as Columbia Public Schools and businesses and property owners in the same downtown market as the potential TIF projects are looking into the potential consequences and voicing concerns.
On Monday, the Columbia City Council is scheduled to vote on the city’s first TIF projects. If the council approves a project for TIF assistance, the taxable property for the project area is frozen. Tax revenues over and above the frozen value — the increment between the frozen and increased value — are put into a separate fund to be used by the developer instead of being paid out to the taxing entities.
The developer can capture the entire revenue stream from the increased property value and half of the sales tax revenue during the length of the TIF — up to 23 years. Developers use the promise of this revenue stream to secure financing from lenders for their projects.
Municipalities nationwide use TIF as a way to spur development in areas that need an economic boost. Cities including Chicago, St. Louis and Kansas City have used TIF for years to encourage developers to create projects that raise the profile of an area and encourage more successful developments to take root.
Some TIF projects during the past two decades have sparked controversy with taxpayers. All developers of TIF projects are required to prove they could not afford to move forward without TIF assistance. Analysts and taxpayers have suggested, however, that some TIF-funded projects might have been possible without taxpayer help.
Entities that receive revenue from property taxes, such as schools and libraries, say withholding a portion of taxes to go to developers leaves them in a bad financial situation and necessitates higher tax rates for the community to keep schools funded.
Proponents of TIF assistance say the incentive encourages developers to take on projects in areas that would not attract development otherwise. Although the developers take a portion of public money, the idea, proponents say, is that surrounding properties, and thus the tax base, will also increase in value because of improvements. Then when the TIF period ends, the new developments, with a much higher value, will return in full to the tax base. Critics say because taxing entities are missing out on the potential revenue of the new projects for the length of the TIF, the entities might consider raising rates to balance their budgets. Opponents from the business community say TIF money gives developers an advantage that’s been unavailable to developers who had to come up with their own financing. They also claim that TIF encourages anti-competitive practices because developers get a “discount” by using public tax dollars and can afford to charge lower rents.
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